They Are All Bailing: First Goldman Sachs Getting Out of Solar; Now BP Getting Out of Wind

Earlier this week Goldman Sachs announced that it sold its large solar farm in California to First Solar.

Now, today, Don sends me this incredible story. It's a very, very short story, but is filled with many story lines. The headline: BP is getting out of the wind energy business.

BP  has put its U.S. wind farm operation, one of the largest in the country, up for sale, marking the continued retreat of big oil companies from renewable energy investments while oil and gas projects offer them better returns.

The British oil company has already sold or earmarked for sale some $38 billion worth of assets, partly to raise funds to pay for its 2010 U.S. oil spill liabilities, but also to reposition itself as a smaller, leaner company with an emphasis on high-margin oil production and exploration. Reports said the sale could raise a further $1.5 billion.

BP would not put a value on any sale, but said in a statement it expected "attractive offers" for the assets. They include interests in 16 operating wind farms in nine states with a combined generating capacity of around 2,600 megawatts of renewable power, as well as a portfolio of projects in various stages of development.

At the end of the article:

BP, which under former chief executive John Browne once named itself "Beyond Petroleum", still has a substantial interest in Brazilian biofuels, but has invested only about $1 billion a year in renewables since 2005 from a total capital spending budget of well over $20 billion annually. It has no specific investment plans for the sector in the years ahead.

Lots and lots of story lines, from the specific to the general:

• The specific: BP marketed itself, for years, as going green -- it's "Beyond Petroleum" was a lot like the President's "all of the above." Neither slogan worked, apparently.

• The general: it appears that all that growth in renewables was financed by those with deep pockets. Look at that last paragraph. BP, at one time, was earmarking up to $20 billion ANNUALLY for renewables. There are not many companies that can bankroll projects that cost that much. I can think of two: Google and Apple. And they have.
• This is not a good omen for states looking to add more renewable projects: if companies with very, very deep pockets are pulling out, these projects won't find funding -- not without guarantees from states for huge subsidies and/or tax credits. Venture capitalists certainly can't trust the federal government which provides for tax credits a year or so at a time. And with the bond debacles in the GM bankruptcy, the Cyprus bailout, and the news coming out of Stockton, CA, it makes investing in bonds for wind farm constructions dubious at best, and foolhardy at worst. 

• The specific and the general: they are bailing out of renewables.  BP, which used to earmark as much as $20 billion ANNUALLY for renewables has spent all of $1 billion since 2005 on such energy.

[By the way, XOM, some years ago, predicted this in a great op-ed piece. I posted it on my original blog but there's no way I could it now. The op-ed was eye-opening and very prescient.]

Back to the story lines:

• The specific: the oil spill has turned out to be a debacle.The company has sold $38 billion in assets so far to pay off claims and legal fees related to the spill.

• The general: this is not a small sale -- 16 wind farms in 9 states. If a BP with very deep pockets is bailing out of renewables, it certainly suggests the future is not bright for those 9 states to add more wind farms unless government subsidies and tax credits are very, very generous.

• The specific: $1.5 billion is a drop in the bucket compared to the legal bills BP has yet to pay. My hunch is that the litigation won't quit until there is literally no more money to drain away from BP. As noted, BP already sold off $38 billion. If they are getting down to $1.5 billion deals, they are getting near the bottom of the line-item "sale" list.

Yes, this is a huge, huge story, and the Reuters article was one of the shortest I've seen on such a big story. It will be interesting if the WSJ has a feature on this.