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BP Enters Lucrative U.K. Offshore Wind Market With 2 Leases

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BP plc (BP - Free Report) recently announced that it has entered into the U.K. offshore wind market with two massive leases. The company has teamed up with EnBW Energie Baden-Württemberg AG, a utility firm of Germany, for the leases. BP’s shares jumped 5.9% following the announcement.

Jointly, the companies have been selected as the preferred bidder for the two 60-year advantaged leases that are located around 18 miles off north-west England in the Irish Sea. While the lease one covers an area of around 300 square kilometres, lease two spans about 500 square kilometres. The companies were selected in the U.K. Offshore Wind Round 4, the country’s first offshore wind leasing round in almost a decade. Notably, a joint venture including French energy major TOTAL SE won a 1.5-gigawatt (GW) project in the East Anglian coast from the auction.

Project Details

The two leases are expected to generate 3 GW of total power once they come online. This much power can provide clean energy to 3.4 million houses in the U.K. In comparison, Equinor ASA (EQNR - Free Report) and SSE Renewables’ Dogger Bank wind farm in the North Sea will have a 3.6 GW capacity.

BP and EnBW are expected to create a 50/50 joint venture to develop as well as operate the massive leases. Together, they will make a payment of £231 million per annum in each lease for four years. Following the payments, the company will make the final investment decision. The projects are likely to come online within the next seven years. Importantly, the proximity of the projects to the shore, and the leases’ shallow water depth of 35-40 meters and strong wind resources make them attractive investments. It will likely be a cost-effective facility with reliable transmission infrastructure. The adjacent leases are expected to provide the project with significant synergies.

Green Target

The project is expected to play a crucial role in U.K.’s target of renewable energy generation of 40 GW by 2030. Moreover, the project will support BP’s ambition of being a net-zero company by 2050. Notably, BP intends to boost low-carbon spending to $5 billion per annum by 2030. Within this time period, it plans to reduce emissions from operations by 30-35%. It also intends to enhance renewable power generation capacity to 50GW and reduce the weightage of hydrocarbons from the portfolio by 40% from 2019 levels.

Price Performance

BP’s shares have lost 6.3% in the past six months against 7.7% rise of the industry it belongs to.

Zacks Rank & Stock to Consider

BP currently has a Zacks Rank #3 (Hold). A better-ranked player in the energy space is Cactus, Inc. (WHD - Free Report) , holding a Zacks Rank #2 (Buy). Cactus’ bottom-line estimates for 2021 have witnessed two upward revisions and no downward movement in the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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