Why did BP quit the solar industry and what will that decision mean? We asked two leading commentators for their analysis.
This second post is by Ben Caldecott, head of policy, advisory at Climate Change Capital and a Green Alliance trustee.
BP exiting the solar business after 40 years might sound like a dramatic step. Unfortunately, the recent move wasn’t all that surprising for two reasons.
First, BP’s once fabled ‘beyond petroleum’ strategy has been dead and buried for some time already. The only ‘alternative’ energy strategy that incumbent oil companies like BP seem to be pursuing is more of the same, plus as much unconventional oil and gas as possible.
Exposure to risky high carbon assets
Before halting its dividend amid the furore of the Deepwater Horizon oil spill, BP alone was widely acknowledged as having accounted for £1 in every £6 of dividends paid to UK investors. If you count Shell and BP together, they have historically created 20-25 per cent of total annual UK dividends. To wean ourselves off this dependency and exposure to high carbon assets, which could be akin to a systemic risk in our financial system, we must do a number of things.
As well as creating many more low carbon innovators and new entrants able to expand quickly, we need companies like BP to transform their business models so their activities help to drive rather than hinder a global low carbon transition. Existing players can continue to create value for investors by evolving in response to the threats and risks associated with a dependency on the high carbon economy.
However, many incumbents have yet to develop or implement an exit strategy from carbon intensive energy, even though such a transformation could be in shareholder and national interests. BP’s decision to exit solar shows how little progress has been made in this regard. Incumbents clearly want to do more fossil fuels in risky areas, not less. This trend is deeply worrying.
The other reason why BP’s exit from solar isn’t surprising is that they’ve now well and truly missed the boat. While they had the opportunity to scale up production and implement their lead in intellectual property a number of years ago, they didn’t. Chinese companies now dominate and it will prove difficult for western solar manufacturers to compete again given this lead.
Instead of forging new markets in clean technology and then dominating them, BP and other high carbon incumbents are failing in this regard and have let newer entrants, often from China, scale-up and secure the spoils. In the end, low cost and plentiful Chinese manufactured clean technology is a good thing for the fight against climate change, but it’s a shame that incumbents based in the west haven’t played the positive role they could have and are instead perpetuating the status quo.