The Business Case for Low Carbon Power - an International Perspective

 Vivienne Cox
Release date: 19 March 2007
Speaker: Vivienne Cox
Speech date: 19 March 2007
Venue: Indian Institute of Energy, India
Title: Chief Executive, Gas, Power & Renewables BP plc

Thank you and good evening everyone. I’m very grateful to the Energy Institute for hosting this evening’s event

And thank you all very much indeed for joining us. I appreciate that there are many people here tonight who have much experience of the energy industry in India and beyond. I thank you for joining us and I look forward to hearing your views.

I am delighted to be back in India. It is a great opportunity to learn more about what is happening here as well as to explain what BP is doing around the world.

In explaining our work, I’ll focus on my own business, BP Alternative Energy, which is dedicated to generating power from the low carbon sources of solar, wind, gas and hydrogen.

Alternative Energy is of course part of the wider BP Group which has nearly 100,000 people in over 100 countries. We produce oil and gas at a rate of nearly 4 million barrels a day and we are constantly looking to play our part in creating a sustainable energy industry which is strong in energy efficiency and low-carbon products.

Someone asked me recently if the BP Alternative Energy business was a real commercial venture or simply a public relations exercise. My answer, was to point out that we plan to invest more than $8 billion in Alternative Energy over the next decade - so it would be an extremely expensive publicity stunt!

there is a strong business case
for low carbon power – one that
gets stronger every day
The truth is that this is not public relations. It is a significant business. And it exists because there is a strong business case for low carbon power – one that gets stronger every day. That business case is about responding to the need for energy:

1. Why the environment?
So firstly the environment. We believe that businesses prosper if they fulfil human needs – and companies such as BP fulfil the need for energy. Energy is central to growth and development because it provides affordable solutions for heat, light and mobility. It lights up our homes, helps us cook our meals, provides power for our factories, and fuels our modes of transport – from two-wheelers to buses and trains.

We believe that the right to energy is a human right. It extends people’s lives and improves their livelihoods – so the foundation of any energy policy has to be that energy is a good thing – and people should not be denied energy.

But at the same time as providing the benefits of energy, we have to address the challenges that it brings. These include energy security and the environment.

And I’d like to start with the environment. In this area, Indian civil society and government has rightly been particularly focused on the issue of improving local air quality. However, globally the biggest environmental challenge is that of climate change. And while there is near consensus among scientists that we need to take precautionary action, as a global community we are just beginning to understand what the potential costs of inaction might be.

For BP, the action on climate has really come in two parts. To begin with, we focused on GHG emissions from our own operations. Over the four years to 2002 we cut our emissions to 10% below the level they had been in 1990, in spite of the growth in the business.

However the power and fuels that we sell to customers release far more greenhouse gases than our operations do. And so, we are now focusing on developing products which enable customers to reduce their emissions.
In the transport sector, that includes cleaner burning fuels, biofuels and lubricants. And in the power sector it means providing a set of low-carbon power options for electricity generation around the world – thus reducing or eliminating the carbon dioxide emissions.

And while we have taken this action, we’ve also supported research in leading universities and engaged in the scientific and political debates on climate change.

There are now policies in many countries which directly support low carbon power, whether by incentives or by creating a market for carbon, as in emissions trading systems.

So the first element of the business case for low carbon power is that it is profitable today where policy encourages it.

This is why, for example, wind capacity worldwide has risen from around 5,000 MW to nearly 75,000 MW in the last decade.2 And it’s why solar capacity is estimated to be growing at around 23% a year. 3

It now seems that momentum is growing towards setting a long term, global target for carbon dioxide levels in the atmosphere – possibly in the range of 450-550 parts per million – and that that will accompanied by long term targets for individual countries.
I firmly believe that our role as a business
is not to sit and wait for new treaties
or regulation, but to take a lead
How exactly that is done – who pays and how - is for politicians to decide. For example, there may well be increased scope for the most industrialised countries to meet their targets by working with emerging economies.

I firmly believe that our role as a business is not to sit and wait for new treaties or regulation, but to take a lead and show what can be done. Our role is a practical one - to create solutions and provide energy which is clean and secure.

