BP turns its back on UK CCS, wind markets

10 November 2008


The UK government says that the withdrawal of BP from its carbon capture and storage (CCS) competition will not have a negative impact on plans to construct one of the world’s first commercial-scale CCS demonstration plants.

The UK-based energy major has decided to pull out of the CCS competition, and also says that the UK offers little opportunity for profitable growth in the renewable energy market.

The UK government’s newly-created Department for Energy and Climate Change (DECC) said in a statement that “BP’s decision does not compromise the integrity of the competition nor will it have a material impact on the robustness of the procurement process”. It plans to continue the competition with the remaining participants.

BP was one of four pre-qualified groups bidding to win funding to build a commercial-scale project demonstration post-combustion CCS technology in the UK. The winner of the competition will be announced at the end of 2009, with the project scheduled to go into operation by 2014.

BP told MPS that it has withdrawn from the competition because it could not find the “right mix of players to create a winning consortium”. It will continue to focus its CCS expertise on two pre-combustion CCS demonstration projects in Abu Dhabi and California.

Unlike other groups participating in the UK’s CCS competition, BP entered a bid without a specific project in mind, instead offering its technological expertise and access to North Sea reservoirs. It hoped to form a consortium with another bidder or with other companies in order to take a project forward in the contest.

BP’s withdrawal leaves Germany’s E.On, Iberdrola-owned ScottishPower and a consortium of UK-based Peel Holdings and Danish energy firm Dong Energy in the running, and further reduces the company’s investment plans in the UK’s clean energy market. It is planning to invest $8 billion in the alternative energy market to 2013 and has confirmed that little of this will be spent in the UK.

“Our focus in wind has been the USA, which is a major market. We see the opportunities there as being profitable and we don’t feel that this is the case in the UK,” said a BP spokesman.

BP maintains that its plans are “not a reflection on the UK market”, yet they are likely to be a disappointment to the government, which has gone to great lengths to create policies and an investment environment that will attract major investors and make the UK a leader in renewable energy.

BP’s strong balance sheet and offshore expertise are seen as being key assets to the UK renewable energy market, where offshore wind is a strong growth area, according to law firm Eversheds.

A DECC spokesman said: “There remains a great deal of interest in the UK renewable energy market from other companies and we have registered over 96 interested parties in the Crown Estate Round 3 offshore wind projects. In addition, Vattenfall is making major investments in our wind market and Masdar is investing in the London Array project.”

BP says that one factor attracting it to the US wind market is the economy of scale that it can achieve with projects. The policy environment and infrastructure in certain US states also helps to make projects viable.

“In the US wind market it comes down to basics – it’s a big place with lots of wind,” said the BP spokesman. “They also have the right infrastructure – such as manufacturing facilities – as well as incentives and subsidies that give projects a financial push.”

BP is planning to spend $1.5 billion on alternative energy investments next year, its focus being on wind, solar, biofuels and hydrogen. The majority of investments will be made in partnerships with other companies, bringing the total project value for next year to around $4 billion.

In the UK it is currently building a grain-based bioethanol facility and had obtained planning permission for a small-scale wind farm in Kent. In 2007 it abandoned plans to construct an advanced coal fired plant equipped with carbon capture at Peterhead. The lack of incentive funding at that time, for a giant project that BP saw as having national interest aspects, was a major factor.




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