» Oil giants win offshore wind leases in Britain.
Two giant oil companies won the largest share of options to build new offshore wind farms awarded by Britain on Monday, investments that are expected to eventually total in the tens of billions of dollars.
The options were a big move by major oil producers into an industry that has for years been dominated by smaller, specialized companies.
The winning bidders, including BP and French oil company Total, agreed to initially pay a total of 879 million pounds, or about $1.2 billion, in deposits to develop offshore wind farms that will provide sufficient power to light up 7 million homes.
The announcement was made by the Crown Estate, an organization that manages the properties on behalf of the queen and the British government. The undersea tracts are part of a large portfolio of properties owned by the British monarchy. Most profits go to the government, with around 25 percent going to pay the sovereign’s expenses.
The high amounts paid for options to build on six offshore plots surprised observers. It appeared to be a sign of the strength of the British wind market and the eagerness of oil companies to get into the business, said Soeren Lassen, head of offshore wind research at energy research company Wood Mackenzie.
“This is a very strong and clear sign of the attractiveness of the offshore wind sector,” he said.
Offshore wind, which has existed as an industry for only about three decades, has advanced into the mainstream of large-scale electric power generation. The oil companies are piling into offshore wind because they reckon that investing in massive facilities capable of providing clean power for millions of homes can quickly advance their commitments to reduce the overall carbon emissions of the energy products they produce and sell.
The companies are accustomed to spending $10 billion or more on energy projects, and their eagerness to lock up offshore tracts may also be driving up prices in an industry previously known for frugality.
Key offshore players such as Orsted, a Danish company that is the largest offshore wind developer, failed to win any acreage in the auction. In a statement Monday, the company’s deputy chief executive, Martin Neubert, criticized the prices paid as “unsustainably high.”
The oil giants appear to believe that it is worth spending substantial sums to gain access to favorable sites. Dev Sanyal, BP’s executive vice president for gas and low carbon energy, said offshore wind would be the energy sector’s “fastest-growing business over the next 20 years.”
Sanyal also said that building and maintaining turbines at sea fit well with BP’s legacy skills in drilling for oil in the North Sea off Britain and other areas. Although the company is in the process of shedding 10,000 jobs as it gradually reduces oil production, it is installing some former oil and gas operators into critical roles in its renewable energy businesses.
BP estimates that it will pay 1.8 billion pounds over four years for the rights to two tracts in the Irish Sea. The turbines are expected to begin generating power after seven years.
Total was the top bidder for a large tract in the southern North Sea in partnership with an arm of Macquarie, a financial company.
BP and Total are rapidly expanding their offshore portfolios as part of commitments to help mitigate emissions. Last year, BP paid $1.1 billion for a half-share of the offshore business that Norwegian oil company Equinor has established off the U.S. East Coast. The companies were recently tapped by New York state to supply power from two large wind farms in the Atlantic.
RWE Renewables, a German utility, won two large swathes of seabed awarded by Britain on Monday.
The companies will pay annual fees while developing their projects and then 2 percent of their revenue, according to the Crown Estate.
Orsted, which participated in the auction but did not win any tracts, suggested that high prices reflected a lack of sufficient opportunities to meet demand.
“Appetite in this leasing round by far exceeded supply, resulting in unsustainably high front-end costs,” executive Neubert said in a statement.
RenewableUK, a trade group, also found fault with the auction process, warning it might “mean higher costs for developers and consumers.”