Why did BP quit the solar industry and what will that decision mean? We asked two leading commentators for their analysis.
This first post is by Charlie Kronick, senior climate advisor at Greenpeace UK
Many have noted BP’s decision to move out of solar energy after dabbling for 40 years. When everyone from Google to Warren Buffet to Trans Canada (the company trying to build the KeystoneXL pipeline) is moving into solar energy, BP has decided to wind down that portion of its business.
Why? The global reputation of the company is battered, in the wake of selling off a dangerous and unprofitable refinery business in the US (including Texas City refinery, where an explosion killed 15 and injured 170 in 2005); the catastrophic Deepwater Horizon accident; and the finally abortive attempt to tie up with Rosneft in the Russian Arctic in 2010. Why would BP finally jettison one of its nominally more attractive assets?
The company has claimed that it was a hard-headed business decision. Even in 2010, before the final decision to withdraw from solar, the company acknowledged that it simply couldn’t compete with companies in China making cheaper and cheaper solar panels. It’s not hard to imagine the attraction of a skeleton renewable energy business for a company trying to maintain credibility for its rebranding to move ‘beyond petroleum’. But, even at its peak, BP’s investment in ‘alternative’ energy was never more than a tiny fraction of its capital expenditure in oil and gas exploration and production.
Sticking to its core business
Perhaps a clearer indication of the significance of this move for BP comes from the announcement, in late 2010, of the decision to move into the Canadian Tar Sands, arguably the most environmentally destructive, and certainly the most carbon intensive, of any of the commercially viable oil extraction technologies in the world today.
While disappointing to environmentalists, such decisions becomes more understandable when placed in a historical context: 30 years ago, international oil companies including BP had access to and control of around 80 per cent of global oil resources. Now, with the rise of ‘resource nationalism’ they have access to around ten per cent. Oil companies need to make a lot of money, both to keep up their reserves replacement (and hence their value) and to pay the enormous dividends on which their investors depend. Before Deepwater Horizon, the BP dividend amounted to more than £7 billion a year; £1 in every £6 paid out in dividends to British pension pots. It’s not surprising they believe they need to focus on their core activity, i.e. digging up large amounts of oil and gas and selling it to be burned.
Banking on a six degree temperature rise
You may have noticed that, so far, I haven’t mentioned climate change. This may seem surprising, coming as I do from Greenpeace, especially when talking about the strategy of oil companies. Well, it may seem surprising but, in spite of the fact that BP was the first oil major to acknowledge the reality and significance of climate change in a speech by then CEO John Browne at Stanford in 1997, their business decisions to this day have not reflected that reality.
One need look only as far as the most recent BP Energy Outlook: by their own reckoning, in 2030, “Global energy will remain dominated by fossil fuels, which are forecast to account for 81 per cent of global energy demand by 2030”. They’ve got to be in it to win it, and if that means cooking the climate to keep paying that dividend, then they will. As Tony Hayward, another departed CEO also said at Stanford, in 2009, the company “had too many people trying to save the world” and clearly not enough looking for more oil.
In the context of climate change, one thing is very clear, and it was acknowledged by Carl Henrik Svanberg, chair of the board of BP at their 2011 AGM: he expects no significant downward pressure on carbon emissions from the UN Framework Convention on Climate Change or the Kyoto protocol. BP’s energy projections, and its business plan, is based on the Current Policy Scenario of the International Energy Agency’s World Energy Outlook, one that has us looking to a six degree global average temperature rise by the end of this century. In this context, the question isn’t why BP finally decided to pull out of solar in 2011. The real question is why did they wait so long?
A spokesman for BP said:
“The continuing global economic challenges have significantly impacted the solar industry, making it difficult to sustain long term returns for the company, despite our best efforts. We are very proud of what BP Solar has accomplished over its 40 year history.
“However, BP is maintaining its investment in Alternative Energy through biofuels, wind and venturing. In biofuels, BP now owns 3 operating ethanol mills in Brazil and is investing in biofuels technology via cellulosic and advanced biofuels, notably biobutanol. In wind, BP has 13 operating wind farms in the US and a further 2 under construction. BP also invests in longer-term renewable technologies through its venturing team, and has research and development interests in the EBI (Energy Biosciences Institute) in the US and through the ETI (Energy Technology Institute) consortium in the UK. Since BP’s Alternative Energy unit was established at the end of 2005, BP has invested approximately $1bn annually.”