Market conditions and resource availability matter more for attracting investment from major oil companies in renewable energy than government incentive programs.
As major oil companies strengthen their renewable energy portfolios, many point to government incentives as critical to advancements in renewable energy and CO2 emissions-reduction. But local market conditions and resource availability, both of which are vital for long-term viability, are also vital for attracting a share of their capital budgets.
BP announced new off-take agreements for 105 MW from its proposed Mehoopany Wind Farm – one of 13 wind projects in which it has an interest – on July 5. The firm has with 1300 MW of gross generating capacity, all in the US.
“Government incentives clearly help give nascent industries a boost and that is the case for renewables in the United States. Investment tax credits and reimbursements help many projects get over the hump to construction, particularly wind and solar projects,” said BP spokesman Tom Mueller.
But government incentives alone are likely insufficient to attract major oil companies to the US wind sector. Mueller and Shell spokesperson Kayla Macke highlighted the availability of wind resources in the US as another advantage.
“Our current emphasis is on developing and constructing greenfield projects in high-resource areas that have access to high-demand markets,” said Macke.
The potential for profit in US wind and solar may exceed that in other regions Joe Stanislaw, senior advisor to Deloitte’s Energy and Sustainability practice, suggested.
“If you look at a 2 MW wind turbine, it’s competitive with base-load coal right now in the US… that’s not the case everywhere,” Stanislaw said. He added that competitiveness would vary state-by-state; a wind or solar project that may be viable in California would not necessarily be viable in other parts of the country.
French Total’s acquisition of 60% of US solar panel and system manufacturer SunPower for around $1.3 billion, completed last month, suggests that the oil company sees prospects for profitability in US solar. The deal includes an agreement to cover $1 billion of SunPower’s repayment obligations through 2016.
BP, whose solar subsidiary has operations across several continents, has 400 MW of generation capacity under development, including a 32 MW solar farm on Long Island scheduled for start-up later this year.
“In those countries where you see feed-in tariffs and other subsidies is traditionally where you’re going to have the strongest solar footprint on the ground,” Mueller said.
Chevron Energy Solutions is a co-developer, with German firm Solar Millenium, of the 1,000 MW Blythe Solar power project in California. The project, which broke ground on June 20, received a $2.1 billion conditional loan guarantee from the Department of Energy, DOE’s largest conditional loan for a solar project, according to US Energy Secretary Steven Chu.
Living Fuel
Major oil companies’ US investments have also targeted advanced biofuels, which benefit from several layers of incentives. Beyond renewable fuels standards, targeted at 36 billion gallons by 2022 from 13.95 billion gallons in 2011, Mueller listed loan guarantees, blending mandates, and a $1.01 per gallon subsidy for cellulosic biofuels production as programs encouraging biofuels development.
BP plans to spend more than $400 million building the US’s first integrated, commercial-scale cellulosic biofuels production facility, in Highlands County, Florida. The facility will produce 36 million gallons each year and open in 2013, according to BP president of North America biofuels Sue Ellerbusch.
The oil company’s goal is to cut cellulosic biofuels production costs to $1 per gallon “to enable them to compete with traditional transportation fuels, eventually without government support,” Mueller said.
ExxonMobil expects to spend more than $600 million in partnership with Synthetic Genomics (SGI) to develop biofuels from algae, provided specific milestones are met, with a new, larger testing facility on track to open later this year.
But the lack of an abundant, efficient, scalable feedstock for advanced biofuels in the US adds risk to these ventures.
“For advanced biofuels to meet their commercial potential, the two key growth enablers will be government policies, incentives and financial support and [also] developments and efficiencies in both feedstock and manufacturing,” Macke said.
Shell maintains joint research and development programs with Canadian firm Iogen and US firms Codexis and Virent, but has also thrown its weight behind a multi-billion dollar joint venture with Brazilian sugarcane ethanol producer Cosan, completed last month. The venture, Raizen, will invest $7 billion by 2016 to expand ethanol production to 5 billion liters per year from 2.2 billion liters per year, with a priority on supplying the Brazilian market, but with the potential for export to Europe, and US and Asia as well.
BP has also strengthened its portfolio in Brazilian sugarcane ethanol, with its acquisition of 83% of Brazilian producer Companhia Nacional de Açúcar e Álcool for $680 million, announced in March. The deal will add 940 million liters per year to BP’s existing Brazilian ethanol production from its 50% stake in Tropical BioEnergia, which will produce 435 million liters per year when fully developed.
