BP makes $1.1B bet on offshore wind projects

Source: By Heather Richards, E&E News reporter • Posted: Sunday, September 13, 2020

BP PLC’s $1.1 billion investment in offshore wind yesterday is another example of the oil industry’s expanding interest in big electricity projects.

The European major, one of the last remaining “seven sisters” oil companies that shaped the fossil fuel sector, has committed to a green pivot unparalleled by other fossil fuel megaproducers. BP would offset or eliminate total emissions by 2050, slash its oil and gas holdings, and ratchet up its renewable capacity in relatively short order (Climatewire, Aug. 5).

The $1.1 billion price tag brings joint ownership in Equinor ASA’s Beacon Wind and Empire Wind developments, off the Massachusetts and New York coasts, respectively. And the companies signaled that more joint projects could be in the wings.

The acquisition gives BP a foothold in what is expected to be the third-largest offshore wind market in the world. Bloomberg New Energy Finance predicts the U.S. offshore wind sector will grow from just 30 megawatts installed today to as much as 22 gigawatts by 2030.

“BP’s entrance into the offshore wind market is yet another example of a traditional energy major embracing the significant potential of this clean electricity source to boost the company’s bottom line,” said Laura Morton, senior director of offshore policy and regulatory affairs for the American Wind Energy Association.

But BP enters the market at a time of delayed permitting and political uncertainty. Federal permitting is a pivotal step for advancing the sector’s multiple offshore wind proposals along the East Coast.

The November election could signal how rapidly offshore wind could expand. President Trump has criticized wind power in several off-the-cuff remarks. And former Vice President Joe Biden, the Democratic nominee, has promised to double offshore wind capacity within a decade.

Joe Martens, director of the New York Offshore Wind Alliance, said the BP move was encouraging, including on the political front, where he said this kind of investment boosts confidence among developers trying to navigate their way through the state and federal permitting process.

“In my mind there is still uncertainty, mostly on the federal level, but this is a promising sign that a big company sees a real upside,” he said.

The federal government is expected to offer up more areas for offshore wind development. In the near term, BP and Equinor are likely eyeing the 1,200 to 2,400 MW in New Jersey’s offshore wind solicitation opened for bidders yesterday, according to BloombergNEF analysts.

A sea change?

The BP-Equinor partnership does not have an easy road ahead, analysts noted. It will face stiff competition from existing energy companies, including Danish power firm Ørsted A/S and Spain’s Iberdrola SA.

And while BP’s entrance is significant, observers note it is part of a broader trend of oil and gas players investing in cleaner forms of energy.

“I wouldn’t say this is the indicator of a sea change, but you could see it as part of a sea change,” said Anthony Logan, senior wind analyst with Wood Mackenzie.

Both Equinor and BP have been polishing their image as pure-play fossil fuel producers by buying into the expanding market for renewable energy. Ørsted, too, is rooted in fossil fuels, though it’s divested of those assets to become a clean energy powerhouse (Climatewire, Sept. 9). Repsol SA, the Spanish power company, tried to enter the offshore wind space, qualifying for both the first and third lease sales off Virginia and Maryland.

Royal Dutch Shell PLC, another of the original seven sisters, is a 50% shareholder in Atlantic Shores, off the New Jersey coast, and the Mayflower consortium, which is looking to develop a lease off the Massachusetts coast.

“The first company to change the dynamics would have been Shell,” said Rafael McDonald, an analyst with IHS Markit. “Shell is truly global and massive. BP I would put in the same realm.”

Logan said American oil supermajors Chevron Corp. and Exxon Mobil Corp., for their part, have a long way to go.

“U.S. oil companies are very much dipping their toes,” he said.

Still, the oil majors are potentially big spenders on long-term non-oil energy ventures.

“The oil majors, that is what they do,” McDonald said.

Equinor is poised to make a $900 million profit, after costs, on areas for wind development that it paid $177 million for at federal auction, according to BloombergNEF.

‘Sign of the times’

BloombergNEF noted that BP could still divest from its projects once they begin operating, as its 50-GW target for renewable capacity by 2030 is for development, not ownership.

The green branding of Big Oil has been scrutinized by advocates of an energy transition. And BP’s investment in offshore wind space is being weighed against its commitments to offset carbon emissions.

Martens of the New York Offshore Wind Alliance said he wasn’t concerned about green washing so much as seeing offshore wind take hold in the United States.

BP, along with the broader global oil industry, is pained by the pandemic-fueled economic downturn and globally oversupplied oil market. Shares in BP have lost nearly half of their value since the start of the pandemic. The company reported a $16.8 billion loss for the second quarter.

If BP sees money to be made going green, it’s a positive sign, Martens said.

“It’s a good sign of the times,” he said. “They wouldn’t be doing it if they didn’t think it would be good for corporate profits.”