BP shifts offshore wind focus to Europe as questions hang over giant US projects
'Integrated' developments multiply returns in key European markets, says interim CEO Auchincloss
BP is working on a response to moves by New York regulators to solicit new power purchase agreement (PPA) offers for its stalled projects there, but the oil supermajor said its focus has now moved to "integrated" plans in Europe.
In June, BP and joint venture partner Equinor had applied for an average 48% increase in their original power deals on the 2.4GW Beacon Wind and the 2GW Empire Wind projects, amid rising supply chain and capital costs.
"We requested a renegotiation of our power purchasing agreements with New York. That was rejected in October and as a consequence of that our accountants had a look at our fair value of our assets and... in this quarter we have taken a $540m pre-tax impairment on that," said Kate Thomson, BP's interim finance officer.
Last week the partners were asked to provide feedback on a 10-point plan announced by the New York State regulators, framed as an attempt to revive the stalled offshore wind projects.
"We will have to see how circumstances evolve... We will work with our partners closely on how to go forward. We need to see those projects continue to meet a 6-8% unlevered return which is what we have been clear on in regard to our requirements for offshore wind," Thomson added.
New focus
BP's interim CEO Murray Auchincloss said the oil giant is working with Equinor to understand what the regulators' 10-point plan means.
"I think it includes the right to invalidate the previous PPA and solicit a new one," he said. "We will update the market in due course."
But Auchincloss was pressed further on the company's broader strategy for offshore wind and the risk of further impairments.
"In offshore wind we are really focused on integration. It's about taking the electrons in the UK, taking the electrons in Germany and providing those into the rest of our businesses... into refineries, into fast-charging with fleets, into hydrogen plants and into trading relationships," he said.
The UK oil giant's interim CEO said offshore wind projects in key European markets provide the 6-8% unlevered returns required, but he suggested that adding the integration value takes the returns up an "awful lot more".
US absence
"As time has progressed, we have focused much more on the integrated operations you see in Europe and that is why we didn't bid in many of the offshore wind rounds in the United States in recent quarters," he said.
BP's pivot toward integrated markets for offshore wind began as recently as February and Auchincloss admitted that the strategy has changed since 2020, when the company made its move into offshore wind in the US.
"We have our own natural demand for green electrons, which is enormous, especially in places like onshore Europe and the UK where there is not enough land for solar power or onshore wind, and taxation and incentive structures are a driver for a greener economy," he said.
"We see that as a place where we should be going [into] offshore wind, it provides a natural sink."
Auchincloss predicted that4GW of seabed rights that BP acquired in Germany in July is likely to be a relatively small part of the play in that country. "We see much more demand," he said.