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BP (NYSE: BP) Sells Wind Assets

Renewed Focus on Oil and Gas

Written by Brian Hicks
Posted April 4, 2013

It seems BP (NYSE: BP) is slowly losing faith in the renewable energy sector.

After CEO Bob Dudley announced that BP was abandoning the solar market last month, the oil giant will be selling its $3.1 billion worth of wind assets in the United States, as reported by Bloomberg.

BP’s 16 wind farms across nine states will be on the market – carrying a total of 2,600 megawatts. Each megawatt is worth anywhere from $1.5 to $2 million. BP is also selling in-progress wind projects, worth $15,000 to $200,000 per megawatt.

The aftermath of the 2010 oil spill had cost BP $42 billion in cleanup and legal costs. BP sold $38 billion in oil assets to pay for the accident – including refineries, pipelines, and oil fields.

The oil spill is playing a small role in the selloff of wind assets, but the slow withdrawal from the renewable energy sector stems from multiple factors.

BP decided to bow out of the solar market because it could not compete in the increasingly competitive environment between companies in America, Europe, and China. Below-value Chinese solar panels have blown away many competitors, forcing BP to step back and analyze just how profitable it would be to remain in a market where products have been extensively devalued.

BP LogoBP invested in solar for the past decade, which makes it all the more surprising that the company would abandon years of development and research.

BP is centering on petroleum-based resources – it's original and biggest focus – though this negates its entire “Beyond Petroleum” campaign. The campaign had been going on since 1997 under former CEO John Browne as a response to the issue of global warming.

The company still has a foothold in the Brazilian ethanol market, but the Brazilians are failing to meet expectations, and there is no strong demand for ethanol in the United States. This may cause BP to divert ethanol assets to the booming international petroleum market.

And even though The Independent mentioned BP’s continued efforts in focusing on carbon-capturing technology, the company called off a carbon-capture project in 2008. Carbon capturing is the process of capturing CO2 emissions from coal and gas-fired plants and filtering to underground storage containers.

Of the yearly $20 billion spending budget, BP only devoted $1 billion to renewable energy, according to Reuters.

Whatever Happened to Beyond Petroleum?

BP now has little investment strategy in two of the major sources of renewable energy – hoping to focus on the worldwide search for petroleum-based energy.

BP is showing signs of abandoning the renewable energy field altogether. With a weak ethanol market in Brazil, and the lesser known carbon capturing technology, BP has no leg to stand on in the renewable market.

And BP is not simply selling the wind assets to compensate for the 2010 oil spill, since the company managed to raise $38 billion in asset sales. Market competition and the increase in oil production worldwide are the reasons behind the dumping of wind assets.

This may seem like a logical choice to BP, since they are first and foremost an oil company. And with the oil and gas boom racing through North America and trickling over into Europe, now is the time to be heavily involved in the oil industry.

Still, I cannot get over the sun graphic centered on their logo and the green-colored theme behind the company’s persona. It was already questionable when BP decided to dump its solar department, given the sun portion of their logo, but the additional slashing of their wind sector shows that BP wishes to focus on what it always has been: an oil company.

China may have played a role in BP’s departure from the solar field, but BP is also betting on nations like China, since it is the world’s largest consumer of oil and a pivotal developing nation that has an increasing need for as much energy as possible.

Nations around the world are meeting full capacity when it comes to oil and gas exploration. New technology and drilling methods like fracking are breaking through previously unreachable shale ground all over the world. Natural gas and liquefied natural gas (LNG) are becoming valuable resources to Asian markets.

From BP’s viewpoint, wind power does not seem to have much lasting power beyond the next few years, and many investors feel the same way. American tax incentives for wind are set to expire at the end of the year. In a tough world economy, there may be fewer subsidies for renewable energy in American and European markets – rendering the entire market less stable than before.

BP is also sensing the same level of competition within the wind market as was the case with solar. BP simply does not have an appetite for competitiveness when it comes to renewable energy.

American company GE (NYSE: GE) has a tight grip on the wind market in the United States, and there is more competition from Chinese companies.

Dumping Renewable Energy

In any business situation, it helps to have a diversified portfolio.

BP does not have to make a full conversion to solar or wind technology, but it would be a smart business move to maintain minimal research and development departments in these new areas of energy in order to open potential doors in the future.

BP has a keen eye on the current energy situation, but there is little foresight into the future. Wind and solar technology have the potential to have a greater role in the later century. There is a risk in BP falling behind as more companies invest in renewable energy. Solar and wind are two of the largest markets in the renewable energy field with the most growth and development.

Renewable energy expands into diverse fields: technology, the automobile industry, and residential use. BP may find itself unable to compete with up-and-coming renewable energy companies that choose to make full use of solar and wind technology.

Still, fossil fuels will always have a place in the market. The U.S. is nowhere near phasing out petroleum; quite the opposite. And the rest of the world is eager to get its hands on oil and gas reserves.

BP may want to focus on what it knows best: petroleum. And though having a small foothold in renewable energy would be advantageous as the market continues to develop throughout the decades, right now the oil industry is as strong as ever.

 

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