Rising costs threaten UK wind farm programme 

The UK won’t meets it targets on renewable energy if offshore wind farm costs continue to spiral, the government has been warned.

Centrica said the chance of making any money from wind farms being set up around the British coast were now only slim.

Rising prices for raw materials, particularly steel and copper, had pushed up the prices being demanded by the handful of companies who make the giant turbines for the offshore fields.

Centrica said it would continue with its plans for three UK wind farms but warned the outlook was bleak.

Sarwjit Sambhi, director of Centrica’s power business unit, said: “The economics at the moment make the returns marginal.”

The news came only days after Shell announced it was pulling out of the £2bn London Array wind farm in the outer Thames which is scheduled to produce enough power to supply a quarter of homes in the Greater London area.

One of its partners, E.ON, said Shell’s decision put a question mark over the field’s future and that the economics of the project were “marginal at best”.

The oil giant plans to invest instead in onshore wind farms in the US where it believes it will get a quicker return on its investment.

Two wind farms, Lynn and Inner Dowsing, with a combined 180MW capacity which Centrica has built off the Lincolnshire coast, doubled in price in the time they were built. They are about to come on stream and Centrica has plans at three more sites off the Lincolnshire and Norfolk coasts.

“The worrying trend is that if the manufacturing costs continue to increase, then I think that the wind target is under threat,” said Mr Sambhi.

Britain is committed to obtaining 15 per cent of its total energy needs from renewable sources by 2020 and wind power – especially offshore – is expected to supply most of it. Because of its geographical position and shallows waters around its coast, Britain is ideally placed to tap into an almost limitless supply of wind.

The government wants 33 gigawatts of offshore wind capacity built by 2020 but progress has been slow with projects taking years to complete because of rigorous environmental assessments and planning requirements. The long delays and increasing production costs is leading to investors questioning whether the government has the right strategy.

Dieter Helm, Professor of Energy Policy at Oxford University, told the BBC: “Investors are saying that the current policy for wind energy in the UK is not fit for purpose.”

“Unless the government wants to revamp and rebase its wind structure, it isn’t going to get what it wants from wind,” said Mr Helm.

One of the major obstacles is that demand is outstripping supply. Most of the wind turbines are built by Vestas of Denmark and Siemens of Germany and they both have full order books.

Charles Anglin of the British Wind Energy Authority said the manufacturers were concentrating investment and production on the more lucrative onshore wind market but this would change with the latest round of applications to build big offshore fields.

Britain is due to overtake Denmark as the largest wind energy generator by the end of the year when the 400 megawatts it was currently producing would rise to 1000 megawatts.

” There isn’t a real alternative to wind because over the next 10-15 years we are going to lose 25 per cent of our power generating capacity as old plants are decommissioned. There might be a new generation of nuclear plans in that time but unless we want to buy in gas – which has doubled in price in the past year – the only realistic alternative which we can build easily is wind,” he said.

By Paul Eccleston

Telegraph

9 May 2008