BP’s Green Push Is Picking Up Speed with Major New Wind Projects. Winds of Change Are Blowing the Stock Higher.
The U.K. is the world’s leader in offshore wind power.
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BP’s push into renewable energy is picking up speed, after the oil major made its first venture into Britain’s offshore wind market with two projects that could power millions of homes.
BP stock rose nearly 3% in London trading on Monday. Shares in EnBW, the German utilities group that BP has joined with for the projects, rose more than 2.5% in Frankfurt.
The back story. The last year marked a watershed for FTSE 100-constituent BP. Under the leadership of a new chief executive in Bernard Looney, the group has embarked on an ambitious plan to pivot toward sustainable energy.
Pledging to be carbon neutral by 2050, in the last six months BP has invested $1.1 billion in wind developments with Norway’s Equinor, launched a green hydrogen project with Denmark’s Ørsted, and taken a controlling stake in the largest carbon offset developer in North America.
This has all taken place against the backdrop of an unprecedented year, with Covid-19 drying up demand for crude and causing the price of oil to crash. It was just on Monday that the price of Brent crude topped $60 per barrel to return to pre-pandemic levels.
Last week BP reported a $5.7 billion loss in 2020, down from profits of $10 billion in 2019. It was the company’s first annual loss in a decade. The stock is down more than 40% in the last 12 months.
Plus:Boris Johnson in Bid to Make U.K. the ‘Saudi Arabia’ of Wind Power
What’s new. BP and EnBW were selected as the preferred bidder for two 60-year offshore wind leases in the Irish Sea. The results of the auction, the first of its kind in the U.K. in more than a decade, were announced on Monday, leasing out rights to land belonging to the royal family.
The two energy groups intend to form a 50-50 joint venture to develop and operate the leases, which have a production capacity of 3 gigawatts (GW)—enough to power more than 3.4 million homes.
“This is both important progress towards BP’s transformation into an integrated energy company as well as a significant next step in our long history in the U.K.,” Looney said. “We are fully confident that these highly advantaged resources will deliver—at a minimum—the 8-10% returns we demand of our renewables investments.”
BP said the joint venture will make annual payments of £231 million on each lease for four years before final investment decisions on the projects are made. The assets are expected to be operational in seven years.
French oil major Total, in partnership with investment banker Macquarie’s Green Investment Group, also won a lease in the auction. The two groups plan a 1.5 GW project off the east coast of England. Shares in Total traded below flat in Paris.
Also read:BP Now Controls the Largest U.S. Carbon Offset Developer. The Stock Rose.
Looking ahead. Prime Minister Boris Johnson’s plan to make the U.K. the Saudi Arabia of wind power, as part of his “green industrial revolution” plan, is starting to bear fruit. BP’s projects with EnBW are just two of six offshore leases, representing a major expansion in the British wind sector that should create around 50,000 jobs in the next nine years.
It’s all on strategy for BP. Investors should welcome the spending required to build out renewable energy projects, even on the back of a crushing annual loss. The winds of change are blowing, and BP’s turbines must be well-placed to profit.
