London-based BP Plc has wasted no time moving forward with its newly unveiled low-carbon strategy, announcing a $1.1 billion deal to enter US-based offshore wind generation projects.
BP will take a 50% interest in the Norwegian company Equinor’s Empire Wind and Beacon Wind projects, which will continue to be operated by Equinor. Empire Wind is located off the coast of New York City, with a total area of 80,000 acres and will supply energy to 1 million homes with an expected installed capacity of 2 gigawatts. Beacon Wind is located offshore Massachusetts state with a total area of 128,000 acres and is expected to deliver to more than 1 million homes with an installed capacity of 2.4 gigawatts. The deal is expected to close in 2021, subject to regulatory approvals, according to a BP press release.
One of the world’s first major oil producers, BP unveiled a strategy last month that envisions a massive pull back from the company’s traditional oil production business. Instead, BP will direct more investments into clean energy projects as it seeks to align business plans with international goals to halt global warming. New York, the fourth most populous state in the US and a site of one of the projects, seeks to achieve 100% carbon-free electricity by 2040.
The addition of renewable energy to global energy production continues to pick up momentum. The world added more solar and wind than anything else to its power supply last year, according to BloombergNEF.
Wind industry players like Equinor are benefitting from being initial movers. Shares in the Norwegian company rose 4% during the day following the announcement of the deal.
BP’s traditional production of fuels, such as gasoline or diesel, is mainly used in transport and constitutes a different business than power production for utilities. Now, BP sees potential in offshore wind development. The sector is estimated to grow from about 30GW today to about 190GW by 2030, the fastest growth rate among all renewable energy sectors, according BP citing BloombergNEF.
Wind energy may also be key in producing renewable hydrogen, which is seen as a clean burning fuel solution for heavy duty transport such as shipping. And BP is not alone among oil producers moving into wind. Paris, France-based Total acquired Global Wind Power France to bolster its renewables portfolio earlier this year.
BP’s investment marks a major entry into sustainable development for the company, as Equinor will operate the project. That move is in line with BP’s strategy to pool cash for new investments by allowing oil output to decline via either a pullback in exploration or divestments. Oil production will naturally decline without investment.
The involvement in two major offshore wind projects will also give BP engineers and management a closer look at how to run these alternative energy operations themselves. This will likely be useful as it pursues plans to get further involved in offshore wind in the future.