Funding doubts for giant wind farm

By Ed Crooks and Fiona Harvey
Published: January 25 2009 23:31

The economics of the world’s biggest offshore wind-farm project are “on a knife-edge”, the chief executive of one of the companies behind it has warned, casting doubt on the UK government’s energy strategy.
Eon UK, the British arm of the German energy group, said the viability of its London Array project, a planned 1,000MW wind farm in the Thames estuary, had been called into question by the falling prices of oil, gas and carbon dioxide emissions permits.
The government will publish an environmental study on Monday on the feasibility of erecting offshore wind turbines around Britain. It concludes that there is scope for 5,000-7,000 turbines, which would equate to 25,000MW.
That ambition is likely to intensify pressure from the industry for a more generous subsidy scheme. A huge expansion of renewable energy is vital to plans for hitting EU targets for greenhouse gas emissions.
The government hopes more investors will emerge in the next month, as the Crown Estate, which owns the offshore seabed, is meeting 90 potential investors as part of the process of granting licences to build on the seabed.
Energy companies are concerned about the cost of offshore wind power – roughly twice that of onshore wind because of the difficulty of installing and maintaining turbines at sea.
Paul Golby, chief executive of Eon UK, told the Financial Times that the company was still committed to the Array, but warned: “The economics are looking pretty difficult.” His concerns are shared by other energy companies. Centrica, the owner of British Gas, estimates that each megawatt of wind power capacity costs about £3m to build: more than the equivalent cost for a nuclear power station.
The comparison is made even worse because offshore turbines might generate power for about 40 per cent of the time, whereas modern nuclear stations operate at about 90 per cent of capacity.
Sam Laidlaw, Centrica’s chief executive, said: “We are planning to invest in 1,500MW of offshore wind capacity, but it is very expensive, both in capital cost and in maintenance.”
Centrica is reviewing its offshore wind investment plans.
Energy companies hope the recession might ease the capacity shortages that have driven up costs, but suggest the government will need to improve the generosity of the Renewables Obligation, the subsidy system for renewable electricity.
Eon owns 30 per cent of the Array project. Royal Dutch Shell, the oil group, dropped out last year, to be replaced by Masdar, the Abu Dhabi renewable energy group, which owns 20 per cent. The other half is owned by Dong, the Danish energy group.
The Department of Energy and Climate Change is expected to publish on Monday its shortlist of tidal energy schemes in the Severn estuary, a project that could provide 5 per cent of UK electricity.
Copyright The Financial Times Limited 2009