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Is the Sun Setting on Renewable Energy Investment?

Energy Giants Losing Interest in Renewables in Favour of Gas?

by Tsveta Zikolova

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The recent decision by British oil and gas giant BP (LON:BP, NYSE:BP) to put up for sale its wind energy assets in the US has raised the question whether global energy majors have started losing interest in investing in renewable energy ventures, or they have never intended to put green energy on an equal footing with their traditional line of business.

BP’s Alternative Energy Push – There and Back Again

Reporting on the decision, The Times wrote earlier this month that BP’s drive into renewables started in 2005 under Lord Browne of Madingley, the company’s chief executive at that time, who had pledged to set BP on a course “beyond petroleum”. BP’s push into renewable energy resulted in a £4.6 billion investment in wind, solar and hydrogen power, with the company becoming one of the larger wind generators in the US. Currently, Houston-based BP Wind Energy North America, BP’s privately-owned subsidiary, operates 16 wind farms with a combined generation capacity of 2,600 megawatts located in nine states. The Financial Times quoted Bruce Hamilton, an analyst at Navigant, as giving a rough estimation that BP’s business could be worth $1.5 billion (£977 million).

BP’s retreat from renewable energy started as early as 2007. In 2011, the company retreated from solar power, having closed down its photovoltaic panel factories and its separate BP Alternative Energy headquarters in London.

BP’s latest step on the road away from renewables came with the company’s decision to sell its US wind energy business. The Times quoted a BP spokesman as saying that the company has decided to sell its US wind energy business as part of “continuing effort to become more focused” on oil and gas and to reposition itself for “sustainable growth into the future”.

Once BP offloads its wind energy assets in the US, the sole remnants of its push into renewable energy sources would be a sugar cane ethanol venture (controversial as truly ‘green’ energy) in Brazil and some research initiatives.

The Bigger Picture

So, what will happen with BP’s US wind energy assets? The Times quoted a company spokesman as saying that the divestment “will be the subject to attractive offers being received”. Bloomberg recently quoted Bruce Hamilton, director for energy at US-based Navigant Consulting Inc, as pointing out that the sale presented an opportunity for international investors, including Chinese and Korean buyers, to enter the US wind energy market.

So, the bigger question in fact is whether the sale – if and when it takes place – indicates a wider trend among oil and gas majors to exit renewable energy or it is just a case of a company looking to shed non-core assets to concentrate on its major – and more profitable - line of business, especially in the context of the heavy fines imposed on BP for the 2010 Gulf of Mexico oil spill.

Royal Dutch Shell (LON:RDSA, LON:RDSB, NYSE:RDS.A, NYSE:RDS.B), another Europe-based energy giant, made some moves into the alternative energy industry in the past decade but abandoned its ambitions in 2009 when it said that it would no longer invest in renewable technologies such as wind, solar and hydro power since they were not economically justified.

Linda Cook, Shell's executive director of gas and power at the time, put it quite bluntly, as quoted by The Guardian: “If there aren't investment opportunities which compete with other projects we won't put money into it. We are businessmen and women. If there were renewables [which made money] we would put money into it.”

When looking at BP and Shell's renewable energy initiatives, or rather, at what will be left of them once BP disposes of its wind energy assets, one notes that both companies are involved in investments in biofuel ventures, and in particular, in sugar cane in Brazil. In the case of BP, in December 2012, BP Biofuels announced that it planned to invest $350 million to expand the ethanol processing capacity of Tropical, one of its sugar cane processing ventures in Brazil.

Royal Dutch Shell participates in a joint venture called Raizen for producing ethanol from sugar cane together with the Brazilian firm Cosan. Shell has drawn fire from environmental groups for freezing investments in other renewables in favour of biofuels – an alternative to oil-derived petrol and diesel fuel often blamed for driving up food prices and causing deforestation.

Elsewhere in Europe, French oil giant Total SA (EPA:FP, NYSE:TOT), has a 20 percent stake in the joint venture operating Shams 1 – one of the world’s biggest concentrated solar power plants which is located in Madinat Zayed, around 120 kilometres southwest of Abu Dhabi in the United Arab Emirates.

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