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Rising costs 'threaten green agenda'
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Centrica, the owner of British Gas, is in talks with potential investors about funding for its massive £3bn expansion into alternative energy following a sharp rise in project costs.
The head of Centrica’s renewables division has warned that the economics of the industry have changed radically and government targets for powering Britain on “green” electricity face being blown off course.
Centrica is already building the world’s largest offshore wind farm at a cost of £300m, and is planning another £600m project which, it says, has risen in cost by £100m in just a few months.
News that the country’s biggest backer of wind farms is voicing concern about funding will alarm the Government, which sees this energy source as key to meetings its commitments to reduce carbon emissions.
Sarwjit Sambhi, Centrica’s director of power generation and renewables, said there are some “strong headwinds – financial, in the supply chain and skill shortages”.
He added: “We will have to bring in investment and trade partners on future projects. The balance sheets of the utilities cannot absorb all the increased costs.”
His comments will be seen as an open invitation to infrastructure funds and finance houses to come and talk about partnering Centrica on a variety of alternative energy projects. Mr Sambhi would not discuss rumours that Centrica is in discussions with Riverstone, the private equity firm that has employed ex-BP chief Lord Browne to look at alternative energy investments.
Centrica is considering plans for several wind farms, to be built by 2015, at a current estimated cost of £3bn. But it is worried about how it can plan for long-term investments that could spiral out of control.
The Government has laid down targets for energy companies to build 33 gigawatts of offshore wind by 2020. Three years ago, the industry estimated meeting this figure would mean investment of about £40bn.
Mr Sambhi said the cost today is put at £80bn, adding: “If manufacturers cannot meet the product delivery cycle it threatens the Government’s wind dream.”
By Russell Hotten
17 March 2008
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