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Clean Disruption: BP to decide on first green energy investment for five years

Clean Disruption: BP to decide on first green energy investment for five years
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BP is considering its first significant new investment in renewable energy for five years, as it prepares to make a decision on expanding its US wind power business by the end of this year.

The US production tax credit for wind power will be reduced at the end of the year, and BP is looking at making a commitment before then to benefit from the higher rate. The investment could mean expanding its US wind farms or upgrading its turbines to higher capacity equipment.

The decision comes as oil companies are facing pressure from some investors, especially in Europe, over their preparedness for a transition to lower carbon energy sources.

It is 15 years since BP rebranded itself “Beyond Petroleum” to signal a shift towards renewable power. The slogan was quietly dropped after the departure of Lord John Browne — the chief executive who launched the strategy — and BP sold the last of its solar power assets following the Deepwater Horizon oil spill in 2010.

BP still operates 14 wind farms with about 2.2 gigawatts of total capacity in seven US states — one of the largest renewable energy businesses owned by a large global oil company. Last year its share of the power from those turbines was about 4,400 gigawatt hours.

In energy equivalent terms, that is less than 0.4 per cent of the group’s global oil and gas production, which was 2.09m barrels per day in the second quarter of this year.

BP failed to find a buyer when it put the wind farms up for sale in 2013 and is now looking at further investment.

Under the budget deal agreed by the US Congress last December, the production tax credit for wind, which pays 2.3 cents per kilowatt hour generated for the first 10 years of a project’s life, will be stepped down over 2016-19, and disappear altogether in 2020.

Laura Folse, chief executive of BP Wind Energy, said the business was currently making a profit and generating cash, and new investments would help support profitability as the tax credits for some of its existing wind farms start expiring in 2018.

She added that all US wind companies were looking at possible investments to take advantage of the maximum credit, “and we’re all looking at them right now.”

To claim the tax credit at the higher 2016 level, the project must either have started construction or have at least 5 per cent of its cost committed, meaning that BP could be eligible if it signs orders to buy new equipment by the end of the year.

BP’s previous investments in renewable energy were US wind farms completed in 2012 and a $680m expansion of ethanol operations in Brazil announced in 2011.

Although the US tax credit is being phased out the declining cost of wind power is making it increasingly competitive against fossil fuel generation, depending on local wind and power market conditions.

Ms Folse said she was aiming to improve operating efficiency to the point that BP’s wind business would have “a very attractive cash-flow profile” even without tax credits.

New generations of turbines were improving efficiency rapidly and “it’s amazing how fast the technology is advancing”, she said.

The cost of wind generation will fall 24-30 per cent by 2030, scientists at the US government’s Lawrence Berkeley National Laboratory forecast recently.

North America will add about 9.9 gigawatts of wind power capacity this year, down 4 per cent from 10.3GW last year in 2015, and there is likely to be a further slowdown next year to about 8.8GW, according to Bloomberg New Energy Finance, the research company.

From 2018, however, BNEF expects wind power installation in North America to start rising again.

SOURCE: Financial Times

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