The Role of Renewables in the U.S. and World Energy Mix

July 10, 2012 – 3:00 p.m.
Atlantic Council, Washington, D.C.

Speakers:
Katrina Landis
Chief Executive Officer, BP Alternative Energy Ltd.
John Lyman
Director, Energy and Environment Program, Atlantic Council
Katrina Landis - British Petroleum’s (BP) Alternative Energy (AE) Ltd. division was launched in 2005 with global assets in the United States, Brazil and Europe. BP AE’s aim is to create new businesses, which will facilitate BP’s transition to a low-carbon future. With four core businesses in biofuels, US wind, solar and hydrogen power & carbon capture and storage, BP AE has invested about $7 billion, where $4 billion of that has been invested in the US. BP AE has invested approximately $4 billion in U.S. biofuels, including wind, solar and hydrogen power, as well as carbon capture and storage. Ms. Landis spoke about two of the businesses within BP AE--biofuels and wind energy-- and mentioned that BP AE plans to let go of their solar business due to competition. Unfortunately, BP AE’s carbon capture and storage business is at a standstill, as the progress is not moving at the expected pace.

In terms of biofuels, BP AE reexamined their strategy. It was decided that there were four criteria that needed to be satisfied in order to create a viable business. First, biofuels have to be low cost. They have to be capable of competing with hydrocarbon fuel over the short to medium term, with absolutely no form of subsidization. Second, biofuels must be low-carbon from a full cycle greenhouse gas basis. Sugar cane ethanol in Brazil, for example, has 90% less impact on the greenhouse gas basis than does gasoline. Third, biofuels have to be scalable. BP AE is not interested in niche opportunities; they are looking at developing very material businesses. Finally, they must be sustainable from an environmental, social and economic perspective. In an effort to fulfill these criteria, BP AE decided to focus on sugar fermentation as their core conversion methodology. BP AE believes that is the most viable and economic way of producing biofuels across a wide spectrum. Although the three businesses within biofuels act mostly independent, ultimately, the division expects to see the joining of the technologies they are developing with the advantaged businesses that they have on the feedstock basis. Today, they can produce sugar cane ethanol on a volume basis that will compete with hydrocarbons at $50 per barrel and on an energy basis that will compete with hydrocarbons at $60 per barrel, with no subsidization required whatsoever to put ethanol onto the market.

Within the wind business of BP AE, there are 13 operating wind farms with 1000 turbines and nearly 2000 MW of production. Furthermore, there are three facilities being developed this year in Kansas with 470 MW under development, Pennsylvania and Hawaii, which will the first wind facility in that state. In Hawaii, the use of battery storage is required in case the sun is not out or the wind is absent, which makes it the first wind farm to make use of batteries. What is driving BP AE to invest in wind power in the US is the production tax credit (PTC). Essentially, this piece of legislation says that the US government will financially support the development of wind energy. To date, this has meant $3.5 billion of support, which has driven $16 billion of capital investment from the industry. The cost of wind energy between the years of 1990-2010 has come down 55% and in the last three years alone, the cost of wind energy fell 25%. As the prices have come down, the size of wind turbines has increased seven times and the power output has increased fifteen times. Over the next 2-4 years, depending on the price of gas, wind energy will be able to compete with gas without any additional form of subsidization.

Since the year 2007, 35% of the new generation for power has come from wind energy, and BP AE anticipates that biofuels will make up 30% of the gasoline gene pool by 2030.

-by Amy Kuehnert