Energy firms demand £2bn to save wind farms

The Sunday Times
March 22, 2009
Danny Fortson

ENERGY COMPANIES have warned the government that unless they get £2 billion in “immediate” state aid several offshore wind farms will be scrapped – and this would leave Whitehall’s pollution-reduction targets in tatters.
Companies have put off giving the green light to several big projects, such as the £3 billion London Array in the Thames estuary and Npower’s £2.2 billion Gwint y Mor farm off the coast of Wales, until the government decides whether it will stump up more cash to offset building costs that have doubled in the past three years.
The British Wind Energy Association (BWEA), the industry body, wrote to the government last week warning that the industry is on a knife edge because the credit crisis has made financing these projects prohibitively expensive.
Rocketing costs and the credit crisis opened up a funding gap of about £2 billion for nine projects that have planning consent but haven’t been built. These will cost an estimated £12 billion to complete.

The BWEA warned that, if the government does not take urgent action to fill the funding gap, these farms, which would provide enough capacity to power about 4m homes, will be cancelled.
The plea comes at a critical times for the industry. Eon and its partners Dong Energy and Masdar are expected to decide by June whether to build or abandon the London Array, the largest proposed wind farm in the world. Centrica and Npower also have projects that they have yet to approve.
The energy industry has made three suggestions to the government. One would be to double the per-megawatt subsidy – so-called renewable obligation certificates (ROCs) – that offshore wind receives. Increasing the subsidy from one ROC per megawatt to two would triple the revenue that power companies collect for wholesale electricity. The second suggestion would allow for direct aid through government grants or tax breaks on construction costs.
The third would be to distribute the cost of building the offshore grid – expected to be about £10 billion – among all power companies, whether they have offshore farms or not.
The energy industry wants clarity soon.
The Crown Estate is running an auction for swathes of sea bed that it hopes will be the sites for new wind farms that will be much bigger and thus more expensive.
If the government doesn’t support those on the edge, that process will collapse and deal a big blow to Whitehall’s carbon-reduction targets, companies have warned.
Some have taken a harder line. Both Eon and Centrica argue that generous subsidies have to be paid out over the 20 to 25-year life of an offshore farm for such projects to make economic sense.
Centrica has three projects worth more than £3 billion on which it has yet to make final investment decisions.
Phil Bentley, managing director of British Gas, said: “We haven’t pulled the trigger yet on new projects because it doesn’t make sense under the current terms.”
The BWEA declined to comment on the request for state aid but said: “The government needs to provide quick solutions to today’s problems, and today’s problems are the flow of credit. We are concentrating on measures that will aid the projects that need financial closure this year.”