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Saturday, December 03, 2005

BP consolidates Solar, Wind, Hydrogen and Combined-Cycle Units

BP Plows Oil, Gas Profit into Alternative Energy

Archived Story

by Alex MacDonald and Spencer Swartz


LONDON - U.K.-based BP PLC (BP) said Monday it will plow profits from its oil and gas business into investments in alternative energy projects through a new business unit, BP Alternative Energy.

BP said it expects to invest up to $8 billion in alternative energy projects, including solar, wind, hydrogen and carbon-abatement technology, over a 10-year period.

The investment represents only a fraction of BP's annual $14 billion to $16 billion capital-expenditure program but is an eightfold increase from the $1 billion already spent over the past decade, Chief Executive John Browne told a news briefing.

Equity analyst Jason Kennedy of ING Group welcomed the consolidation of BP's alternative energy projects into one business unit but said he didn't expect the unit to "have a huge impact on earnings in the short term."

Kennedy, who has a buy rating on BP and a target price of 709 pence, said, "BP is consolidating their holdings...allowing them to leverage the parts of the business that have growth." Kennedy said the timing of the investment was sensible. "Making a small investment (in alternative energy) now could help the company in the future," when the dynamics of the market change, he said.

Browne said he expects the unit to achieve a 15% return on capital employed annually by investing in equal proportions in solar, wind, hydrogen and combined-cycle gas-fired power generation.

The investment will depend on the nature of opportunities and their profitability, Browne said.

Friends of the Earth, an environmental organization, welcomed BP's "modest" shift of emphasis to focus more on alternative energy sources.

"It's encouraging to see that they're joining up all the different parts of their renewable business and making it a core focus," said Tony Juniper, the organization's chief executive.

But he added that more needs to be done to increase the pace of alternative energy investment: "They're just making investment in the part that's market-ready."

BP's solar business is a key plank to its alternative energy business and was profitable for the first time last year, Browne said.

The company plans to double its solar capacity from the roughly 100 megawatts of capacity it currently has in the U.S., Spain, India and Australia.

Browne said BP was also planning a carbon-sequestration project for 2006-07 in which carbon emissions from power plants would be re-injected in fallow offshore gas and oil fields for storage purposes.

Browne said BP looked to hire "several hundred" staff, including engineers, to support its new alternative and renewable energy investment plan, which is among the biggest by an oil major.

He added that peak oil production could come in 2020 but said it was difficult to gauge, in part due to the shifting economics of the oil industry that can make the production of oil reserves economically viable or unjustifiable.

Browne later told CNBC that exploration and production "isn't on the slide. We continue to expand our business on the exploration and production side."

When asked whether BP would consider an equity investment in an oil or gas project, Browne told the CNBC: "That position is a matter of value. When prices are so high, it's hard to get value."

Browne said that although BP would make some investments in gas-fired power-generation technology, it had no plans to get into the nuclear power business. He also said BP plans to enter the U.S. wind power market in 2007.

BP shares closed down 16.5 pence, or 2.5%, to 644.5 pence. The FTSE 100 closed down 0.8% to 5,477.

Company Web site: http://www.bp.com


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