So with these moves towards new policy, there is a wider developing business case. This was well put by Goldman Sachs in a recent report when they said: “In our opinion, the companies that have potential for creating significant value are those that have the most strategic options available to embrace a low-carbon world”.

2. Why beyond hydrocarbons?
However as you well know here, one has to pursue options that are not only sustainable - but available and affordable.

We live in a world in which the available hydrocarbons are increasingly concentrated in a few areas. Around three quarters of the proved reserves of oil are in the Middle East, the former Soviet Union and Africa, while over half of the proved reserves of gas are in Russia, Qatar and Iran. Many countries – India, China and the US included – are net importers of oil.

So our task as an international energy company is first to help countries maximise the production of their own hydrocarbons; and second to open up new sources of energy by going beyond hydrocarbons.

The search for new hydrocarbon resources is increasingly taking the industry into new and more challenging locations. For example, companies are exploring in the very cold conditions of the Arctic Circle and in very deepwater in the Gulf of Mexico, off West Africa and indeed off the shore of India.

We’re also looking for resources which are harder to extract and require sophisticated technology and know-how. For example, one specialism for us is coal bed methane – gas that is located in coal seams. We have 30 years of experience of producing gas from the San Juan basin in Colorado and New Mexico. We’re now drawing on that expertise as we evaluate possibilities for producing coal bed methane in West Bengal.
These local hydrocarbons can help to provide more domestic supplies of energy – but they can’t end reliance on imports by themselves. And that is why in the longer term, renewables and alternatives will become more and more important. The emphasis will be on energy that is both local and green.

The sun, the wind, the rivers, tides and crops potentially provide a limitless source of energy, more than enough to fulfil the world’s needs. The challenge is to harness natural forces in a way that is efficient and competitive with conventional hydrocarbons – and affordable in countries like India.

And as well as renewable sources, there are alternative fuels such as hydrogen created from coal with the carbon being captured and stored.
The challenge is to scale up today’s renewable and alternative energy industries and innovate to bring down costs and increase efficiency.

In solar, for example, we have recently developed a new process for growing silicon, called Mono Squared, which increases the amount of sunlight turned to energy by up to 8%. At the California Institute of Technology we’re working with nanotechnology experts to investigate making a new type of cell from tiny silicon nanorods 100 times thinner than a human hair - these are then packed tightly in an array like bristles in a brush. Then in Berlin, at the Institute for Crystal Growth, we have researchers experimenting with ways to reduce the amount of silicon needed in each solar cell.

And in fact, in terms of costs, efforts to innovate and achieve efficiencies are now paying off. Both solar and wind are now rapidly moving towards parity with other forms of energy.

It’s very much a parallel process in the area of transport. Here, biofuels are providing an alternative source of transport fuel that can be literally ‘home-grown’. Biofuels cut carbon emissions because the crops absorb carbon dioxide when growing. In BP we are already working with biofuels on a large scale in North America and Europe. Last year we blended over 700 million gallons of ethanol with gasoline - a 25 percent increase from the previous year.
The race is now on to develop new, more powerful bio-components that can be used in higher proportions than the 5 or 10% which is typical today. And critically we want to explore using non edible crops that don’t affect food security.

This is why we’re involved in a $9 million project here in India with TERI (The Energy and Resources Institute) to investigate the potential of jatropha as a biodiesel component. This is a project that is distinctive in its scale and methodology and we are very much looking forward to seeing what it reveals.

More widely in BP we are now planning to invest $500 million over 10 years in the world’s first dedicated biosciences energy research laboratory. This will be called the Energy Biosciences Institute and will be hosted by the University of California at Berkeley.
3. Why low-carbon power?
I now want to focus for a few moments on the power industry worldwide and explain why BP has made a specific investment in low-carbon power.

The power industry is absolutely central to the world’s growing demand for energy and to the effort to combat climate change. Power is responsible for around 40% of all CO2 emissions – the largest share and roughly twice the emissions from transport.

And yet because many power plants are coming to the end of their lives, around two-thirds of the power capacity needed in 2030 is yet to be built.

