Company Report: BP scales back in stormy times

Oil giant cuts wind development target for the next two years by more than half but retains sole focus on North American market.

BP Alternative Energy is scaling back its investment in wind as a response to the global economic crisis. Although last November the London-based oil giant announced its intent to aim its entire $1.5 billion wind development budget at the North American market with a goal of building 750 MW per year, the company now says it will continue to concentrate solely on North America but, for the time being, with less money and fewer megawatts involved.

BP says it will only increase its North American wind capacity by 301 MW this year, with another 225 MW expected in 2010. "We've had the economic downturn and we've had reduced crude oil and gas prices," says John Graham, president of BP Wind Energy. "And so the company has scaled back across all of its investments in oil, gas and renewables. We'll change according to the economic circumstances of the group."

Graham, who previously served as manager of BP's full portfolio of alternative energy investments at the company's London headquarters, relocated to Texas and took on his new role earlier this year. BP's former wind boss in the US, Bob Lukefahr, left the company for a position at a US solar start-up in February.

Graham insists the goal of growing BP's businesses in solar, biofuels and carbon sequestration, in addition to wind, remains a priority and that sticking to North America for wind development is the right move. "In light of the lower levels of investment, it doesn't make sense for us to try and spread our wind investments globally," he says. The company reached around 930 MW of commercial operation in the US earlier this year, when the 400 MW first phase of the Fowler Ridge came online in Indiana, with Dominion Energy as a part owner. That project joined two in Texas - Silver Star at 60 MW and Sherbino I at 150 MW, in addition to the 100 MW Flat Ridge in Kansas, the 301 MW Cedar Creek in Colorado, and Edom Hills, a 20 MW repowering project in California. Next year, BP expects to add a second phase of Fowler Ridge at 200 MW and the 25 MW first phase of Titan, a South Dakota development collaboration with Clipper Windpower, a California-based manufacturer of 2.5 MW turbines.

Titan has the potential to reach beyond 5 GW in the windy Great Plains by the middle of the next decade if the economy co-operates and plans for new transmission fall into place. Graham hopes to see a consortium of companies share the cost and access to new wires. "The real issue with the Titan build-out is transmission," Graham says. "How do we export the wind power from South Dakota either into Chicago or the West Coast? Answering that question is going to determine how we build out Titan in the coming years."


Early in BP's move into wind power, the company has been closely aligned with Clipper, having agreed in July 2006 for Clipper to deliver up to 1706 turbines and nearly 4.3 GW of wind development within five years. So far, 260 MW of Clipper turbines under BP ownership are in operation. Clipper, meanwhile, is in talks with potential investors that could result in a new partner acquiring anywhere between a minority interest and a full takeover. But Graham says BP's three-year-old relationship with Clipper and the equipment deal remains strong. "They're a key supplier to us," he says. "Clearly, they are suffering in the same ways lots of other suppliers are suffering, and it's in both our interests to help them through that period. So that's what we're doing - we're being flexible on our contractual terms with them and they're actively out there seeking new customers."

Graham says that while BP is convinced Clipper turbines are as reliable as any other, banks remain wary because the machines lack a lengthy track record: "The key issue for them is really that the turbines are not financeable because they don't have enough longevity of operation in the market for the banks to have assurance about the risk profile of a Clipper machine versus, say, a GE or a Vestas ... machine."

Clipper spokeswoman Mary Gates does not disagree with Graham's assessment. "I would say, yes, we have more of a challenge than a Vestas or a GE - the ones that have had turbines out in the field for quite some time," she says. But she also points to a $191 million, 202 MW financing deal announced in July by First Wind, including 145 MW of Clipper turbines, as evidence that the firm is on the right path. "We installed our very first turbines in the field in mid-2007," Gates says. "I would say that our track record is coming up and that there are some turbines that have been financed."

In addition to Clipper machines, BP employs Vestas, GE and Mitsubishi turbines in its half-dozen US projects. In general, Graham believes that turbine prices are softening to 5-10% below peak prices and that the market is likely to remain long on equipment for at least another year. "A lot of people have still got physical turbines and don't necessarily have the cash to install them in the ground," he says. "There's only so much renegotiation on order size and terms that can be done. So they're either sitting on them or trying to sell them cheap."

BP's goal for the next few years is to develop a handful of projects in the 100 MW range or above until the economy improves. "In the short term, with constrained finances, that's as much as we're able to do across our portfolio of development," says Graham. "If something changes significantly in the next two or three years and more financing becomes available and the markets free up and the oil price goes up, then we can start (looking) back to the time when there was hope for a gigawatt a year. But, frankly, we're not in that space at the moment." He adds that BP intends to keep its wind efforts onshore: "There's so much low-hanging fruit onshore in the US that you'd really have to be a big risk taker to go offshore."

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