John Mogford, Group Vice President
Renewables and Alternatives
BP p.l.c.

Speech presented at the
World Renewable Enregy Congress VIII
Denver, Colorado

BRINGING SOLAR INTO THE MAINSTREAM
Good morning everyone and thank you for the opportunity to share some ideas with you today. I want to take this opportunity to explain how we in BP see the renewables industry today, how we have transformed our own solar business over the last year and what we see as our priorities and those of the US solar sector for the years ahead.

BP – PROFITABILITY PLUS SUSTAINABILITY
So let me start by giving you a brief sketch of our company and explaining where solar fits into the overall scheme of things for us.

There are two key points. The first is that BP has become a truly global energy player over the past decade.  Competitiveness drove our expansion and it drives the way we operate as a global company today. The second is that we understand that our long term future as a company depends on being able to produce and supply energy in a sustainable way and our short term future depends on winning trust by addressing the concerns of customers, shareholders and all those with whom we do business. 

For renewables, this combination of sustainability and profitability means building a substantial and successful business.   

BP’s RENEWABLES BUSINESS
Our renewables business has three strands.

Solar comprises the largest element. The other two strands are biofuels and wind power.

We are currently marketing conventional biofuels here and in Germany but we see the real potential in this area as the chance to generate dramatic reductions in GHG emissions through developing advanced biofuels using non-intensively farmed crops. 

In terms of wind, we are looking to niche opportunities for viable businesses, typically linked to our production sites. Our main wind farm is at the Nerefco refinery in the Netherlands. It generates 22.5MW and displaces 20,000 tonnes of CO2 each year, and we have others under construction.

Focusing on solar, the main driver of our growth will be on-grid in developed countries. We do undertake, and will continue to undertake, many off-grid projects, such as the world’s largest rural solar project which is bringing power to 400,000 villagers in the Philippines as a result of Spanish overseas aid funding.

Some of these are on a pro-bono or non-profit basis, as recently in Angola, but these are distinguished more by their social benefits than commercial returns. There is a continuing need for the world to find a way to raise and simplify multilateral funding mechanisms to bring solar power to many more rural communities in the developing world.

THE SOLAR INDUSTRY
Meanwhile the foundations of tomorrow’s solar industry have to be laid in the developed world. It is here, if anywhere, that the sector will gain the scale needed to become profitable. As I indicated earlier, if solar is to play a significant part in the lower carbon economy, it cannot be a cottage industry. Neither can it be a licence to lose money in a good cause. The industry has to think big, make money and become hundreds of times larger than it is today.

In some areas, things are moving in the right direction. Rationalization has left fewer and stronger players on the field. There was 32% growth in PV production in 2003 on 2002 and a total of $5billion in sales. Demand is still growing at well over 20% a year.  

But to put that in perspective, last year’s growth of around 600MW in solar capacity was equal to output of one natural gas fired turbine or less than half a typical coal fired plant.

The cost reduction trend is taking solar towards parity with conventional power – indeed the cost of installed systems has dropped six-fold in 20 years. Generally however, we’re still looking for a halving or more of installed cost to enable solar to have mass market potential.

Solar manufacturing needs to be at global scale and if it is to operate at that level it also needs some way of being consistently insured against market risk. At the same time, there has to be a local industry to service local markets and this too needs local consistency.

Building the market and up-scaling the industry requires government support now, by way of incentives and policy, in order for it to be self-standing in the future. What’s instructive is how that requirement has been interpreted very differently in different countries.

Today Japan is very different to the rest of the world. As a result of its programme of market guarantees, it has almost completed a journey that many countries have barely begun.  It produces 60% of the world’s PV and has the highest annual growth at 45%. From 31MW of installed PV in 1994 it is now nearing 1000MW. Prices are nearing breakeven on a lifecycle cost basis and are half what they were 10 years ago. A robust supply chain is emerging, with solar suppliers no longer manufacturing totally in-house.

With the exception of Germany, where Government incentives have created another large and viable market, the rest of world is fragmented, with many different models, some more successful than others.

