BP has indicated that it is looking to sell its US wind
farms, at a possible loss of over $2 billion.
With this move, BP will once again be focused almost exclusively on
petroleum ending the ground-breaking diversification into alternative energy under
the leadership of Lord (John) Browne. The
vision of forming a company that provided the energy its customers needed to
power their lives, but from a mix of increasingly low carbon sources
encapsulated in the "Beyond Petroleum" slogan has long disappeared. Of course, the strapline hadn't really been
used for several years, and was being downplayed even before Lord Browne left
the company in 2007.
Just over a decade ago, around the time of the BP-Amoco
merger, BP looked as if it might become the first of the oil majors to
diversify away from fossil fuels, and address the need to create a lower carbon
economy. Throughout the 1990s, BP was one
of the leaders in solar cells and Amoco – through its Solarex subsidiary – was a
large player in the growing US market.
BP exemplified this by adding solar panels to the canopies of many of
its Connect filling stations and prominently displaying the amount of
carbon-free energy generated. After the
merger with Amoco, in 2000 the company also adopted a new "helios"
logo to replace the shield that had been used for over 60 years: this could be
seen as signifying solar energy, or crops such as sunflowers.
So what went wrong and why were the wind farms such a poor
investment? BP's investment in US wind
has suffered from two factors outside its control and largely unpredictable. The
first is that despite high oil prices, other energy prices have not risen as
much as anticipated, most recently due to the discovery of how to extract vast
quantities of cheap gas from US shale formations. This has had a knock-on effect on electricity
prices, making renewable energy even less competitive on purely financial
grounds. And though Lord Browne knew
that climate change should have led to an effective carbon tax, this has never
been introduced into the US, keeping conventional electricity more
competitive. Despite the low prices for renewably
generated energy, the cost of new wind turbines has fallen faster than anyone
foresaw due to over-capacity among Chinese manufacturers. This has had a knock-on effect on asset valuations
for existing wind farms; it is often cheaper to build a new one than it would
be to take on an old one at its depreciated value. (A similar Chinese effect has affected solar,
contributing to BP's exit from that renewable after more than 40 years at the end
of 2011.)
BP has a third factor, unique to the company – a need to
raise capital to fund the clean up and fines after the Macondo disaster. Inevitably this has made it focus on non-core
assets that can be sold – and wind farms, often held in joint ventures – were an
obvious candidate.
Despite this, BP has not totally abandoned alternative
energy. For the time being it remains a
major player in liquid biofuels, especially in the USA where it is still named
by Biofuels Digest (alongside Shell, but no other petroleum companies) as one
of the 10 leaders in the field. Of
course this is an area much closer to BP's traditional road fuels business, and
one where its lower cost of capital than smaller start-ups can still give it a
competitive advantage.
But I for one will be sad to see the end of the idea of BP
as a truly integrated energy company, investing in new cleaner forms of energy,
with the hope that it might in our lifetimes achieve what we all find so hard
to do: it might really have moved Beyond Petroleum.
