Rise of the monster wind farms

A £125bn plan to generate a third of the UK’s energy needs offshore may prove too ambitious

Danny Fortson

Picture a field of enormous windmills, each the height of London’s Gherkin skyscraper with blades as long as a jumbo jet. Does this sound fantastical?
The government doesn’t think so. Ed Miliband, the energy secretary, recently stumped up £4.4m of public money to help finance the first of these monster turbines, to be built at a former shipyard in Blyth, Northumberland.
Dubbed the Britannia Project, the scheme is part of an ambitious plan to cut our carbon dioxide emissions by investing billions in new wind farms at sea. In the next few weeks the Crown Estate, owner of the seabed round our coast, will name the companies that have won the right to build these projects. Each will generate more power than all the world’s offshore wind farms now in operation.
In theory, the farms could provide up to a third of the country’s energy. They won’t be cheap. Executives estimate that to build them will cost more than £100 billion over the next 12 years — the same as 25 nuclear reactors.

The benefits are clear. The power generated will be emission-free as well as immune to the geopolitical machinations that affect gas and other fossil fuels. The windier conditions at sea mean they should generate maximum power about a third of the time, as opposed to a quarter for onshore turbines. They can be built on an enormous scale, giving Britain a huge boost in meeting its targets for cutting emissions.
There are, however, many obstacles and unanswered questions. Big subsidies are required — this was one of the main reasons why Ofgem, the regulator, warned recently that annual household energy bills could rocket to £2,000 by 2016, up from £1,100 today. Critics wonder if spending on household energy efficiency would be a better use of the money.
Reliability is also a concern. Nobody has ever tried to put so many power stations as far out in the North Sea. Andy Cox, energy partner at KPMG, said: “The hostile environment that awaits these projects must be a real concern to investors. Even in the more benign onshore wind sector, there have been numerous problems with gearboxes and blades failing.”
Today there are only three purpose-built ships for installing offshore turbines. The European Wind Energy Association says that more than 30 will be needed. “It’s a little scary because there are some fundamental differences from building onshore. We will have to deal with some unknowns, like wave height,” said Dave Rogers, head of renewables at Eon.
If something goes wrong, a turbine could be out of action for weeks before the weather allows a ship to go out and fix the problem.
David Still, European managing director at Clipper Windpower, the company behind the Britannia Project, envisions maintenance staff living on offshore platforms. The huge wind farms to be built after the Crown Estate’s “round three” seabed auction will be as far as 150 miles off the coast and in depths twice the 20m typical of today’s smaller projects.
“Onshore we can get to a turbine within two hours,” said Still. “You can’t be spending a lot of money on helicopters or taking a six-hour boat ride every time there is a maintenance event. The size of the new fields will bring a whole range of problems.”
Maria McCaffery, chief executive of the British Wind Energy Association, the trade group, has called the wind industry “the biggest job-creation event since North Sea oil”.
It has a long way to go. Last June Britain’s first class of certified wind turbine technicians graduated from Northumberland College outside Newcastle. The class, the only one of its kind in Britain, had six students. By Christmas their ranks will triple when another 12 pupils get their certificates.
The electricity network will also need to be radically overhauled and upgraded. Today Britain’s generation capacity sits at about 75 gigawatts. To take account of the variability of the winds, that will have to increase more than 50%, to about 120gw, to meet the same level of demand.
Stuart Bailey, head of balancing services at National Grid, said he will also have to double the additional buffer of “reserve” energy the system has on call at any one time in case a big plant shuts down. These are often pollution-spewing coal-and oil-fired plants.
Buildings costs, meanwhile, have rocketed. In the middle of the credit crunch the industry made desperate pleas to the government for aid on top of an already generous subsidy scheme. Without it, they warned, Britain’s wind energy revolution would die. The government responded by ratcheting up the subsidy by a third.
Within weeks, costs for turbines, cables and other equipment rose by a similar amount.
Offshore farms now cost twice what they did three years ago. Mortimer Menzel, of Augusta & Co, the bank, said prices will not come down until more companies enter the industry. “We have reached a peak in terms of building and construction costs because we have these generous government subsidies that are being passed straight through to the suppliers,” he said. “Commodity prices have halved since last year but turbine prices haven’t moved. If they don’t come down, we have a problem.”
Turbines aren’t the only problem. To bring the power ashore, hundreds of miles of undersea cable, at an estimated cost of £15 billion, will need to be laid.
Energy companies can no longer afford to build big farms on their own. Centrica recently sold half its stake in its new Lynn and Inner Dowsing farm to help finance the building of its next one. Npower has hired Merrill Lynch to find someone to take on half the £1.7 billion building cost of its Gwynt y Mor farm off the Welsh coast. Dong Energy, the Danish group that has plans to build more than £10 billion of offshore wind farms in the UK, including the London Array, a huge project in the Thames estuary, has hired the investment bank Rothschild to find investors to share the burden.
“They want to build this stuff,” a banker said, “but they simply can’t afford it.”
And the Britannia Project? It may never make it off the drawing board. Ken Rumph, an analyst at Nomura Code Securities, said that loss-making Clipper needs to raise $180m (£108m) to make it through next year. If it doesn’t, he said, “bankruptcy is a realistic scenario”.