The bill for the clean up from the explosion of the deepwater horizon and the months of oil gushing onto the gulf is mounting every day. Even with the oil leak capped and the gushing stopped the claims against BP just keep flowing. In order to meet its moral and economic obligations BP will have to dig deep into its financial reserves. (even for an oil company) . It will be interesting to see which type of energy assets it considers to be a better long term investment, oil or alternative energy technology. British Petroleum (BP PLC) says that it has no plans to sell its renewable-energy businesses as the British oil giant seeks to sell billions of dollars of assets in the wake of the Gulf of Mexico oil spill, the head of the company’s wind-power unit said last week.
As BP has struggled to contain the mile-deep gusher, the alternative-energy division has been fielding calls from banks, utilities and other partners about the company’s financial health, said John Graham, president of BP Wind Energy, in an interview with Dow Jones. BP has said it plans to sell $10 billion of assets over the next year, and speculation is growing over which assets will go, with recent media reports of talks between the company and Apache Corp. over some of BP’s Alaska properties, among others.
BP executives “have reaffirmed their commitment to the alternative-energy business; they told us it’s not for sale,” Graham said. “We look at every option all the time; if the price is right, we will sell.” However, “we haven’t built it [the renewable-energy business] to sell it. There is no need to sell it.”
BP’s alternative-energy business is dwarfed by the traditional activities of exploring for and producing oil, and refining and selling oil products. The company has committed to invest $8 billion between 2005 and 2015 in alternative energy, whereas BP, in its first-quarter earnings announcement, said it expected total capital expenditures of $20 billion this year alone. The company develops solar-power technology and wind-power projects, and also has hydrogen and biofuel businesses. BP has wind farms in seven states, including California and Texas. The company is also developing projects in California to capture the carbon dioxide emitted by using petroleum coke to produce hydrogen for generating power.
The integrated oil company talked about selling off the renewable-energy business at an analyst meeting two years ago when it had a value of at least $5 billion, but later “they took it off the table,” said Argus Research analyst Phil Weiss. BP doesn’t break out the value of these assets in its financial reports. Every major oil company has some exposure to alternative energy, albeit a relatively small one. “I’m not sure it would be wise for any of them to move out of that space altogether,” Weiss said.
BP has spent half of the $8 billion it allocated to renewable-energy development in 2005, of which $1.8 billion went to wind projects. The remaining $4 billion will be spent over the next four years, but it’s unclear how that money will be allocated across projects, Graham said.
Competition has grown among renewable-energy developers as utilities shy away from signing long-term agreements to purchase power from them, due to uncertainty over the future of U.S. clean-energy and climate-change policy. Development plans in 2012 and beyond will depend on whether Congress extends various incentives and electricity demand rises, Graham said. A federal cash-grant program for wind-project developers will expire at the end of this year, and tax credit for producing renewable power will end in 2012.
Amid the competition and uncertainty over policy, “it might be a tough 18 months to 24 months” for the wind-power industry in the U.S., Graham said. Nevertheless: “We still have plenty of opportunities, and expectations that the U.S. will get its energy act together.”
About two years ago, BP decided to focus its wind-development efforts in the U.S. and sold off three wind farms it had in India. Since the oil spill began on April 22, “there hasn’t been any change in funding or anything,” Graham said about the company’s plans with the renewable-energy business. The company’s strong financial position helped it secure highly sought-after wind-power contracts with utilities and the spill is “not really having any impact” based on conversations with partners and financial institutions, he said.
BP is reviewing options to build two wind-power projects totaling 400 megawatts, either by expanding existing wind farms or by going to new locations, possibly in California, Colorado, Indiana or Wyoming.
“We are not going offshore,” Graham said when asked whether the company was interested in developing wind power along the East Coast. “We have not seen anything that would attract us to go offshore. Too risky.”
Such risks include the cost of building solid undersea foundations for turbines, unpredictable weather and other issues.
BP, the ninth or 10th largest wind-power generator in the U.S., is looking at ways to create synergies across its alternative-energy business by offering different options to utilities, Graham said.
By the end of the 2010, wind-power capacity will total 1,500 megawatts, up from 1,200 megawatts. BP has two projects under construction in Idaho and Colorado totaling 375 megawatts. A megawatt is enough to power up to a 1,000 homes.
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