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BP Solar to Shut Sydney Production Plant to Cut Costs (Update2)

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By Angela Macdonald-Smith

Nov. 18 (Bloomberg) — BP Plc, Europe’s second-biggest oil company, said it will close its solar power equipment manufacturing plant in Sydney at the end of March to focus operations on lower-cost locations.

About 200 jobs will be lost from the plant at Sydney Olympic Park, which produces solar photovoltaic cells and panels, BP Solar said today in an e-mailed statement. BP Solar will retain its sales and marketing team in Australia.

The move follows BP’s decision earlier this month to end planned wind power projects in India, China and Turkey to focus on onshore plants in the U.S. as it concentrates resources on larger-scale ventures. The most modern solar PV manufacturing sites are as much as 20 times larger than the 50-megawatt-a-year capacity Sydney plant, BP said.

“Most of the new plants going worldwide now are about one gigawatt, so the BP plant is really small fish in the present market,” said Vernie Everett, at the photovoltaics group at the Australian National University’s College of Engineering and Computer Science. “Part of the problem is they are running out of space at the Homebush site.”

The Sydney plant accounts for about 17 percent of BP Solar’s total manufacturing capacity of about 300 megawatts, Mark Twidell, BP Solar regional director, told reporters on a conference call. The lost capacity will be taken up by BP Solar plants in China, India, Spain and the U.S., he said.

Solar’s Challenge

In February, BP said it planned to invest about $1.5 billion in alternative energy projects this year, accelerating a 10-year business development program.

“The challenge for solar power is to reduce its costs to the level at which it competes on an equal footing with conventional electricity delivered through the power grid,” Reyad Fezzani, global chief executive officer of BP Solar, said in the statement. “We’ve looked at all options in our Sydney manufacturing site and the physical location, lack of expansion potential and lease agreements just don’t make it competitive.”

The distance of the Sydney plant from raw materials suppliers and from the major solar PV markets increases costs for the Homebush site because all the raw materials and “the bulk” of the finished products have to be flown in and out, Twidell said.

“We have to lower the price of our products to compete,” Twidell said. “We’ve got to get lower-cost product into the market for the solar industry to grow.” The decision has nothing to do with Australian government policy or with the global financial crisis, he said.

Renewable Target

Earlier this year, BP valued its alternative energy business at $5 billion to $7 billion. The solar market is expanding at more than 30 percent a year, even amid a worldwide constraint on solar-grade silicon, BP estimates.

BP’s decision highlights the need for the Australian government to “provide certainty” by delivering on a promise to expand the nation’s target for renewable energy use, Matthew Warren, chief executive of the Clean Energy Council, an industry group, said in a separate statement.

Royal Dutch Shell Plc is Europe’s biggest oil company.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at[email protected]

Last Updated: November 18, 2008 00:51 EST

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