These are big plants requiring big investments. So the carbon footprint of power can be influenced with relatively few key decisions.

Meanwhile a range of low carbon power technologies exist today. Some can be deployed at scale. And the cost to the end user is affordable.

This provides a window of opportunity to invest in power that is clean – and secure. All that is now required is a range of leadership and policy steps.
And as policy-makers increasingly act to support sustainable power solutions, so the business case for them becomes stronger.

And it’s because of that opportunity that we have created BP Alternative Energy and started to implement our plans to invest more than $8bn in this business over 10 years. Altogether, our aim is for the Alternative Energy business to reduce forecast CO2 emissions by more than 24 million tonnes per year by 2015. That’s roughly equivalent to twice the annual emissions of New Delhi.

Alternative Energy brings together all BP’s low-carbon power businesses under one roof. We have a set of technologies that gives us opportunity to invest and to investigate new possibilities.

We have BP Solar – our leading, which we have built over the past thirty years, into a leading global business.

We have also made some significant investments in wind power. In the US, our portfolio includes the opportunity to develop almost 100 projects with a potential total generating capacity of some 15,000 MW.

Also in Alternative Energy are our combined cycle gas turbine operations which give us stakes in some 12,000MW of natural gas power generation around the world. We believe gas fired power plants will be very much a part of the future energy industry because of their lower emissions.

And the business also includes our plans for projects that generate power from hydrogen – using hydrocarbon feedstocks but capturing and storing the carbon. These projects have huge potential because they offer a means to generate clean power from hydrocarbons. In particular they offer a way to reduce the environmental impact of coal.
4. Why India?
So having set out that global context, what about our activities and our aspirations here in India?

We recognise the immense diversity of modern India and how that diversity drives quite different needs. On the one hand, the urgent need to rapidly increase the bulk supply of energy to underpin what is a well established but fast growing modern economy. And on the other hand, a need to develop energy and energy infrastructure which extends economic activity in towns and cities or provides energy for basic services and development in rural areas.

Beyond that I realise that the priorities include ensuring that India has security of supply and improving air quality. And at the same time there is also the issue of attempting - over time - to play a part in the global effort to address climate change.

Our own business here is a growing and expanding one. In terms of power, we’ve been operating in solar manufacturing and installation here for over 15 years. We have just completed a deal to give us our first wind power capacity here. With regard to gas, we’re exploring for coal bed methane and looking at possibilities to move downstream. And hydrogen provides an interesting option for the future.
As was preparing for this visit, it occurred to me that in many ways our situation in BP mirrors that of India. We have decades of conventional energy experience behind us. But today the challenge is to develop a strategy which identifies new opportunities, and forms of energy which overcome what is sometimes seen as a trade-off between economic development, social equity and environmental stewardship. I don’t want to take the comparison too far. The challenge of building energy policy for all of India is a huge one, beside which running a multinational business may seem relatively simple. But I do think that there are areas where we can travel on this journey together, building on areas of shared interest.

Our aim is to continue to build a local Indian business – in which Indian people work for the benefit of India – but one which has access to the resources, capabilities and experience that we have gained over nearly a century of operating around the world.

My sense is that the demand for power here is so great that this provides an opportunity to look at many options.

Clearly coal is going to be an important part of the picture for many years. And I appreciate there is a lot of momentum to increase efficiency in coal plants.

There is also a lot of scope to use gas where it’s available and affordable. Gas plants can help meet bulk power needs and the industry has a lot of experience of building and operating them at scale. Our approach in gas is not simply to invest in production or marketing but all along the value chain. We are now looking closely with our partners at the potential for low-carbon gas fired projects, potentially linked to our upstream activities.

India’s solar industry remains relatively small – but with great potential. Our solar business here is Tata BP Solar, the joint venture we formed with Tata nearly two decades ago.
This business is now the market leader with a share of around 30% of the domestic market. It’s the largest solar company in Asia outside Japan. It’s been growing profitably at around 20% per year – reaching a growth rate of 40% last year with sales of over $130 million.

