Daily Management Review

BP Looks For Alliances To Handle The Renewable Energy Storm


BP Looks For Alliances To Handle The Renewable Energy Storm
In order to address the issues of inflation and equipment constraints that have severely damaged the renewables industry, BP is looking for partners for offshore wind projects in Japan and may make investments in hydrogen technology firms.
In order to develop a long-term business model that can withstand the worldwide shift away from fossil fuels, the oil major intends to increase its presence in low-carbon energy in the upcoming decades. Some investors have expressed disapproval of the approach for diverting BP's attention from stronger profits on its oil and gas operations.
However, BP's head of renewables, Anja-Isabel Dotzenrath, told Reuters that it was "time to deliver" and that part of the answer was looking for partners in Japan, one of the areas targeted for expansion.
She declared earlier this month that the offshore wind business in the United States was "fundamentally broken" following BP's $540 million write-down of its wind generating projects offshore of New York, citing red tape and inflation as the reasons behind the projects' overspending and longer completion times.
Globally, the renewables industry has been hurt by delayed permits, technical difficulties, growing raw material prices, and increased capital expenses.
Equinor, BP's renewable partner in Norway, likewise incurred a corresponding $300 million impairment, while Orsted, the world's leading offshore wind project provider, of Denmark, abandoned two regional projects and incurred write-downs amounting to billions of euros.
Dotzenrath stated that BP was figuring out how to cut costs across the board as it aims to ensure it can fulfil its internal returns objective of 6% to 8% on renewables projects.
"Of course, inflation is not just an issue for projects in the U.S.A.," she said. "We are also trying to reduce costs in other regions using various levers, for example through optimised purchasing strategies, which may also lead us to invest directly in the supply chain."
Dotzenrath mentioned that the BP group is focusing on three to five clusters of four to eight gigawatts apiece in the worldwide offshore market, excluding Japan, where BP is probably going to collaborate with regional utilities.
"You need a Japanese partner, otherwise you can't be successful there. You need one of the local energy suppliers to help you push ahead with the permitting processes and establish the onshore grid connection," she said.
Before joining BP last year, Dotzenrath oversaw the renewables division of Germany's largest utility, RWE (RWEG.DE). She added that collaboration was essential to resolving a bottleneck that has since spread to the hydrogen industry, another area that BP has emphasised for future expansion.
Although BP doesn't make electrolysers, which split water to produce hydrogen, Dotzenrath stated that a larger role was possible.
"This could mean, for example, that we'll become an anchor investor in a leading technology manufacturer that is building a production plant for electrolysers," she said.
Some of the leading companies in the sector, such as Siemens Energy and Thyssenkrupp Nucera, are based in Germany, which under Chancellor Olaf Scholz aspires to play a significant part in the developing hydrogen market.
Additionally, in this year's offshore wind auction, BP outbid regional heavyweights BASF, EnBW, and RWE, earning criticism from rivals who worry they cannot compete with the cash-rich energy giants.
"I can understand that other market participants would also have liked to win. But that's the way life is - sometimes you win, sometimes you lose," Dotzenrath said.
BP has stated that it intends to invest up to $65 billion in renewable energy, hydrogen, biofuels, and electric mobility between 2023 and 2030; by the end of the decade, these sources will make up 50% of the company's spending, down from 30% in 2022.