The headlines relating to BP today will no doubt be about the oil giant's record losses and the huge payout for its departing CEO. But there’s a fascinating story to be told about its flirtation with renewable technologies, and it’s a cautionary tale that has lessons for investors large and small, company boards and policy makers, as well as the PR industry.

London-based analysts at Citigroup have done a bit of research into BP and its experimentation with renewable energy and, in doing so, have contrasted the fortunes of one company that talked about doing something, and another company that did something.

Just over 10 years ago, both BP and its Spanish equivalent, Iberdrola were large energy companies with minimal exposure to the renewables market. This is what happened next.

After the merger with Amoco, and the purchases of Atlantic Richfield Corporation and Burmah Castrol in 1999, BP decided to invest $US200 million in a branding campaign called Beyond Petroleum managed by Ogilvy and Mather.

It was a stunning success. And O&M marveled at their own work: "Our Brand Champions implemented change internally with leadership communications, toolkits, chat room promotions, CEO satellite broadcasts, town hall meetings and celebrations." Hooray!

Shareholders must have thought it was money well spent. The campaign lifted BP’s “brand power” in the US among business decision makers from a score of 30 in 2000 to an all-time high of 50 in 2008. It was quickly adopted within the sustainable investment community as a champion of corporate responsibility, and was held up as an example to others of progressive management of environmental and social issues.

According to Citigroup, rating agencies comparing the sustainability performance of the energy sector routinely graded BP "best in class" on environmental issues, making the company eligible for inclusion in SRI and ethical funds run on this strategy.

But there was little substance to it. According to Citigroup’s analysis of BP’s 2009 results, after a decade of talk, the alternative energy business had grown into just 711MW of wind capacity, sales of 203MW of solar equipment, a 50 per cent joint venture with Rio Tinto to build and demonstrate a hydrogen-powered electricity generating facility with carbon capture and storage, and a CCS project in Abu Dhabi.

The revenue from these businesses are not disclosed separately in the company’s financial reporting, but included in the “other businesses division,” which Citigroup says is expected to contribute an annual loss of around $400 million in 2010.

Meanwhile, in Spain, Iberdrola over the same period lifted its renewables portfolio to 20 per cent from 3 per cent, floated its renewables division Iberdrola Renovalbles for a direct cash injection of €4.5 billion, and now has a renewable capacity of 10.8GW – about 13 times bigger than BP.

This  includes 2.1GW of wind in the US, the market that BP described as its prime target. In 2010, according to Citigroup, Iberdrola will install 1.7GW of wind, twice as much as BP has installed in the last decade. Iberdrola Renovables had total sales of €2 billion in 2009 and a net income of €371 million.

Perhaps it was just bad luck. But Citigroup also notes that in 1999, BP paid $US45 million for Solarex so it could become the “largest producer of solar energy in the world”.

At the same time, a small company called SolarWorld with revenues of just €5.4 million had an IPO to become one of the first stand-alone solar stocks in the world. Today, SolarWorld is described by Citigroup as a fully integrated solar energy company with production lines in Germany as well as in the US and Korea, and total sales of more than €1 billion. In the first quarter alone, it shipped nearly as much solar PV products as BP achieved in the whole of 2009.

More bad luck, perhaps? How about biofuels? Citigroup says this might have been a better alternative energy opportunity for BP, with the company itself noting in a fact-sheet that “biofuels are directly linked with BP’s core skills and competencies (supply, transportation, processing, blending, distribution and marketing).”

But, says, Citigroup, BP did not produce a single public update on its biofuels activities in all of 2009. Perhaps the company was more focused on ridding itself of all those people “working to save the world” as outgoing CEO Tony Hayward complained to a group of Stanford University graduates last year.

“Whether or not one agrees with BP’s decision as an oil major to enter the renewable electricity market, for a 10-year focus on a rapidly expanding energy market with the financial resources of an international oil company, this seems limited progress,” the Citigroup analysts note. “We see the foray into renewable electricity so far as little more than a PR exercise that has delivered minimal value to shareholders.”

Deep trouble

Australia should be thankful, though, that a Gulf of Mexico style blow-out did not happen in our waters.

According to Greg Bourne, the former head of WWF Australia and a former president of BP Australasia, well blow-outs are reasonably common, with some 173 occurring in the last 30 years in the Gulf of Mexico and a further 64 in the North Sea.

The problem is, the easy oil has been found, and deep-sea drilling is inherently risky, and can only be justified by high flow rates, which means the consequences of failure are large.

Bourne told a Citigroup briefing in Sydney that the response to the Gulf of Mexico spill was rapid, but it could take longer to mobilise a similar response for offshore Australia, possibly two to three months – and some Australian offshore areas may simply be too sensitive for this risk to be taken.