One of the reasons I am here now is that the day after tomorrow we are celebrating the expansion of our manufacturing facility at Bangalore which produces cells for India and for export markets. This is a demonstration of commercial confidence in the growing demand of the solar market both in India and beyond.

This visit is giving me another chance to see Tata BP Solar at work and spend time with the dynamic team in Bangalore who have built a country wide marketing and service network.

What I find exceptional about the company is how it reaches into all levels of the economic pyramid, providing solar power across a wide range of sectors.

Solar energy is being used by the commercial sector in India. The Vijaya Bank has installed over 80 solar power systems across their rural branches to ensure they have a stable source of 24 hour power for critical data processing needs.

Tata BP Solar also have experts in providing solar solutions for rural locations located far from the electricity grid. They have overseen projects that range from irrigation in Punjab to lighting systems in Ladakh.
In the case of the irrigation systems, Tata BP Solar has worked closely with local authorities to make solar powered systems available to farmers, along with finance packages. Over a period the payback from the increased agricultural yield outweighs the cost of the solar equipment and that makes the business viable for all concerned.

In Ladakh and the Himalayan region, Tata BP Solar have installed over 14,000 lighting systems which have improved the lives of over 100,000 people. The project also provides employment to a network of technicians.

BP Solar has experience of providing solar systems in many rural locations – from Brazil to the Philippines as well as India. Here in India the team has developed particular expertise in understanding how these systems can be sustainable in every sense of the word – sustainable environmentally – but also economically, both for the customer and the supplier.

I will encourage them to continue to engage with those of you involved in planning and policy so that this solar business can make the most constructive contribution to the vast effort of bring sustainable energy to India’s cities, towns and vast rural areas.
Wind is also a great opportunity for India because the wind blows strongly in many places and the government has supported the industry’s growth. We have invested in 40MW of capacity at Suzlon’s Dhule wind farm in northern Maharashtra and this project will start to produce electricity in September this year. I’m delighted that we have made this first investment and we are certainly looking out for further opportunities to build on this and create a material position in wind.

I spoke earlier about hydrogen power using carbon capture and storage – which is a much more long-term possibility for India. Today here are challenges involved in locating underground sinks to store carbon dioxide. It’s also challenging to make such projects economically viable and for governments to create appropriate policy frameworks. But there are now prototype projects underway. So while this is a longer-term option, I am sure that the technology is ultimately going to play a key role in providing clean energy and become an invaluable tool for countries with immense reserves of coal.
So to conclude, I believe we have a great opportunity in our hands. There is a strong business case for low-carbon power today – and I believe there will be an increasingly strong case in the coming years.

What gives me great hope is the fact that wherever I go – and this is certainly true here in India – I find people who share this vision: people in our company, people in other companies and people in governments and NGOs.

Collaboration is now vital. We want to work with other companies to develop the technologies to deliver clean power – as we are with Tata. We want to continue to work with policy-makers to promote low-carbon solutions. And we want to work with customers to show that there is real demand for new forms of energy for future generations.

We want to play a major role in creating the secure and sustainable energy of tomorrow and I believe that in many respects, our interests converge with those of India.

So I’m grateful to you for coming along this evening. I look forward to hearing your views now. And I look forward to working with you in the years to come. Thank you.
  • that is sufficient to meet people’s needs
  • that is local and secure
  • and that is also clean and environmentally-friendly.

Dr. Singh, your Prime Minister, recently set out his aspiration by saying: “If we are able to eliminate poverty, provide gainful employment to all and do this while protecting the environment, we would have shown a new path to sustainable development.” 1

For me, that is exactly the kind of vision to inspire the world of business. We have to find ways to address each of those needs. So tonight I want to explain why our business exists, what we are doing, and what we plan to achieve in the next decade or so.

To do that, I will cover four things

  • why we believe the environment is important – alongside providing secure energy for growth
  • why we are looking to move beyond hydrocarbons in the energy we provide
  • why low-carbon power is significant
  • and last but certainly not least, why India is important to BP and why I believe it has much to offer to the developing low carbon economy.
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Domain: Energy
Category: Photovoltaics/Solar
Vivienne Cox
24 July, 2007