BP to make €6.8bn investment in German offshore wind power

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BP has made its first major push into offshore wind in continental Europe, agreeing to pay Germany €6.8bn for two large development licenses in a sign of its commitment to grow its renewable energy business.

The company will develop 4 gigawatts of offshore wind at two sites approximately 130km-150km north-west of the islands of Heligoland in the North Sea.

It increases BP’s offshore wind pipeline from 5.2GW to 9.2GW globally, an increase of more than 70 per cent. The target is for grid connection by the end of 2030.

Isabel Dotzenrath, BP’s head of gas and low-carbon energy, described the award as a “huge milestone” for the company both in Germany and as “a strong reflection of our wider strategy”.

BP is keen to demonstrate that investing in renewable energy remains a priority for the company after chief executive Bernard Looney rolled back ambitions to cut oil and gas production earlier this year, raising questions over its commitment to its energy transition strategy.

Shell’s new chief executive, Wael Sawan, has also come out firmly in favour on his company maintaining its focus on oil and gas in the pursuit of higher returns, leaving some analysts questioning whether the energy crisis had weakened the European energy majors’ resolve to decarbonise.

But BP has long maintained that cutting oil production more slowly should not detract from its planned investments in clean energy, and seized on its first sizeable renewable investment since the shift in strategy in February to emphasise its green credentials.

“Renewable power is a very important growth engine for us,” Matthias Bausenwein, BP’s head of offshore wind, told the Financial Times.

“It is a clear sign of our commitment of transitioning from an IOC [international oil company] to an integrated energy company.”

BP won two out of the four licenses on offer from Berlin, which covered 7GW of capacity in total across the North Sea and the Baltic Sea. The other two sites, totalling 3GW, went to France’s TotalEnergies.

Berlin initially envisaged paying subsidies to the companies but instead received a number of zero bids, leading to a reverse auction that Germany believes has vindicated its renewable energy strategy.

“It means they’ll build the wind farms without any subsidy at all,” one German official told the FT late last month. “[Now] they tell us how much they’re willing to pay us to produce unsubsidised wind energy.”

BP is forecasting unlevered returns of 6-8 per cent from the projects, which Dotzenrath said was “consistent” with other renewable investments and suggested they could be higher “through integration across the Germany value chain”. As part of the deal, BP will have guaranteed connectivity to the German grid once the projects are ready.

“The renewable power we aim to produce will anchor the significant demand we expect for green electrons for our German operations,” Dotzenrath said, pointing to plans for green hydrogen, biofuels production and the decarbonising of its refineries in the country.

The first payment of €678mn, equivalent to 10 per cent of the total, will be made to Berlin in July 2024 with the rest paid out over 20 years once the projects are operational.

Additional reporting by Guy Chazan in Berlin