BP and other oil majors v utilities

INVESTOR WEBINARS are not generally mass entertainment. But some 25,000 people tuned in this month when BP outlined plans to transform its business. Top on the British oil-and-gas giant’s to-do list is raising its wind, solar and biopower capacity from 2.5 gigawatts (GW) last year to 20GW by 2025 and 50GW by 2030, when annual investment in low-carbon energy will reach $5bn or so. BP hopes to become a new kind of energy major. It is not alone.

European electric utilities have lately emerged as the world’s top developers of wind and solar projects outside China (see chart). These offer growth and, in an era of ultra-low interest rates, stable returns thanks to long-term contracts. Concern about climate change means that big, risky drilling projects must offer higher returns to lure investors. Michele Della Vigna of Goldman Sachs, a bank, estimates that the divergent cost of capital for oil and renewables investments implies a price of up to $80 a tonne of carbon dioxide, well above the global average of around $3. As share prices of oil giants such as ExxonMobil have tanked amid the pandemic slump in demand for crude, those of electricity majors, such as Spain’s Iberdrola, Germany’s RWE or Portugal’s EDP, are up this year. That of Orsted, a Danish wind-energy champion, has risen by a third. BP wants in.

A decade ago excess capacity, the financial meltdown and competition from renewables firms imperilled Europe’s traditional power companies. Faced with the falling value of their coal and gas assets, many took the shift to cleaner energy seriously, says Deepa Venkateswaran of Bernstein, a research firm. Orsted has turned itself from an ailing state enterprise into the world’s largest developer of offshore wind. This year RWE and E.ON, another German firm, swapped assets, with E.ON concentrating on grids and RWE on generating clean power. Iberdrola, EDP and Italy’s Enel have invested in wind and solar projects in Europe and beyond.

This article appeared in the Business section of the print edition under the headline “The new majors”