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Showing serious intent in America -- Beyond Petroleum

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Pieces to the puzzle of BP's ambitious entry into the US wind power market are steadily falling into place, giving a clear picture of where the global energy giant is headed. Last month it said it will begin five wind projects totalling 550 MW this year, with that much, or more, to break ground in 2008. The announcement followed its purchase in December of west coast wind project developer Orion to go along with its purchase of Greenlight, an east coast developer, in August. The project portfolios of those companies will likely be filled by turbines from Clipper Windpower, with which BP formed a five-year, 4250 MW equipment and development partnership back in July.

BP's whirlwind of wind activity began in November 2005, when the global company, based in the UK, formed BP Alternative Energy, opened its North American headquarters in Houston and pledged worldwide investment of $1.8 billion in renewables over three years. At the time, it said it would build 200 MW of wind in the US by 2007.

"While it's true that our US business was the main focus of the work we did last year, we do have a global business and we'll have a lot going on in Europe and Asia," says Bob Lukefahr, president of BP Alternative Energy North America. "We think the business will play out in a fairly balanced way and each market has its own dynamic. One advantage to having a global portfolio is that you can operate across a very balanced environment."

Across four states

The five US projects are in four states. Largest by far is the 300 MW Cedar Creek project in Colorado, a joint venture with wind fund manager Babcock & Brown, which trades on the Australian stock exchange. Cedar Creek is under construction and combines 220 Mitsubishi turbines with 53 from GE Energy. Two further developments, of 60 MW and 100 MW, are in Texas. Another, at 65 MW, is in North Dakota. The fifth is a 20 MW repowering job in California.

BP's long range US wind plan includes nearly 100 projects with a potential generating capacity of some 15,000 MW. "We have one of the largest development portfolios in the US and a large supply of turbines," says Lukefahr. "I think we'll be one of the leaders in wind going forward."

Key to the company's US presence is the purchase of Orion in California and Greenlight in Virginia, two locations that serve as North American bookends. "It was happy coincidence that it worked out that way," Lukefahr says. "We screened all independent developers in the US and selected the best companies. It's very rare that you get to acquire number one and number two on your wish list. That's very satisfying because many of the people who have come in the door through these acquisitions have a tremendous amount of experience."

Project portfolio

Greenlight owns the rights to develop 39 wind projects in 15 states with a total potential generating capacity of 6500 MW, while Orion has more than 30 projects in development in 16 states and the potential to generate more than 6,000 MW. "The resources that BP can bring to bear on the development of our portfolio will bring about significant change," says Orion's Jim Eisen. "It has to do with their financial strength, their ability to procure turbines, their presence in the trading markets for electricity -- any number of things that they're good at."

BP did not include finished projects in either transaction, nor will all new projects come through Orion and Greenlight. One project, the 90 MW Goshen II project in Idaho, is a partnership with Ridgeline, a Seattle developer. "We had a fully developed project," says Ridgeline's Stephen Voorhees. "BP came in, looked at it and liked what they saw. They bring a big balance sheet and it seemed to be a good fit. We're very happy to be working with BP. They're making a significant step into renewables and I think they're very serious about wind."

Much of BP's thrust comes from an increasingly favourable US playing field, which includes the recent one year extension to the federal production tax credit (PTC), along with momentum toward national policies for trade of renewable energy credits (REC) and minimum state standards for renewable energy supply, most often referred to as renewables portfolio standards.

"Now everyone has at least a two-year runway," Lukefahr says of the PTC. "But if we're going to see the growth in wind that we want to see, a coherent long term policy is what it'll take to get the industry to move in that direction. I hope we get away from one-year extensions and I hope it includes something with REC trading, a national RPS and some greater certainty in tax credit structure over a longer period of time."

As for the oft-mentioned notion of achieving 20% renewables in the country's energy portfolio, Lukefahr is cautiously optimistic. "Reaching 20% is technically and economically feasible," he says. "But you've got to appreciate the scale. We're still at less than 1% and if we've put in ten to twelve gigawatt of wind so far, we'd have to get to four hundred gigawatt to hit 20%. To go from ten to four hundred will have to include a lot more than a twelve month PTC extension every year or two."

On dry land

BP has no plans to tackle the US offshore market. "I struggle to find a strong business case for building offshore in the US," says Lukefahr. "In Europe and elsewhere it's much more compelling."

Meanwhile, BP Alternative Energy's parent company, the world's third largest oil and gas producer, has seen rough waters. January's announcement of five US wind projects came on the same day that chief executive John Browne said he would step down in July, more than a year ahead of schedule. The reshuffling is largely due to BP's recent woes, which include last winter's oil spill that closed some operations in Alaska, along with problems stemming from the 2005 explosion at a Texas refinery that killed 15 workers and is reportedly costing the company billions of dollars.

Lukefahr prefers to focus on the corporate mission. "We've been on a very long path to do responsible things that take appropriate action," he says. "And alternative energy provides the next step in providing our customers with lower carbon electricity. It's a piece of the corporate culture and strategy."

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