Summary
The shutting down of BP London Alternative Energy HQ is a simple measure of cost reduction in times of financial crisis and global economic instability. The exit from the solar and wind segments of alterntative energy is very well timed and synchronized with the alternative energy HQ: Both wind and solar areas are not part of BP core business but they did look good on the green banner and part of the slogan Beyond Petrolium. Both wind and solar are almost matured technologies but still not economically viable and can only make economic sense with government subsidies and grands. On the other hand, BP alternative energy activity in the area of biofuels is alive and well in Brazil. This is the only segment of alternative energy which is in line with BP core business of gasoline production and distribution.
Analysis
BP is a major oil company. Just as other global major oil companies, its core businesses are oil exploration, refining and retail distribution.
In times of economic uncertainty, many global corporations review their new business initiatives and go back to their core business.
Solar and Wind power really look good on the corporate brochure, web site and in trade shows but they are not part of BP core business. Both of these technologies still have a long way to go before becoming commercially viable technologies (that don't rely on government grants / subsidies).
Biofuels, especially Ethanol that can be blended into conventional fossil fuel is in line with BP core business mentioned above.
BP made strategic and wise investments in that area in Brazil in recent years and is very well positioned to take advantage of them in the near future even without having an independent alternative energy HQ in central London.
BP has created a biofuels subsidiary in Brazil called: BP Biocombustiveis.
BP Biocombustiveis has taken a 50% stake in Tropical BioEnergia SA, a joint venture established with the Brazilian companies Santelisa Vale and Maeda Group, which has constructed a 435 million liter (115 million gallons) a year ethanol refinery in Edéia municipality, Goias State, Brazil (Refinery became operational in 2H’2008)
The joint venture, in which Santelisa Vale and Maeda Group would each hold 25%, also intends to progress plans to build a second ethanol refinery, investing a total of approximately R$1.66 billion (US$1 billion) in the two refineries. The second refinery is scheduled to begin producing ethanol from sugar cane in mid 2010.
BP will replicate the production cluster model from Goias state to other Brazilian states with other partners to reach a total sugar cane crushing capacity of 50-100M tones.
Last month, BP Plc (BP.L) and Brazilian state-run oil company Petrobras (PETR4.SA, PBR.N) declared that they have plans to spend at least $3.4 billion in to build and purchase mills, as well as in research in new technologies to raise productivity and sustainability of cane-based ethanol.
BP Global ongoing biofuel research initiatives: A project with DuPont Co (DD.N:) to develop biobutanol (a biofuel with energy content 20 percent higher than conventional cane-based ethanol).
JV with U.S.-based Verenium to develop cellulosic ethanol production process.
In contrast to the article in The Guardian, BP is definitely not exiting the Alternative energy sector; it is just refocusing its efforts in the biofuel segment which is highly correlated to its core business as global oil major.