If solar is to compete for mass energy markets beyond 2025 then it must break out of its current frame – a frame predominantly determined by an unpredictable mix of state and private shareholder support.

To achieve this requires action both by industry and by governments.We need to see cost reductions in technology, manufacturing and business processes.

We need higher profile and larger marketing campaigns to make solar a mainstream consumer product to create customers within markets.

We need market stimulation by governments. These factors taken together will enable the industry to build scale.

BP’s SOLAR BUSINESS – THE LAST YEAR
So having sketched out our perspective on our own business and the industry, let me now explain what we have been doing in our solar business over that past year.

From your angle, you may have seen just a part of the picture. Perhaps your familiar salesman has disappeared, or a familiar product line has ended, or a plant has closed – so let me put those developments into context.

The first thing to say is that we are planning to expand this business, not contract it.  That’s shown by the fact that our sales have increased, not decreased. We intend to build on the significant investment we have already made – amounting to around half a billion dollars since 2000.

However we want to build the right kind of business, with the right foundations to grow.  So we have refocused the business in order to concentrate on the best products and the best markets, gaining efficiency savings and reducing complexity. 

Having got the shape right, we can then grow from a solid foundation and as I’ve indicated, our goal is to drive towards grid competitiveness and to generate returns that compete with other businesses. That means developing a global business. At BP’s scale we cannot build a solar business in one geography alone and hope that it will offer comparable performance to a global portfolio of large scale oil and gas projects or a global network of retail outlets. 

So over the past year the priority has been getting the shape right. That’s led to a series of actions.

We have exited thin film – which has potential for the future but too much present day downside to be part of a business going for profitability at scale.

We have scaled up our production, moving ahead with a $100m plant in Spain,

increasing the flexibility of the Frederick, Maryland plant and launching new production lines in India, Australia and the US.

We have focused on the best markets – playing a larger role with more sales of fewer products in those key markets. The highlight is California where we have gained a 25% market share.

We have developed innovative marketing programmes – again with the key example coming from California in the shape of our Solar Home Solutions campaign which packages equipment, installation, financing and a display to show how the system is performing.

We have also begun to explore Building Integrated PV, as another possible route to making solar a mainstream consumer product. In the UK, for example, we have a BiPV partnership with Romag, which includes a £4m manufacturing plant and an associated R&D facility. Indeed Stephen Timms, [the UK Energy Minister] witnessed the signing of the contract last year. In UK, there are now a number of showcase BiPV projects such as those at the University of Northumbria and the Ford Motor Company’s Dagenham plant.

Elsewhere on the R&D front, we have pioneered technology developments with the potential to push PV closer to cost parity with hydrocarbons. One example is implementing back surface field and silicon nitride processes which have cut costs to customers by up to 10%.

We have also sponsored expert partners to investigate technological breakthroughs, such as backing the University of Delaware with nearly $4m in its efforts to create ‘champion cells’ of the future.

• The results of this refocusing are clearly seen in the statistics.
• Last year we had 15 major distributors. This year we have 9.
• Last year we had 161 product lines (standard k units). This year we have 73.
• Last June we had 542 employees in the US. This June we had 376.
• Last year we had 9 warehouses and 6 offices. This year we have 3 of each. Office space has been reduced from over 50,000 sq ft to 5,000.

But at the same time, we have grown sales by over 40 %. All this is in the cause of attaining the global reach, the scale and the discipline that we bring to all our businesses.

BP’s VIEW ON THE US SOLAR MARKET
Obviously we want to create a thriving business. But that can only happen if we operate in a thriving market. And we cannot create that alone. As I have indicated at the moment we see only Japan as being within reach of having a fully functioning large scale solar market.

The US market, by contrast, is small in proportion to the country’s size , influence and wealth. 

There has been support for solar and we recognise that – at federal and state levels.

Our flagship projects are in California where the pioneering policy framework has led to the state accounting for 27MW of the 32MW of grid-connected PV installed last year.

