(Bloomberg) -- BP Plc and Jera Co., Japan’s biggest electricity producer, will merge their offshore wind businesses as the British oil major seeks to cut its exposure to the troubled green power sector.
The new company — JERA Nex bp — will be funded with as much as $5.8 billion through 2030, a downgrade on BP’s previous investment plans in the technology. It comes as BP limits exposure to the high costs of renewable power while seeking to reassure investors who are more interested in the stronger returns from the company’s core fossil-fuels business.
BP shares gained as much as 3.9% on Monday, the biggest increase since April. The company is down around 16% this year — which is Chief Executive Officer Murray Auchincloss’s first in the job — while US rivals Exxon Mobil Corp. and Chevron Corp. have advanced around 14% and 5% respectively.
Soaring costs in recent years have upended the investment plans of some of the world’s biggest players in offshore wind. At the same time, BP has faced shareholder pressure over its energy transition strategy, first launched in 2020, as renewables profit has shrunk while oil and gas margins have risen.
The company recently indicated it won’t grow its pipeline of offshore wind further, and it saw the departure of an executive who had been brought in to expand that business.
BP will significantly limit its investment in offshore wind through the joint venture, contributing as much as $3.25 billion through the early 2030s. That’s less than half of the major’s previous estimates of what it could spend on offshore wind this decade.
“This will be a very strong vehicle to grow into an electrifying world, while maintaining a capital-light model for our shareholders,” Auchincloss said of the new venture.
For BP, “reducing capital spend into unproven areas should be taken positively, in our view, while it could also help alleviate some balance sheet concerns over time,” RBC Capital Markets Analyst Biraj Borkhataria said in a research note Monday.
JERA Nex bp is expected to be formed by the end of the third quarter 2025, the companies said in a statement Monday.
Combined Assets
The new entity, to be based in London, will include both companies’ offshore wind assets, including two projects planned by BP off the coast of the UK. BP won development rights for the British projects with a record-setting bid that came to signify the peak of the offshore wind hype cycle.
The joint venture will first focus on existing projects in Europe, Australia and Japan. Its CEO will be nominated by Jera and the chief financial officer by BP, according to the statement.
The companies will be have to be selective in deciding which projects to move forward, as it will be “difficult” to complete all them through new venture, Satoshi Yajima, Jera’s chief renewable energy officer, told reporters on Monday. “We don’t have unlimited funds or personnel, so we’ll select good projects based on stringent investment criteria,” he said.
READ: Wind Power Crisis Is Holding Back the World’s Green Energy Goal
Jera, a 50-50 venture between Tokyo Electric Power Co. and Chubu Electric Power Co., was created in 2015 to become one of the world’s biggest liquefied natural gas buyers. The firm said in May that it plans investments in LNG, renewables and hydrogen.
Bank of America is a financial adviser to BP in creating the new entity, while Rothschild is advising Jera.
(Updates with share details and analyst reaction in third and eighth paragraph.)
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