Centrica issues green energy warning

Firm to go ahead with £725m windfarm but says renewable targets will not be met unless government continues current subsidy levels
Tim Webb
guardian.co.uk, Wednesday 28 October 2009 16.51 GMT
Centrica gave the go-ahead to one of the UK's largest offshore windfarms today but warned the government that its 2020 renewable energy targets would be missed unless the current level of subsidy was maintained.
The firm, which owns British Gas, announced that it would invest £725m in the 270MW project off the coast of Lincolnshire, which will be able to power a city twice the size of Cambridge when the wind blows.
The government announced in the last budget that offshore windfarms approved by March next year would receive higher subsidies, or renewables obligation certificates (Rocs).
But officials said tonight that there were no plans to make this arrangement permanent, leaving the economics of offshore wind unviable, according to Centrica.
Sarwjit Sambhi, managing director of Centrica's power business, said: "Without [the higher subsidy] we could not have gone ahead with the Lincs project."
The project, which will boost the size of Centrica's wind portfolio by two thirds, secured planning permission months ago but the slump in energy prices has resulted in a host of wind and other power projects being scrapped.
The windfarm, 8km off the coast near Skegness, will have 75 turbines. Construction would begin next year and electricity would begin to be generated around 2012, the company said.
Centrica also announced that it had sold a 50% stake in three of its smaller offshore windfarms to a subsidiary of Société Générale's asset management arm for £84m. The company added it had raised a further £340m of debt, secured against the three windfarms, from a consortium of banks. The proceeds from both will go towards funding the Lincolnshire project.
Ofgem, the energy regulator, has predicted that £200bn will need to be invested in the next decade in green energy equipment to meet the 2020 renewable targets. These targets would require the UK to generate a third of its electricity from renewable sources such as windfarms. Centrica has promised to invest £15bn by 2020 but Sambhi said that other investors, beyond energy companies, would also be needed. "[£200bn] is a big chunk of investment to make. We need to attract other investor classes."
The government is setting up an independent body designed to handle planning applications for large projects such as windfarms or nuclear power plants. By taking such decisions away from ministers, the hope is that national concerns would take precedence over local objections and fewer schemes would get blocked.
Sambhi said that the 2020 targets could be met, but only if the current level of subsidies was maintained. "The new planning regulations would need to be as smooth as the government has promised," he added.
The Conservatives have promised to hand back the final say-so to ministers. Sambhi said that their decisions would have to be "transparent" for the system to work.
Sam Laidlaw, Centrica's chief executive, said: "Our decision to build Lincs illustrates our continued commitment to develop renewable generation and confirms our position as one of the UK leaders in green energy. The government's enhanced financial framework for offshore wind has been fundamental in improving the overall project economics of this development."