BP plans to double its investment in greener energy sources over the next three years, in reaction to soaring demand for low carbon energy, the world's second-largest listed oil firm by market value said on Monday.
BP may invest up to $8 billion in wind, solar, hydrogen and high efficiency gas-fired power generation projects over the next 10 years amid growing concern over global warming.
Technological improvements, government incentives and higher energy prices mean that wind, hydrogen and solar energy projects are more economical than in the past.
"We are now at a point where we have sufficient new technologies and sound commercial opportunities within our reach to build a significant and sustainable business in alternative and renewable energy," BP Chief Executive John Browne said.
Demand for solar systems is rising 30 percent per year, BP said.
In the past, some environmentalists have criticized BP's renewables activities as a sop aimed at greening the firm's oily image.
But BP dismissed the suggestion the move was aimed at this or at deflecting criticism from politicians that oil firms have failed to invest enough of their bumper profits, earned from record oil prices, in new energy sources.
"It is good business...The economy of the future will be a low carbon economy," Vivienne Cox, chief executive of BP's gas, power and renewables division, told reporters at a briefing.
However, the vast majority of BP's around $15 billion annual investment budget will remain focused on oil and gas projects, which offer much higher returns.
The London-based oil giant will form a new unit called BP Alternative Energy to manage a fleet of projects that BP said had the potential to deliver sales around $6 billion a year within a decade.
An initial $1.8 billion would be invested over the next three years, spread in broadly equal proportions between solar, wind, hydrogen and combined cycle gas turbines. Cox said the larger part of this would be invested in the United States.
Browne added that within seven years the division would be expected to offer the same returns demanded of other customer-facing sections of the firm, such as fuel marketing. This is around 15 percent through the business cycle.
The exact level of investment in the new unit depends on the nature of opportunities and government support for renewables and for alternative energy technology such as carbon capture.
Wind operators are experiencing growing problems in finding turbine sites which are suitable and unopposed by residents and environmental groups.
BP hopes to avoid this problem by erecting turbines on its own industrial sites. It has identified some U.S. sites which are in high wind zones away from residential areas.
It also hopes to build two hydrogen-fired power plants whose carbon emissions would be stored in depleted oil fields. One, at Peterhead in Scotland, will derive hydrogen from North Sea gas, although its development hinges on government incentives.
The other unidentified project would be in the United States and would burn hydrogen derived from low value refinery by-products.
CO2 sequestration can also have the advantage of extending the life of oil fields, by keeping up reservoir pressure.
BP's move is at odds with the views of some in the oil industry, including the world's largest private oil and gas firm, ExxonMobil, which argues renewables are a poor use of investors' funds.