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are considerable numbers, especially as the world’s Challenging times
largest wind developer Iberdola only has around 18 “BP’s challenge lies in the building up of its skill
GW of capacity up and running right now. set in renewable energy solutions and a compet-
However, wind energy is costly. BP announced itive advantage in its chosen areas that allows
on September 10 a $1.1bn investment in two off- investors to believe they can deliver attractive
shore wind projects under development by Nor- financial returns from the capital allocated,”
way’s Equinor. Their generation is due to reach 0.7 Aviva’s Baig says.
GW within five years, of which BP will net 0.35 Under different circumstances, BP could
GW. This means the UK major is effectively paying acquire a major renewables developer with
$3.1bn per GW, suggesting that BP’s 2025 target existing capacity and with projects already in
may cost over $60bn to achieve. the pipeline. But the company is saddled with
It is questionable how BP can devote this nearly $41bn in net debt, making such an option
much capital expenditure, especially given cur- unfeasible at this stage.
rent constraints on its cash flow. Indeed, BP cur- This dilemma highlights the difficulties oil
rently assumes it will spend only $5bn per year majors face in trying to build up their clean
on low-carbon projects, with two-fifths of that energy operations at a time when low oil prices
sum going towards non-generation infrastruc- mean they are cash-strapped. Total is in a
ture such as electric vehicle (EV) charging. stronger position, having moved into renewables
“For BP to meet its low-carbon target of 50 sooner than its competitors.
GW of renewable generation capacity by 2030, The French firm is focusing mainly on
considerable growth is required over the com- solar. It announced on September 25 a part-
ing years,” Bloomberg quoted Brewin Dolphin nership with Spanish developer Ignis to build
Holdings’ Stuart Lamont as saying. “This will 3.3 GW of solar capacity near Madrid and
require discipline from the company, ensuring Andalusia. Those projects are scheduled to
a delicate balance between working towards come on stream between 2022 and 2025. Total
decarbonisation targets while achieving attrac- has also invested billions in power generation
tive returns for shareholders.” in general in recent years.
At the same time, Looney has promised While most of Europe’s major oil and gas
investors returns of 8-10%, which while not as companies have committed to diversification
high as many oil project returns, are still greater into clean energy, their US counterparts have
than those clean energy investments currently remained staunchly devoted to hydrocarbon
yield. production. But this strategy bears significant
The CEO says BP can leverage its experience, risks as well. As countries across the world
integration, low borrowing costs and trading ratchet up efforts to decarbonise, the role of oil
clout to push up returns. But investors will need and gas could greatly diminish, especially if car-
to see these returns to believe them, analysts at bon capture and storage (CCS) and other tech-
Redburn argue in a research note. nologies to decarbonise oil and gas disappoint.™

Week 39 01•October•2020 www. NEWSBASE .com P5