BP (NYSE: BP) to Exit the Solar Industry

Brian Hicks

Written By Brian Hicks

Posted March 11, 2013

British Petroleum (NYSE: BP) is bowing out of the solar industry for good.

In a speech last week, CEO Bob Dudley said, “We have thrown in the towel on solar,” as reported by NPR. The oil giant will continue to invest in other renewables such as wind and bio-fuels.

BP’s investment in solar panels was no fad or short-term investment model; the oil company has looked into solar as a real energy source for the past 10 years. BP was one of the early solar investors during the developmental stage, and there was more optimism in the full potential of solar on the energy market.

But the solar industry has changed in recent years, mostly with the advent of China’s dominant role in the solar market. The Chinese dumping of sub-value solar panels in Europe and the United States dashed BP’s hopes of making money through solar.

It has been a hard road for the renewable energy field during the economic crisis, which led to fewer subsidies for companies, a price dip in polysilicon, and the below-market value of panels from Chinese manufacturers. Even though the solar industry is starting to rebound through more government investment and a return to normal in polysilicon prices, there is still the Chinese problem.

Many companies cannot compete with China’s solar panels, including BP. Even though Dudley stated that solar never yielded the desired revenue, the competitive nature of the solar industry around the world may have played a role BP’s departure from solar.

It is one thing to get out of the solar panel market, but is it wise to turn away from the field entirely?

If anything, the competitive drive between companies reveals that the solar industry will do just fine without BP’s presence. Prices for solar panels “have fallen nearly 60 percent in the past two years alone,” as NPR reports. Solar only makes up .5% of the energy market, but it is a growing and energetic part of the world energy system.

It is understandable if BP does not have the appetite to devalue its potential products for the sake of competing with lower-priced panels, but it is not a wise business strategy to pull out of a new and thriving market. BP is underestimating the renewable energy field, and it risks falling behind competitors and the world market by refusing to place more funds into solar.

And BP’s exit from the solar market is especially surprising, considering BP’s “Beyond Petroleum” campaign.

Even though BP intends to focus on other renewable energy sources, the sun piece in the center of its logo does signify that the oil company is receptive to alternative sources of energy, especially solar. Considering BP’s 2010 oil spill in the Gulf Coast region, investing in the future would also give it a boost in public perception.

Former CEO Tony Hayward did not exactly leave the American public with a warm feeling during the crisis, and BP is still reeling from the negative impact of the spill. Doubling down on fossil fuels would only lump BP in with other oil-based companies. BP always prided itself as a different oil company, but it is betting with other conglomerates that there will be no major changes in the industry.

MotherBoard made a point about governments around the world doing more to curb carbon emissions and continue the growing shift away from fossil fuels.

Is it wise to focus on a market that is facing increased scrutiny?

At a time of increased awareness of the environment, there will be more legislation against carbon emissions. There is also growing agitation from consumers and governments towards fluctuating prices in the oil market.

Petroleum-based resources may be a huge slice of the energy market, but current trends reveal that it is not the future. Above all, BP should be investing in solar to diversify its resources, but it is failing to set itself apart from other companies.

MotherBoard said of BP:

“Just last month, the company made at least two multi-billion dollar investments in natural gas; one in Africa, and another $5 billion venture in India.”

Other oil companies like Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM) have been launching their own exploration projects throughout South America and Africa as well.

BP may want to avoid competition in the solar market, but there is just as much competitiveness in finding more natural gas and oil. The drilling technology may be available, but it is becoming harder for oil companies to find the resources they need, especially in shale rock terrain.

As more oil companies are embarking on exploration campaigns, combined with the increased costs of drilling in unexplored areas, BP may be caught in a never-ending rat race to find the next source of fuel in the coming decades.

Furthermore, competitor Shell (NYSE: RDS.A) recently released a report, stating that renewable energy could make up 40% of the world’s energy supply by the year 2060. BP would be at a severe disadvantage if other oil companies decided to invest more in renewable energy, particularly solar.

If Shell’s report holds true, then BP will be missing out on nearly half of the world’s energy source in the later 21st century.

At the very least, the continued investment into solar could have given BP a foothold into the future energy market. BP’s failure to analyze trends could render it far behind by the time 2060 arrives.

Despite the growing nature of the renewable energy market, oil and gas are still a large part of world energy consumption, and the drilling exploration projects are well worth the effort.

There are solar advances in Europe, China, and America, but all markets will continue to depend on petroleum to fuel vehicles. Fossil fuels will continue to thrive in the transportation industry, but the renewable market is showing signs of undermining Big Oil.

On the surface, it would appear that solar cannot compete with petroleum when it comes to transportation, but the renewable energy sector has shown more versatility than expected.

Solar may be in a different field than oil, but the American addition of “8,108 jobs created in the advanced vehicles industry” because of solar shows that the renewable market can compete with oil in regards to hybrid and electric vehicles, as reported by PV Magazine.

BP may not be in the automotive industry, but a large base of its revenue is in the transport sector. If more companies invest in solar as a way to enhance vehicles running on alternative fuels, then BP will regret not sticking with the solar field.

In order for BP to stay relevant in the future, it must look into the current state of the market and explore new ventures. Solar is not only affordable to households, but this field has also created many jobs around the world.

According to CleanTechnica, the United States saw over 110,000 jobs added from the clean energy sector in 2012. Governments see this field as an avenue for job creation and enriching the environment.

This comes at a crucial time, when many nations are undergoing economic turmoil. Despite China’s domination over the market, many companies still see this as an exciting time to make money in a relatively young field. There is also a higher demand for solar panels because of the lower prices.

BP largely ignored the growing solar field in the United States unlike other foreign companies. Bloomberg reports Danish energy company Greentech Energy Systems has teamed up with British firm Foresight Group LLP to invest in solar plant installations throughout the country.

This is part of an effort by many companies to expand beyond Europe. President Obama’s policy of fostering growth in the green energy sector has been a key component in helping the solar industry.

Some believe Obama’s departure in 2016 will also usher in the slow death of the renewable energy field if a Republican ends up in the White House—but not so fast. Clean energy jobs have been created throughout the country, defying political and state boundaries.

Some in Congress may be skeptical of the renewable energy sector, but no politician wants to be responsible for killing jobs in the struggling American economy. Investing in alternative energy has been politicized to the point of no return, but this should be an apolitical issue.

It is a matter of supply and demand.

Many consumers are tired of utility company monopolies, and more utility giants are offering their customers solar energy as an option to sustain their home needs.

The renewable market has vast potential in competing with the petroleum industry. BP may be betting on the oil lobby to keep its industry afloat, but the rising tide of energy and environmental consciousness cannot be overlooked. BP may become a fossil in its own right by ignoring new trends in the energy market.

Until Next Time,

Jon Carter

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