BP Pulls Out of Bidding for U.K. Climate-Change Project

By GUY CHAZAN

LONDON -- The United Kingdom's hopes of becoming a world leader in the battle against global warming suffered a potential setback when British oil major BP PLC said it had pulled out of a competition to design the country's first carbon capture and storage project.
The announcement came as BP said it would be concentrating its wind investments in the U.S., effectively exiting the U.K. wind power market.
Carbon capture and storage -- known as CCS -- is critical to U.K. energy policy. Coal, which is in plentiful supply in Britain, is a big part of the U.K. energy mix. The U.K. says it will cut carbon emissions by 80% by 2050 -- a target it can achieve only if it can work out a way to sequester and safely store the carbon dioxide emitted by its coal-fired power stations.
CCS has so far never been applied on a commercial scale, and there are fears the costs will be prohibitive. Some companies developing the technology say it won't work without big financial incentives.
The U.K. government announced in July it had shortlisted four bidders to develop the country's first CCS demonstration project -- BP Alternative Energy, E.ON AG, Peel Holdings and ScottishPower, the U.K. arm of Spain's Iberdrola SA.
But BP is pulling out. "We don't believe we can put together a consortium that would win the competition," said spokesman David Nicholas. He said BP had failed to find a power generator that it could partner with.
The government said BP's move wouldn't affect the competition. "We continue to have three strong bidders who are committed to the project and to CCS," said a spokeswoman. "BP's decision does not compromise the integrity of the competition, nor will it have a material impact on the robustness of the procurement process."
But the project is facing problems on other fronts. RWE npower, the U.K. subsidiary of German utility RWE AG, has said it will seek a judicial review of the government's decision to leave it off the shortlist for the competition.
BP has already backed out of one CCS venture in the U.K. Last year, it abandoned a trial project in Peterhead, Scotland, saying the government's timetable for a competition to win financing for a prototype plant was too slow.
Mr. Nicholas said the decision on the demonstration project didn't reflect a change in BP's views on carbon capture. He said BP remained committed to Hydrogen Energy, its 50-50 joint venture with mining giant Rio Tinto PLC, which is developing two carbon-capture projects, one in California and the other in Abu Dhabi. Hydrogen Energy abandoned plans for a CCS plant in western Australia earlier this year after it failed to find geological formations suitable for long-term storage of CO2.
BP also said this week that it wouldn't be pursuing wind power initiatives in the U.K., concentrating instead on the U.S. where it said the economics made more sense. BP already has a large development portfolio in the U.S., with 15,000 megawatts of capacity.
"We can get much higher returns from the large wind farms we can put up in the U.S., due to the economies of scale," Mr. Nicholas said.
BP isn't involved in any major wind projects in Britain, though it had been looking into a wind farm on the Isle of Grain in Kent. Its rival, Royal Dutch Shell PLC, announced last May that it was pulling out of the London Array, a massive offshore-wind project, because rising costs raised doubts about its profitability. The company said the economics of investing in onshore wind power in the U.S. are "significantly better."
Write to Guy Chazan at guy.chazan@wsj.com