Posted by: joachim in Companies on June 23rd, 2009

Some years ago BP embarked on a big re-branding exercise including a name change from “British Petroleum” to “BP”, which advertising tells us stands for “Beyond Petroleum”. Withi this, BP announced in 2005 to invest $8bn over 10 years into Alternative Energy.

Initially, Alternative Energy together with Natural Gas formed the busines segment “Gas, Power & Renewables”. The rationale behind this grouping was to combine sources that are cleaner than oil together. In 2008, however, the Gas business was finally merged with Oil, while the Alternative Energy segment demoted to a division status, now part of “Other Businesses & Corporate” along with shipping, treasury (interest income) and aluminium assets.

This move looks indicative of the significance the AE- business has among management. Being bundled into a very diverse segment also means, there are on performance details in the annual report and financial statements.

From the annual report we can only glean on some rough data.

In 2008, BP invested $1.4bn into areas with long-term growth potential – wind, solar biofuels and CCS as well as gas-fired power. Total investments (excluding acquisitions and asset exchanges) were $22bn. I.e. investments into alternative energy was 6.36% of total investment.

Annual solar cell production capacity in 2008 was 213MWp. That’s just 1.4% of the global market. BP’s Wind net rated capacity was 432MWp (sum of all assets that have entered into operation).

Net Revenues in “Other business & corporate” was $2.675bn, in comparison to Exploration & Production $37bn and Refining & Marketing $248.9bn, resulting in a loss of $1.233bn within “OB & C” in comparison to $27.7bn in E&P and $6bn in R&M. Hence the “Other Businesses & corporate” segment’s share of total revenues is 0.93%.

It seems to me that:
(1) Alternative Energy is not BP’s core business, despite what advertising campaigns about energy mix might suggest.
(2) Despite significant investment (in both relative and absolute terms), it’s not clear whether it’s a profitable business on its own. By bundling it into “Other Businesses”, a lacklustre preformance can be more easily hidden.

In conclusion, although BP is fully committed to its investment promise, the Alternative Energy section sits uneasily within what is essentially an oil company.