CEO and analysts say JERA-BP offshore wind marriage makes sense

The deal between oil supermajor BP and Japan’s JERA to merge their respective offshore wind businesses was hailed by analysts as an unusually complementary deal between old friends that shows “little or no sign of any overlap”.

The agreement comes after a two-year period of tough macroeconomic conditions for offshore wind due primarily to surging inflation, high interest rates and a supply chain crunch.

This challenging mix has led developers to become focused on de-risking portfolios over the last year, despite an easing of conditions, noted Adrian de Andres, director for renewables growth at energy consultancy Xodus Group.

De-risking can mean exiting markets or divestments but another route is through merger and this is the one chosen here, he said.

"Others are walking away. We're trying to find ways to make it work. So we just want to focus on turning the pipeline into profits.”

But Oosterlinck also emphasised the complementary nature of the merger and the continued focus on discipline

“We are very complementary when it comes to our offshore business and pipeline. We have operating assets in Belgium, Germany, Taiwan, Japan. They have large scale projects in their pipeline in the UK and in Germany. Now we want to focus on finding ways to make projects work and delivering the combined pipeline," she said.

"We want to focus on discipline but we also want to focus on growth. I think the combination makes this a good partnership."

BP's move means the oil giant still sees offshore wind as a potentially profitable avenue for participating in the energy transition, albeit now at arms length in a JV.

In terms of immediate prizes to show its investors, BP was able to offer investors the immediate prospect of a reduction in capital expenditure. The market seemed to respond favourably, with BP shares rising to the highest for a month since the deal was announced yesterday, albeit still 16% lower since the start of the year.

Oil giant sees renewables funding needs plunge

The new partners agreed to provide capital funding of up to $5.8bn for investments committed to before the end of 2030, with BP’s share capped at $3.25bn.

In their statement, the partners said the joint venture will accelerate development from the combined pipeline, while reducing the burden on each.

In BP’s case, the offshore wind joint venture with JERA should reduce BP's funding requirements for renewables through 2030 from $10bn to $4bn, according to a research note by Jefferies investment bank.

In his own statement, BP CEO Murray Auchincloss said the agreement would deliver a top five global wind developer and a “very strong vehicle to grow into an electrifying world”, while maintaining a capital-light model for shareholders.

"If you're trying to reduce your risk, the easiest way to do that is to pay less – and to pay less means effectively sharing the capital risk with others," Andres noted.

In the view of Pierre-Etienne Claveranne, a founding partner of Paris based financial consultancy Green Giraffe, the deal was a deeply pragmatic response by BP to the challenges that emerged when oil and gas companies faced up to the stark reality that “getting into renewables profitably is no simple matter”.

"One road is to conclude that there is not enough of a fit with the company’s skills and expertise to make offshore wind an attractive business, resulting in retrenchment. This has clearly been Shell’s approach,” he said.

Another is to find ways of acquiring those skills without exposing the company to excessive risks, he noted.

French oil major TotalEnergies pursued a different version of the strategy when it created a an equity-based partnership with renewables specialist Eren, leading eventually to full acquisition of that company.

“TotalEnergies were trying to get into the renewables but were not exactly sure how to make profits out of it, so they did that deal to acquire the skill," he said.

Claveranne sees a similar stance from BP, after a roller coaster offshore wind ride that started with a $1.1bn move for a 50% stake in two Equinor projects in New York waters – a partnership that has now split – but has seen pressure to concentrate on its core fossil operations grow among investors.

Rather than concluding that there was no profitable way forward, BP chose to join in the JV with JERA Nex, whose own offshore wind team is based around the highly experienced team that came with a 2023 acquisition of Belgian developer Parkwind.

“BP was at a crossroads. Instead of turning away they chose to partner someone that has the knowledge, the skill to make something happen on their pipeline," Claveranne said.

"You can do it yourself and learn expensive lessons, or you can choose to go with other people that have done it, that have worked with the supply chain, lived through the problems and can avoid very costly mistakes.... humility in offshore wind has historically been a driver for good profits."

Partners make a snug fit

The new joint venture drew praise for the snug fit between the partners on several fronts.

JERA Nex has operational projects Europe and Japan, plus development projects in markets such as Norway, Australia and Japan, complimenting BP’s early stage projects in the UK and Germany.

"In my view, there is quite a lot of complementarity in terms of current portfolios and additionality. There is almost no overlap, if any,” observed Andres. He argues that the same assessment can be made of geographical and geopolitical market risks, and the spread of project risks across different phases of development in their respective portfolios.

“All of this provides lessons learned, as well as capital, helping you can recycle effectively and you can funnel back through development assets,” he added.

The benefits of scale were also highlighted by analysts, especially in terms of procurement and also in terms of financing.

"Maybe the best way to make the projects work is to be big and diversified, which certainly helps in the current offshore wind market when it comes to supply chains and repeatability," said Claveranne.

The obvious challenge for joint venture is that of bringing two corporate cultures together, but even this aspect of the deal drew a positive response from insiders and analysts alike.

BP and JERA, and its shareholders Tokyo Electric Power Company (TEPCO) and Chubu Electric Power, have a long history of partnership in LNG and, more recently, in pursuing possibilities for cooperation in solar, hydrogen and low carbon fuels.

"JERA and BP have had 40-year relationship in the energy and power business. It's a trusted relationship,” said Oosterlinck.

Offshore wind teams from both JERA and JERA Nex and staff from BP’s offshore wind business will be expected to move into the new business.

One member of the BP who will not be making this move is the company's incumbent offshore wind chief Matthias Bausenwein.