From international oil company to integrated energy company: Under this headline, BP PLC laid out the strategic shift that is set to underpin its 2050 net-zero emissions target, with plans to balloon its installed renewable energy fleet and low-carbon spending targets, grow its international market share in blue and green hydrogen, and expand the production of renewable fuels.

By 2030, the oil major wants to grow its developed wind and solar fleet to 50 GW, from 2.5 GW in 2019, and double its electricity trading capacity to 500 TWh. Capital investment in low-carbon energy will rise tenfold, to $5 billion each year, CEO Bernard Looney told analysts Aug. 4 as the company reported a $16.85 billion loss in the second quarter and cut its dividend for the first time in a decade.

For an oil company, the plan is ambitious: The 50-GW renewables target puts BP in line with French electric utility Electricité de France SA, which has set itself the same aim by 2030, including hydropower. Under Looney, who took BP's reins at the beginning of the year, the company has sought to reinvent itself amid growing pressure on the oil and gas industry from shareholders and environmental groups.

The target also puts more meat on the bones of BP's climate plan, which is viewed as more ambitious than many of its peers in the European oil sector. BP has committed to eliminating all emissions from its own operations, known as scope 1 and 2, as well as those caused by the use of its own oil and gas products, known as scope 3, by 2050.

Along with renewables, BP is also eyeing the growing hydrogen market, aiming for a 10% share in core markets. The company said it will add production capabilities for both blue hydrogen, derived from natural gas, and green hydrogen, made with renewable electricity.

Some of that production will come from its refineries, such as the Rotterdam refinery in the Netherlands where BP is planning to decarbonize existing hydrogen production with the addition of an electrolyzer powered by renewables, in partnership with Nouryon Holding BV and the Port of Rotterdam. For volumes sold to external off-takers, BP is targeting industrial and heavy-duty transport, as well as the Australian export market for green hydrogen, Executive Vice President for Strategy and Sustainability Giulia Chierchia said on the call.

That said, oil and gas will remain the backbone of the business for the foreseeable future, and executives said that its core business is the chief enabler for low-carbon investments. "Hydrocarbons are likely to be the key source of earnings and of growth in returns over the next several years," Chierchia said.

'We can do things differently'

BP sees itself in a position of plentiful choice in the renewables market, being able to purse only the projects it deems will deliver attractive margins and that clear its investment hurdles. "We're not saying we're going to do this at any cost. We're not chasing gigawatts as the equivalent of volume in the upstream world," Looney said.

At the same time, industry interest for BP's involvement is strong, he added: "We are inundated with opportunities in this space." Looney said that the company's low-carbon spending plan is not backloaded toward 2030: BP is aiming for 20 GW of renewables capacity by 2025.

Asked about the relative attractiveness of renewables investments compared to those in its core business, CFO Murray Auchincloss said, "Returns on alternatives are obviously something that people are quite worried about — we're not."

In the wind sector, for instance, investors likely bid into auctions assuming returns of about 5% to 6%, the CFO said. By adding a power purchase agreement and introducing leverage, that could be bumped up to the 8% to 10% range.

"We ... think we can do things differently. We think the power of integration from our trading organization is awfully good. We can take the power off-take. We can package it with natural gas. We can package it with solar. We can sell it to a customer with complete flow assurance, clean energy and [a] fixed price, if they want. We'll hedge it for them. We'll play around with currency ... if we want as well. And we think by doing that, you start to take the returns ... into the double-digit range," Auchincloss said.

With its offshore oil and gas expertise, BP is also monitoring the offshore wind space, with plans to play a role in further lowering power production cost there. Through its renewables venture Lightsource BP Renewable Energy Investments Ltd., the company already has a growing foothold in the solar market. "The cost of supply of these things is dropping like crazy," the CFO said.

During the COVID-19 pandemic, low-carbon energy and electricity, alongside mobility and convenience, actually proved to be more resilient than other parts of the company, Chierchia noted, in contrast to the volatility and declines in the oil and gas market in recent months, which left their mark on the company's second-quarter earnings.