Any mention of BP (NYSE:BP) only brings to mind its oil & natural gas business, from exploration to production and refining. And the Gulf of Mexico oil spill in 2010 only re-affirmed this image of the company, albeit not in the most positive light. After all, BP is the third largest of the six oil & gas ‘supermajors’ after Exxon Mobil (NYSE:XOM) and Royal Dutch Shell (NYSE:RDS.B). Its other competitors include Chesapeake (NYSE:CHK), Anadarko (NYSE:APC) and Chevron (NYSE:CVX).
But there is a growing ‘green’ side to BP’s business – the lesser known BP Alternative Energy business which includes low-carbon businesses and future growth options outside oil and gas. These include biofuels, wind and solar energy, as well as demonstration projects and technology development in carbon capture and storage (CCS).
We have a price estimate of $53.67 for BP stock, a premium of about 15% to market price.
BP’s Alternative Energy business in a Nutshell
Alternative Energy was formed in 2005 with BP pledging funds worth $8 billion by 2015. At the end of 2010, BP had already pumped more than $5 billion into the business.
BP is one of the largest blenders and marketers of biofuels in the world, and has production facilities operating (or in the planning and construction phases) in the U.S., Brazil and the UK. BP has made investments throughout the entire biofuels value chain, with the acquisition Verenium’s lignocellulosic biofuels business in 2010 being the latest addition.
By the end of 2010, BP had installed a net wind generation capacity of 774 megawatt (MW), and had sold 325 MW of solar modules.
But Does it Really Add Value to BP Stock?
BP reports the revenues for its Alternative Energy business along with its Shipping, Treasury and corporate activities. While generating more than a billion in revenues annually, the alternative business is still a negligible part of the company’s overall value.
We estimate a gradual increase in the company’s revenues from the Alternative Energy business over the years to come, based on BP’s estimates that global primary energy demand will increase by around 40% by 2030, with solar and wind energy leading the growth.