BP is expecting to spend some $1.5 billion in Alternative Energy this year, said BP chief executive Tony Hayward yesterday (26th February) during the company's annual strategy presentation to financial analysts. The figure, he explained, is a front-end acceleration of BP's longer-term $8 billion plan to build a new business, based chiefly on solar, wind and biofuels and offering significant growth potential as world demand rose dramatically for low- or non-carbon energy.

"We intend to grow this business predominantly for its equity value," said Hayward. "Taking stock market valuations for similar companies, we estimate it is already worth between $5 billion and $7 billion. As we go forward we will be looking at how best we can realise that growing value for our shareholders."

Later in the presentation Vivienne Cox, chief executive of Alternative Energy, explained the breakdown of the groups valuation with the estimated value of BP's solar business being between $2.1 billion and $3.9 billion and its wind business between $1.8 and $2.1 billion. Including the gas-fired power generation segment of the business, this gave Alternative Energy a value of approximately $5-$7 billion.

Despite the seemingly large investment in the biofuels sector during the past year it wasn't flagged as a significant part of BP's Alternative Energy valuation.

Overall, Hayward confirmed likely capital spend for this year at between $21 billion and $22 billion, up from $19 billion in 2007. Some $15 billion was earmarked for upstream, $5 billion for downstream and $1.5 billion for the other businesses, including Alternative Energy. Divestments were estimated at $1 billion. He said the rise reflected a mix of sector inflation and growth. Gearing would remain at 20-30 per cent.

In conclusion, Tony Hayward said: "We have made significant progress at BP over the past ten months, quietly and without fuss, in resetting essential context, in establishing sound, practical objectives and beginning to deliver them.

"Our asset base is high-quality; our task - on which we are already vigorously in action - is to improve how it operates. We have a workforce which, as it is increasingly freed of unnecessary complexity and overhead cost and given clear aims and accountability, will translate the operational momentum we are already seeing in the first half of 2008 into steadily improving financial returns thereafter."

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