Smart Money Abandoning Renewable Energy

Marita Noon
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Posted: Apr 07, 2013 12:01 AM

British Petroleum is still one of the world’s biggest oil companies. But as early as the late 1990’s they didn’t want you think of them that way. CEO Lord John Browne of Madingley argued that “the transition to alternatives could be accelerated by changing industry practices today.” While other oil companies eschewed climate change alarmism, BP embraced it. In 2002, Lord Browne declared: “Climate change is an issue which raises fundamental questions about the relationship between companies and society as a whole, and between one generation and the next,”

As a result, Mother Jones reported in 2006: “BP vowed to cut its own CO2 emissions and invest heavily in solar, wind, and other alternative technologies; it even supported … the Kyoto climate treaty.”

BP jumped into renewables and their moniker underwent an evolution from British Petroleum to BP, then to Beyond Petroleum. Between 2000 and 2005 BP invested $500 million into solar power and $30 million on wind and have invested more than $4 billion in alternative energy in the US since 2005. At the time, according to the Wall Street Journal, BP turned a profit on its solar business but not on wind. In 2005, Browne “decided that the energy giant should enter unknown territories of wind, solar and hydrogen power” which began a “re-branding” designed to “capture public affection” by positioning “themselves as environmentally friendly enterprises.” 

The switch seemed to be sound strategy. ExxonMobil didn’t agree.

Comments from a 2008 blog post on ExxonMobil’s position as “obstructive over climate change” included the following: “Given that oil isn’t going to last a whole heck of a lot longer, would not a good business strategy be to start investing in renewable energy?” and “Just from a corporate survival perspective, better start learning, and fast. Carbon is the low-hanging energy fruit and soon to become an economic dead end. What company wants to keep going down a dead end?” BP thought it was “prudent to start diversifying now as a kind of insurance policy.”

ExxonMobil took a different course. In 2005, then-CEO Lee Raymond, said: “What all these people are thinking about doing, we did 20 years ago—and spent $1 billion, in dollars of that day, to find out that none of these were economic.” “In the late 1970s, as oil prices skyrocketed, Exxon diversified into an array of fossil-fuel alternatives, including nuclear and solar energy.” “After several years, Exxon still couldn't see prospects for renewable energy turning into a money-maker, especially since oil prices were falling in the 1980s. In the mid-1980s, the company decided to get out of the business.”

Raymond had “an unabashed skepticism about the potential of alternative energy sources like wind and solar.” He saw “Spending shareholders’ money to diversify into businesses that aren't yet profitable—and that aim to solve a problem his scientists believe may not be significant” as “a sloppy way to run a company.”

Wall Street agreed. According to Mother Jones, in 2006, Wall Street “worried that even a small increase in investment in non-oil alternatives would distract BP’s focus from its core business—oil.” Commentators and analysts began mocking BP as being “Beyond Profits.”

Yet, critics of Exxon’s approach, in 2008, feared “that the company’s reluctance to explore alternative energy will prove to be bad business judgment in the long run.”

Andrew Logan of Ceres, a Boston-based environmental group, sees two possible scenarios: “One is that all the scientists in the world are wrong, in which case there’s no climate change, in which case Exxon will do well.” He then says: “But if the scientists are correct and we have to find a way to transform the way we use energy, then Exxon is going to lag significantly behind its competitors.”

It is obvious now, nearly a decade later, which was the sound strategy. Global warming is not the manmade crisis it was predicted to be in the mid-2000s and we know that oil is “going to last a whole heck of a lot longer.” Today, innovation and imagination are producing record quantities of domestically produced oil and gas. Robert Bryce reports: “we won’t hit peak oil until we hit peak imagination.” And, Exxon’s Raymond made the right choice to get out of renewable energy.

On April 3, BP announced that it was selling its US wind assets—estimated to be worth $1.5-3.1 billion. The announcement stated that BP has decided sell the US wind energy business “as a part of our continuing effort to … re-position the company for sustainable growth” and that it would “unlock more value for shareholders.” 

In a speech in late 2012, BP’s general manager for global energy markets, Mark Finley, praised the rapid growth of renewable energy—claiming it had increased by 18% last year, “the tenth year in a row for double-digit growth.” Though, he acknowledged that “renewables make up such a small slice of the world’s energy portfolio now—only about 2%—that even at such a blistering growth rate they are unlikely to significantly displace fossil fuels in the next two decades.”

Addressing renewables growth, Finley said it was happening “most typically in places where the governments can afford the subsidies needed to help these fuels compete. The key challenge going forward is: when things grow fast, subsidies get expensive fast. So can these forms of energy achieve economies of scale that will allow them to compete without subsidies?”

“That is the real question.”

Yes, that is the real question, and apparently, BP got the answer. Without subsidies, renewables cannot compete—BP is bailing. Addressing wind energy’s future, Amy Grace, a New York-based analyst at New Energy Finance, said: “There’s limited visibility beyond 2014 about what the assets will be worth as a tax credit supporting turbines is set to expire at the end of this year.”

Additionally, having now actually lived with the presence of industrial wind turbines, people no longer want them “imposed on their communities.” On April 4, the Falmouth, MA, Board of Selectmen and the Falmouth Finance Committee held a joint meeting and unanimously stood by the selectmen’s prior vote to remove the town’s wind turbines. Residents say: “they're suffering headaches, dizziness and sleep deprivation and often seek to escape the property where they've lived for more than 20 years."