Evaluating BP´s Renewable Energy Strategy

Seminar Paper, 2011

16 Pages, Grade: 1,7


Table of Contents

Executive Summary

1. Introduction

2. Analysis and critical evaluation of bp's strategic position

3. Analysis of the bp's strategic direction

4. Critical evaluation of bp's strategy

5. Conclusions

6. Recommendation

7. Appendix

8. References

Executive Summary

The executive brief will cover BP’s strategic business unit alternative energy and its three main products: solar, wind and biofuels. The critical evaluation showed the external and internal influences of BP’s strategy in this business field as well as the strengths and weaknesses. There is a higher awareness towards the climate change because of environmental disasters. The people are looking for sustainability and energy saving products. Today, governments have a high influence on alternative energies. Spending subsidies and cutting them of in economic and financial crises influences the company’s strategy.

BP Solar is one of the world leading companies in selling solar modules. Focusing on end-consumers and project-work, the company tries to penetrate its 100 country large market with high quality and inexpensive products.

BP Wind is only operating in the US. Using joint ventures and own wind parks, the company tries to become of the leading wind companies in the US. As the result, BP Wind is highly addicted to the economic and political development of the country. Higher investments and entering new markets outside the US can help to lower the risks.

BP Biofuels is highly connected to the core business of BP: oil and gas. The company is investing more than $2 billion in research and development in the last years to create efficiency sugarcanes. The plant is perfect for the use of biofuels and shall reduce the amount of fossil fuels in the transport industry. But the outcome is quite unsure and the focus is only in two main markets: Brazil and US. An expansion into the Asian market can be important to secure new market in which the demand for transportation will increase in the next decades.

Overall, the alternative energy is just a small part in the BP Company but it will become more important in the future. Promotion campaigns can help to show the company’s commitment in this area and it maybe helps to reclaim trust.

1. Introduction

BP started its history in Persia at the beginning of the 20th century. Since that time, the organisation becomes one of the leading oil and gas companies in the world. Today, BP is headquartered in London, United Kingdom and generated a turnover about $297,000 Million in the year 2010. Operating in over 70 countries, the company employs more than 79,000 people. BP operates in every stage along the value chain. Starting with oil and gas exploration and go over extracting and moving it to selling it in one of the 22,000 gas stations around the world. The company is separated into three strategic business units (SBU): BP Oil, BP Gas and BP Alternative Energy.(BP p.l.c., 2011)

This executive brief will focus on the alternative energy and the products inside this strategic business unit.(BP p.l.c., 2011)

2. Analysis and critical evaluation of bp's strategic position

2.1. External Analysis

The external analysis shows which factors influence BP and other energy companies in the field of renewable energies. The oil industry is in a mature stage and will lose market shares in the future. The competition in the gas market is rising because of new entrants like states from the former Soviet Union.(BP p.l.c., 2011) In contrast, the solar energy which stands for all renewable energies here is in a development stage. The atomistic market will highly grow in the future.(BP p.l.c., 2011)

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Figure 1: Industry Life Cycle. Adapted from (Johnson, Whittington and Scholes, 2011)

Reasons for this development are the societal change towards sustainability and a higher awareness towards the climate change and environmental disasters. The investments for alternative energies are rising since years and so the efficiency of the generators for example becomes better nowadays.(BP p.l.c., 2011) But the investments are in danger because of political and economic instability and a high population growth in some parts of the world.(PRB, 2008) This can support critics who say that renewable energy can influence the security of energy supply.(BP p.l.c., 2011)

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Figure 2: PESTEL Analysis. Adapted from: (Johnson, Whittington and Scholes, 2011)

2.2. Internal Analysis

BP is operating in 20 countries with its SBU Alternative energy and employs approximately 4,500 people. Many people are working in joint ventures in emerging countries like China, India and Brazil. In contrast, BP Wind is only operating in the US, one of the biggest markets for wind energy in the future.(Landis, 2011) Research and development (R&D) centres help to train stuff and to improve existing energy production processes. One of the major fields is the biofuels, where BP is investing much capital in new plants and refineries in order to face the transport problems of the present and future. The company has already invested more than $5 billion in renewable energies and will continue to spend money in new wind farms and in R&D.(BP p.l.c., 2011)

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Figure 3: Strategic Capability. Adapted from: (Johnson, Whittington and Scholes, 2011)

The VRIN model below shows other factors of BP’s competitive advantage in the renewable energies. The company offers an outstanding long warranty for its solar modules and has a very low warranty rate at the same time. In addition, BP is using special materials and tests its modules beyond the industry standard. This leads to a higher value for customers and an advantage compared to other companies.(BP p.l.c., 2011)

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Figure 4: VRIN. Adapted from: (Johnson, Whittington and Scholes, 2011)

2.3. Critical Evaluation

The strategic business unit alternative energy can support BP’s future success. Long years of experience and a worldwide operation network are important strengths for the company.(BP p.l.c., 2011) The growing energy demand in connection with population growth in especially Asia will help the SBU to grow and to become a significant part of the company.(BP p.l.c., 2011) In contrast, the company is still suffering under the oil disaster in the Gulf of Mexico. The bad brand image outshines the alternative energy.(BP p.l.c., 2011)

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Figure 5: SWOT. Adapted from: (Johnson, Whittington and Scholes, 2011)

3. Analysis of the bp's strategic direction

BP’s SBU alternative energy is separated into five parts: BP Solar, BP Wind, BP Biofuels, BP Carbon Capture Storage and BP Ventures.(BP p.l.c., 2011) The following analysis will be focussing on the first three parts.

The company has been in the solar business since 35 years and employs circa 1,600 people. Operating in 100 countries makes BP one of the leading solar companies in the world. The world market share is about 20%.(Landis, 2011) Currently, the company is focussing on large projects and end-consumers.(BP p.l.c., 2011) The whole branch is suffering under declining prices up to 50% because of the economic and financial crisis. BP has closed its solar panel factory in the US because of cost pressures and now it is producing the modules only in emerging markets like China and India to be more competitive.(Landis, 2011) Experts see a market grow of 6 % annually while BP Solar will increase about 26%. The competition for end-consumer modules will rise in the future because of new market entries and around the world and especially in Asia. In 2010, BP signed contracts with new suppliers for solar cells to get better conditions for the customers. The company has marketing offices in 100 countries and tries to penetrate the current markets with lower prices and higher quality products.(enewableenergyfocus.com, 2010)


Excerpt out of 16 pages


Evaluating BP´s Renewable Energy Strategy
Coventry University
MBA - Sustainable Strategy - from Planning to Implementation
Catalog Number
ISBN (eBook)
ISBN (Book)
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Strategy, Renewable Energy, BP, Strategie, Erneuerbare Energien, Energie
Quote paper
André Schröder (Author), 2011, Evaluating BP´s Renewable Energy Strategy, Munich, GRIN Verlag, https://www.grin.com/document/194717


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