BP Alternative Energy: It's a Start

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by: Joel Makower

At last: we now know what's "Beyond Petroleum."

That moniker, as you well know, has been energy giant BP's tagline since 2002, when the company formerly known as British Petroleum, and then BPAmoco, changed its corporate name to BP plc. The "Beyond Petroleum" tagline has been so successful that I've heard business students and other smart souls swear that it had become the company's new name.

For marketers, that may represent a dream come true. But I'd long seen it as a red flag — an opportunity for yet another company to get into trouble by letting perception get ahead of reality. After all, its marketing prowess notwithstanding, only a tiny percent of BP's annual revenue has come from things "beyond petroleum," and most of that is from natural gas. (The exact amount of BP's renewable energy revenue isn't known, since in its annual report, the company lumps together "Gas, Power, and Renewables," which includes natural gas as well as solar. However, BP has previously reported that it aims to reach $1 billion in solar sales by 2007-08, which would represent well under 1% of the roughly $350 billion in overall revenue it generated in 2004.)

But reality seems to be closing in on perception. On Monday, BP announced the launch of BP Alternative Energy, a new business unit that will manage BP's investments in solar, wind, hydrogen, and combined-cycle-gas-turbine power generation, which could amount to $8 billion over the next decade, the company says.

The timing for BP's announcement couldn't be better, PR-wise. With public resentment building over record oil company profits, combined with rising concern over the stability of the world's energy supplies, oil companies must know that the public is looking to them to step up to the plate. BP, for its part, enjoyed profits of nearly $15 billion for the first nine months of 2005, up 25% from the same period a year ago. The lion's share of this profit came from its interest in fossil fuels.

But it's clear that this isn't just a PR ploy. Indeed, BP appears to have been building to this day for quite some time. BP's chief executive, Lord John Browne, has long been ahead of the pack, dating back to September 1997, when he broke ranks with his big-oil brethren to give an historic speech on climate change — the first time that any oil exec had spoken out on the subject. "If we are all to take responsibility for the future of our planet, then it falls to us to begin to take precautionary action now," he said at the time. He then announced specific steps the company would take to control its own climate emissions as well as to "develop alternative fuels for the long term."

And it's been doing that. BP has been a pioneer in solar; it's BP Solar unit is now the world's third-largest solar company, with about 10% of the global market, and in May reported its first-ever annual profit. BP recently signed a strategic joint venture to access China's expanding solar market and provide local manufacturing capacity and is exploring similar opportunities elsewhere in the region.

It's not just solar. BP says that its investments in hydrogen fuels will include the world's first commercial project — at Peterhead, Scotland — to turn natural gas into hydrogen by stripping out carbon dioxide and pumping it into depleted oil reservoirs. The hydrogen will be used to generate 350 megawatts of electricity — roughly equivalent to one coal-fired power plant. BP also runs two wind farms alongside existing oil plants in the Netherlands and "has identified enough U.S. sites to accommodate wind turbines with a total capacity of 2,000 megawatts," it says.

It's important to keep all of this into perspective, of course. BP told Reuters that the new BP Alternative Energy unit "had the potential to deliver sales around $6 billion a year within a decade" — or equivalent to about half the profits it made in just the past year.

Still, as BP has put it in its own ads: It's a start.

Original Post: http://makower.typepad.com/joel_makower/2005/11/bps_new_renewab.html