We also have a long-standing research partnership at federal level, with around $30m having been spent in the last 20 years in collaborative R&D.

 But while acknowledging those initiatives, I believe that the US now has to be much more consistent and long term in its thinking.  The market needs to move to the next level. It needs to be big enough to keep growing.  Today, the reverse is happening, with PV production declining by 20% last year. California has been helpful – but short term delays can threaten the business even there.

The key for us as investors is to have a way to manage risk while investing at scale. The industry can no longer invest efficiently in 10MW lumps. But if we can develop a portfolio of markets we can take bigger steps within an acceptable risk framework.

The danger is one of creating a business that favors marketers but discourages manufacturers.  Marketing investment can be switched on and off. But manufacturing has to be based somewhere where there is minimal market volume risk.

In the US today some $500m of public money is being spent, but on a raft of different and disparate initiatives.  Our vision is of a market in which the players from the private and public sectors have a unified strategic commitment and vision for renewable energy, including solar, and a coherent programme to implement it.

PRIORITIES FOR POLICY-MAKERS
So what do we see as the priorities for policy-makers? Essentially we don’t want to be too prescriptive on the nature of the regime, feed in tariffs, capital allowances and other mechanism have their pros and cons, but we do look for support that is predictable, consistent and long-term – at both the global and the local level. 

That’s what we need if we are to have the confidence to build infrastructure, achieve scale and sustain employment. Consistency will nurture this industry, but boom and bust will finish it off.  And of course we need this support to be widespread. We need more states to commit strongly to the future of renewables. 

WHAT WE PLAN TO DO
And lastly, what are our own priorities for the year ahead?

First we will do more to make the case for solar – to demonstrate its attractions to the policy-makers and customers. We need to spell out that solar is not simply a good option for the environment, but also for energy security and for employment.  .

We will continue to develop our innovative marketing programmes and we will continue to raise the profile of solar through other means such as the Solar Neighbours Program. In this scheme, a solar package is donated to a low income family every time a celebrity such as a movie star purchases one. Our solar stars have so far included Danny DeVito & Rhea Pearlman, Larry Hagman, Don Cheadle and Daryl Hannah. This is a way to get solar into the headlines and popularize it as an energy supply of choice for Americans. 

Behind the scenes, we will extend the search for breakthroughs in technology, looking beyond the module itself to other aspects such as the inverter and racking.

Finally, there is one area where both suppliers and policy-makers can play a part. This is to move forward in examining the potential of BiPV. For example, in the UK, where 150,000 new homes are built each year, it has been calculated that if solar was installed on half of each roof this would take up the entire annual production of PV today. And if 50% of the roof tiles used in new roofs in the UK  incorporated PV it would double the world’s installed PV.

We believe that BiPV could form part of a micro-renewables market which also includes small windmills or small CHP plants with energy being generated and used locally. We hope that planning and building regulations policy will increasingly incentivise such an approach. The benchmark is Japan where a typical new house has 4kW of peak PV on its roof

CONCLUSION
Success in establishing a free-standing solar market will depend on common cause between public and private sectors.

Governments need to create and incentivise markets through pro green policies backed with consistent support. Businesses for their part can drive for continued cost reductions, technological breakthroughs and marketing advances.

All of this works towards a point of inflexion – a breakthrough moment, the ‘tipping point’ - where solar achieves parity with other energy sources. At that point the industry will have the strength and scale to compete on equal terms in the grid. It will have built the foundation for significant investment. And the kind of expansion required for solar to make a real impact on GHG emission reduction will be feasible.

We can accelerate the manufacturing and marketing. But this requires a corresponding acceleration in long-term and consistent public sector support.

BP's aim is to build a profitable and sustainable renewables businesses, consistent with our shareholders’ and society’s dual interests in profitability and sustainability.

Our shareholders have supported solar for 40 years. Our commitment is strong. And I hope that we will be able to work together with committed partners in the months and years to come to make a successful business for ourselves and our customers.

Thank you.