BP, Once a Renewables Leader, Bets $200 Million on Solar

Posted December 15, 2017 12:16 p.m. EST

LONDON — BP had been at the forefront when it came to major oil companies going green. It invested billions in renewables. It was quick to acknowledge the link between fossil fuels and global warming. It adopted the slogan “Beyond Petroleum.”

But that all fell by the wayside when the company was hit by the 2010 Gulf of Mexico oil spill. On Friday, in what may be a move to repolish tarnished green credentials, the energy giant said that it would spend $200 million to acquire a large stake in Lightsource, a solar power developer based in Britain.

BP, like other major European oil companies, is responding to pressure from investors and governments, especially in the region, to shift away from the traditional fossil fuels blamed for climate change, like oil and gas, and into cleaner sources of energy. Statoil, the Norwegian giant, for example, is staking out a big position in offshore wind, and Total, the French company, last year bought a battery-maker called Saft for 950 million euros, or $1.1 billion.

“The European majors feel under pressure to diversify, to get exposure to different technologies so they are not left out,” said Valentina Kretzschmar, an analyst at energy consultants Wood Mackenzie. “It is what a lot of their peer group is doing.”

Indeed, renewables like solar and wind power are increasingly seen as not just a science experiment or a concession to political and environmental pressures, but a good business opportunity in their own right. Wood Mackenzie estimates that renewable energy products return between 7 percent and 10 percent on capital invested.

That figure is much lower, however, than the 18 percent in estimated average returns that a drilling project offers, in part because the newer technologies are in regulated industries where profits tend to be capped. But, Kretzschmar said, energy companies must at least test the waters to make sure they are in the game when renewables do take off. Before the Gulf of Mexico oil spill hobbled the company, BP had been seen as a leader on environmental issues among traditional oil and gas companies. It said in 1997 that greenhouse gases resulting from the burning of fossil fuels played a role in global warming, and began making investments to offset their impact.

Under John Browne, chief executive from 1995 to 2007, BP invested around $8 billion in renewable energy early in the 2000s, including solar power, though with mixed results at best. Under pressure to pay damages and fines from the Gulf of Mexico spill — which have cost it $64 billion so far — BP has been focusing until recently on improving its oil and gas operations.

Though BP still has a large wind-power business in the United States as well as biofuels installations mainly in Brazil, its solar investments, some of which dated back to the 1980s, were problematic and have largely been closed down, according to the company. In an interview, Dev Sanyal, chief executive of BP’s alternative energy business, said the company had chosen an ill-fated part of the solar business: manufacturing equipment like solar panels, an area now dominated by Asian companies that are better able to compete on price.

Lightsource, Sanyal said, takes a very different approach, focusing on developing and managing solar installations, rather than making the equipment or inventing the technology. The company “is completely agnostic as to what panels it installs,” he said. He added that the attraction of Lightsource, which is privately owned, was that it could be a vehicle for BP to take advantage of what he forecast as 10 percent to 15 percent annual growth in solar power in the coming years.

By contrast, demand for oil, which has been growing strongly at around 1.7 percent per annum this year, is expected to eventually level off to less than 1 percent a year through 2040, according to forecasts by the International Energy Agency, a Paris-based organization. The agency attributed that slowing growth in demand to changes like the increasing prevalence of electric vehicles and improving fuel efficiency.

BP said its $200 million investment would eventually give it a 43 percent stake in Lightsource, which will be renamed Lightsource BP, and the energy giant will take two seats on the board. BP’s investment will be used to help Lightsource, which has been mainly focused on Britain, grow globally, the companies said. Lightsource develops solar projects and says it thus far has contracts to manage installations that could power about half a million homes. The investment is tiny compared to BP’s capital expenditure of about $16 billion this year.

By buying into Lightsource, BP is, in a sense, outsourcing its solar effort.

“They need a renewable business to develop over time as part of energy transiting, but were lacking the ability to make solar profitable,” said Oswald Clint, an analyst at Bernstein Research. “Lightsource might be the solution.”