Page 5 - AsiaElec Week 39

AsiaElec COMMENTARY AsiaElec

investment in two offshore wind projects under
development by Norway’s Equinor. Their gener- competitive advantage in its chosen areas that
ation is due to reach 0.7 GW within five years, allows investors to believe they can deliver
of which BP will net 0.35 GW. This means the attractive financial returns from the capital allo-
UK major is effectively paying $3.1bn per GW, cated,” Aviva’s Baig says.
suggesting that BP’s 2025 target may cost over Under different circumstances, BP could
$60bn to achieve. acquire a major renewables developer with
It is questionable how BP can devote this existing capacity and with projects already in
much capital expenditure, especially given cur- the pipeline. But the company is saddled with
rent constraints on its cash flow. Indeed, BP cur- nearly $41bn in net debt, making such an option
rently assumes it will spend only $5bn per year unfeasible at this stage.
on low-carbon projects, with two-fifths of that This dilemma highlights the difficulties oil
sum going towards non-generation infrastruc- majors face in trying to build up their clean
ture such as electric vehicle (EV) charging. energy operations at a time when low oil prices
“For BP to meet its low-carbon target of 50 mean they are cash-strapped. Total is in a
GW of renewable generation capacity by 2030, stronger position, having moved into renewables
considerable growth is required over the com- sooner than its competitors.
ing years,” Stuart Lamont of Brewin Dolphin The French firm is focusing mainly on solar.
Holdings says, according to Bloomberg. “This On September 25 it announced a partnership
will require discipline from the company, ensur- with Spanish developer Ignis to build 3.3 GW
ing a delicate balance between working towards of solar capacity near Madrid and Andalusia.
decarbonisation targets while achieving attrac- Those projects are scheduled to come on stream
tive returns for shareholders.” between 2022 and 2025. Total has also invested
At the same time, Looney has promised billions in power generation in general in recent
investors returns of 8-10%, which while not as years.
high as many oil project returns, are still greater While most of Europe’s major oil and gas
than those clean energy investments currently companies have committed to diversification
yield. into clean energy, their US counterparts have
The CEO says BP can leverage its experience, remained staunchly devoted to hydrocarbon
integration, low borrowing costs and trading production. But this strategy bears significant
clout to push up returns. But investors will need risks as well. As countries across the world
to see these returns to believe them, analysts at ratchet up efforts to decarbonise, the role of oil
Redburn argue in a research note. and gas could greatly diminish, especially if car-
“BP’s challenge lies in the building up of its bon capture and storage (CCS) and other tech-
skill set in renewable energy solutions and a nologies to decarbonise oil and gas disappoint.™

Week 39 30•September•2020 www. NEWSBASE .com P5