Blown away (Observer)

Tim Webb
The Observer, Sunday 15 February 2009

In just over a fortnight, Britain's largest energy groups will submit bids to build dozens of giant wind farms off the coast of the UK at an estimated cost of well over £30bn. The only problem is that the groups have little confidence they will become a reality - unless they get more public subsidies.
Readers would be forgiven a heavy sigh at the request for a government bail-out. This is particularly the case when the call comes from energy companies, whose unpopularity recently has been surpassed only by the banks.
Yet the energy companies and other developers of offshore wind have a point. The government has set incredibly ambitious renewable energy targets. Meeting them depends on building offshore wind farms - and lots of them.
Early next month is the deadline for companies to bid in the third - and by far the largest - round of licensing for offshore wind. The government hopes the nine zones up for grabs will host 25GW of wind farms, enough to power London.
But existing projects are already running into problems. E.ON, one of the developers of the £1bn London Array offshore project, admitted last month that the economics were on a "knife edge". The energy group will decide soon whether to proceed or not.
Offshore wind farms are an expensive way to generate power. No one has built them on this scale before, which also makes the projects very risky. Unlike elsewhere in Europe, developers are not guaranteed a high price for the electricity they sell. Add in the credit crunch and it is no surprise that dozens of projects have been put on hold or scrapped altogether.
Sam Laidlaw, chief executive of Centrica, told the Guardian last month that he and other energy chiefs were in urgent talks with the government about how to make the economics work.
Privately, some despair at the failure to change the existing regulatory and economic framework for offshore wind. One chief executive said: "It's bonkers."
But developers have not given up all hope, which is why interest next month will be healthy, albeit not as strong as it would have been a year ago. One director of a developer said: "Companies will still submit proposals in the hope that the economics will improve when they have to commit the investment. If they don't, the projects won't go ahead."