Centrica and npower set to green light huge offshore wind farm projects

Government commits to increasing subsidies in order to meet 2020 renewable energy targets
Tim Webb
guardian.co.uk, Sunday 12 July 2009 15.22 BST

Centrica and RWE npower are close to signing off on two huge offshore wind farms costing an estimated £3bn to build in further signs that the logjam holding up offshore projects is easing. It follows a government announcement in April to increase subsidies available for offshore wind projects, which are crucial for the UK to have any hope of meeting its 2020 renewable targets. Energy companies had shelved projects, blaming the credit crunch, weak pound and high construction costs for making them unviable.
Centrica said that it was planning to make a final decision on whether to go ahead with its £800m Lincs project, off the coast of Lincolnshire, by the end of September. The project will generate 250mw of electricity, enough to power two cities the size of Cambridge when the wind blows.
RWE npower will also decide soon whether to build its £2.2bn project in North Wales, Gwynt y Môr, which will be able to generate 750mw, making it one of the largest projects in the world. The company's renewable arm, npower renewables, is keen to press ahead and is almost certain to build the project now that subsidies have been boosted.
Both wind projects were given planning approval some time ago.
Under the new subsidy regime, which the government will formally consult on this week, offshore wind projects will earn two Renewable Obligation Certificates (Rocs) for the electricity they generate. Projects will only qualify if construction begins by 2011.
Sarwjit Sambhi, director of Centrica power business, told the Guardian: "Following the announcement on Rocs, on the basis of our current construction cost forecasts the Lincs project is pretty close to our required hurdle rate. Provided the government consultation on the changes to the Rocs regime for offshore wind runs smoothly and there are no delays which could impact our construction contracts, we will go ahead with the project."
The government is also in talks with energy companies about awarding third round licences to build giant offshore wind projects costing an estimated £50bn. Investment decisions will not be made for several years. Centrica is pressing for guarantees that the Roc regime will run beyond its current end date of 2027 to make the projects viable. There are also concerns that if a Conservative government is elected, they could scrap the system altogether and replace it with a "feed in tariff" subsidy which would guarantee offshore wind farms an above market price for the electricity they generate. Centrica also wants the government to push through its plans to streamline the planning process set out in the planning bill.
Around £100bn is needed to build enough wind farms to meet the government's 2020 renewable energy targets. The government has signed up to a binding EU target to source 15% of its energy from renewable, non-fossil fuel sources. The vast majority of this will have to come from offshore wind farms. Only 5% of the UK's electricity comes from renewables today.
In May, Dong Energy, E.ON and Middle East-based energy fund Masdar said they would invest £2bn to build the first 630mw phase of the London Array offshore farm, which once complete will be the largest in the world. Shell had thrown the project's future into doubt last year when it pulled out of the consortium to build it.