BP's other disaster  

Giles Parkinson at The Climate Spectator has a look at BP's ventures into renewable energy over the years - BP's other disaster.

The headlines relating to BP today will no doubt be about the oil giant's record losses and the huge payout for its departing CEO. But there’s a fascinating story to be told about its flirtation with renewable technologies, and it’s a cautionary tale that has lessons for investors large and small, company boards and policy makers, as well as the PR industry.

London-based analysts at Citigroup have done a bit of research into BP and its experimentation with renewable energy and, in doing so, have contrasted the fortunes of one company that talked about doing something, and another company that did something.

Just over 10 years ago, both BP and its Spanish equivalent, Iberdrola were large energy companies with minimal exposure to the renewables market. This is what happened next.

After the merger with Amoco, and the purchases of Atlantic Richfield Corporation and Burmah Castrol in 1999, BP decided to invest $US200 million in a branding campaign called Beyond Petroleum managed by Ogilvy and Mather.

It was a stunning success. And O&M marveled at their own work: "Our Brand Champions implemented change internally with leadership communications, toolkits, chat room promotions, CEO satellite broadcasts, town hall meetings and celebrations." Hooray!

Shareholders must have thought it was money well spent. The campaign lifted BP’s “brand power” in the US among business decision makers from a score of 30 in 2000 to an all-time high of 50 in 2008. It was quickly adopted within the sustainable investment community as a champion of corporate responsibility, and was held up as an example to others of progressive management of environmental and social issues.

According to Citigroup, rating agencies comparing the sustainability performance of the energy sector routinely graded BP "best in class" on environmental issues, making the company eligible for inclusion in SRI and ethical funds run on this strategy.

But there was little substance to it. According to Citigroup’s analysis of BP’s 2009 results, after a decade of talk, the alternative energy business had grown into just 711MW of wind capacity, sales of 203MW of solar equipment, a 50 per cent joint venture with Rio Tinto to build and demonstrate a hydrogen-powered electricity generating facility with carbon capture and storage, and a CCS project in Abu Dhabi.

The revenue from these businesses are not disclosed separately in the company’s financial reporting, but included in the “other businesses division,” which Citigroup says is expected to contribute an annual loss of around $400 million in 2010.

Meanwhile, in Spain, Iberdrola over the same period lifted its renewables portfolio to 20 per cent from 3 per cent, floated its renewables division Iberdrola Renovalbles for a direct cash injection of €4.5 billion, and now has a renewable capacity of 10.8GW – about 13 times bigger than BP.

This includes 2.1GW of wind in the US, the market that BP described as its prime target. In 2010, according to Citigroup, Iberdrola will install 1.7GW of wind, twice as much as BP has installed in the last decade. Iberdrola Renovables had total sales of €2 billion in 2009 and a net income of €371 million.