Two giant oil companies won the largest share of options to build new offshore wind farms awarded by the UK on Monday. The investment is projected to be tens of billions of dollars.
The options were a big step by the big oil producers into an industry that had been dominated by smaller, specialized companies for years.
The winners, including BP and French oil company Total, agreed to initially pay a total of £ 879 million (about $ 1.2 billion) in deposits for the development of offshore wind farms that provide enough power to light seven Deliver to millions of households.
The announcement was made by the Crown Estate, the organization that manages the properties on behalf of the Queen and the British Government. The underwater areas are part of a large portfolio of real estate belonging to the British monarchy. Most of the profits go to the government, around 25 percent will pay for the state’s expenses.
Observers were surprised by the large sums paid for options to build six offshore lots. It seemed a sign of both the strength of the UK wind market and the willingness of oil companies to get into the business, said Soeren Lassen, director of offshore wind research at Wood Mackenzie, an energy research company.
“This is a very strong and clear indication of the attractiveness of the offshore wind sector,” he said. Offshore wind, which has only existed as an industry for about three decades, has become the mainstream of large-scale power generation.
Oil companies are clustering in offshore wind because they believe that investing in massive facilities that can provide clean electricity to millions of households can quickly advance their commitments to reduce the total carbon emissions of the energy products they produce and sell.
Companies are used to spending $ 10 billion or more on energy projects, and their willingness to cordon off offshore areas can also raise prices in an industry previously known for frugality.
Major offshore companies like Orsted, the Danish company that is the largest offshore wind developer, were unable to win acreage for the auction. In a statement on Monday, the company’s deputy chairman, Martin Neubert, criticized the prices as “not sustainably high”.
The oil giants seem to believe that it is worth spending significant sums to get access to cheap locations. Dev Sanyal, BP’s executive vice president of gas and low carbon energy, said in an interview that offshore wind would be “the fastest growing business in the energy sector for the next 20 years”.
Mr Sanyal also said that the construction and maintenance of turbines at sea goes well with BP’s previous oil drilling capabilities in the North Sea off the UK and other areas. Although the company is shedding 10,000 jobs as it phased out oil production, it is installing some former oil and gas operators in critical roles in its renewable energy business.
BP estimates that it will pay £ 1.8 billion over four years for the rights to two land in the Irish Sea that it won with a partner, Energie Baden-Württemberg, a German utility company. During this time, authorizations and other schedules are processed. The turbines are expected to generate electricity after seven years.
Mr. Sanyal described the large upfront payments related to the total cost of capital for projects of “many billions” as “relatively small”. Oil companies often pay princely sums for access to resources before drilling begins.
BP paid the highest price per unit of potential power generation for the two territories extracted. The company argues that these areas, which add up to approximately 300 square miles of seabed, are likely to have the lowest development costs and therefore higher profits because they are in shallow water about 20 miles from the coast of north-west England.
Total was the top bidder for a large area in the southern North Sea working with an arm from Macquarie, a finance company.
BP and Total are rapidly expanding their offshore portfolios under emission reduction commitments. Last year, BP paid $ 1.1 billion for half a share of the offshore business established by Norwegian oil company Equinor off the east coast of the United States. The companies were recently recruited from New York State to power two large wind farms in the Atlantic.
RWE Renewables, a German energy supplier, won two large seabed swaths on Monday awarded by the UK.
According to Crown Estate, companies pay annual fees to develop their projects and then pay 2 percent of their sales.
Orsted suggested that high prices reflected a lack of sufficient opportunities to meet demand. “The appetite in this leasing round exceeded the offer by far, which led to unsustainably high front-end costs,” said Neubert in the statement.
RenewableUK, a trading group, also criticized the auction process, warning that it could “mean higher costs for developers and consumers”.
The critics say that the Crown Estate essentially did not provide enough potential rental space for auctions and that prices have increased as a result. However, the estate’s manager, Dan Labbad, argued that moving too quickly could damage the marine environment.
“There are many uses for the ocean floor that must be respected. Otherwise we will create new problems for the future, ”he said.