Why BP’s Renewable Energy Plan Scaling Was Inevitable

When the news broke that BP (LON:BP) was scaling back its renewable energy ambitions, it didn’t come as a huge surprise. In fact, for market watchers, it was somewhat inevitable.

As of 2020, BP has been working to build its offshore wind portfolio in line with its former boss Bernard Looney’s pledge to “become a net zero company by 2050 or sooner.” The four-year-old policy change saw the company frequently outbid for renewable energy assets, outstripping even established industry players. Furthermore, the assets are not expected to generate income for years.

By comparison, BP has spent $2.5 billion on offshore renewables, hydrogen, electric vehicle (EV) charging and biofuels, for a total capital expenditure of $16 billion between 2023 and 2024. While the company’s stance has been partly embraced by environmental groups, it has been seen as a stark contrast to what BP shareholders have been asking for—a focus on its core oil and gas business while taking a somewhat moderate approach to the energy transition.

That weighed on BP’s share price, which was already lagging its U.S. peers in terms of valuation. Looney’s unceremonious departure damaged shareholder confidence in the company to the point where it was considered a takeover target.

When rival Shell (LON:SHEL) responded earlier this year by reducing its exposure to renewable energy, revised its targets and saw its share price jump, BP, under new CEO Murray Auchincloss – appointed in January – simply had to respond, and it did.

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First, it revised its own plans to cut oil and gas production by just 25% between 2019 and 2030, reversing its previous target of a 40% cut over the same period. In April, it scaled back electric vehicle charging activity. On Thursday Reuters Agency report revealed that Auchincloss has suspended new tenders for offshore wind projects.

The company’s track record in this area puts its total number of offshore wind projects at just under 10 GW, spread across the US, UK and Germany. Sources suggest the BP boss wants his company to redouble efforts across its existing portfolio rather than bidding for new renewable energy projects.

This meant freezing employment in the renewable energy sectors and reducing employment. Not only this, Reuter The report also found that several employees tasked with identifying new renewable energy opportunities have been reassigned to other roles within the company.

However, BP will continue to invest in biofuels and low-carbon businesses, which it hopes will deliver short-term returns. Earlier this week, it agreed to take full control of BP Bunge Bioenergia – a Brazilian ethanol joint venture with agricultural commodities company Bunge – for $1.4 billion.

BP said in a statement: “We intend to operate as a simpler, more focused and more valuable company.

“We have identified six priorities that support this; including: an increased focus on the business activities that generate the greatest value, as well as delivering both the next wave of BP efficiencies and growth projects. The actions we are taking are part of delivering this, in service of our purpose of increasing the value of BP.”

There’s no doubt that the company’s shareholders would breathe a sigh of relief as they hope to make up for the more than 12% decline in BP’s share price over the past five years. Especially since in the same period the value of Shell increased by 10%.

Ultimately, their pressure paid off. Short-term gains for BP may be on the horizon, but long-term challenges to its future in a rapidly evolving energy mix remain.