Major Windfarm Loses Investor as Costs Increase

28 May 2008

Major Windfarm Loses Investor as Costs Increase

Photo: Sandi Baker

The London Array – a major offshore development of wind turbines that could have powered every house in Kent and East Sussex has had one of its main investors, Shell, pull out, putting the whole project in jeopardy.

The 1,000MW London Array placed in the Thames Estuary would consist of up to 341 wind turbines and be able to generate enough electricity to cater for the power needs of a quarter of London homes or every home in Kent and East Sussex. It would also avoid the emission of millions of tonnes of carbon dioxide over its life. This is one of the most significant offshore wind developments in the world, and the three partners (Shell WindEnergy, E.ON and DONG Energy) were funding a project costing £2.4 billion, spread over the next six to seven years. The costs have more than doubled since it was originally planned to cost £1 billion.

Illustration: London Array

On some wind-energy projects it is normal for partners to change, but this one is so large, and Shell so well-endowed with cash at the moment owing to high oil prices, that the decision to pull out seems to be sending an unwelcome signal to the wind energy community and governments. It may be hard to find an investor with deep enough pockets to replace Shell, so therefore the project is in jeopardy.

Elsewhere in the UK, other wind farm projects are under threat because of increasing costs. As oil-based products are so ubiquitous in the manufacturing chain, they have a knock-on effect on prices of almost everything. These costs feed into projects that are being built or planned at the moment. Wind farms are only slightly profitable currently, so increased costs can push them into the red. Sarwjit Sambhi of Centrica, which is currently investing in several wind farms says the firm is still planning to build three new wind farms in the UK, but believes that current conditions are making the government's renewable plans look very ambitious. The government wants 33 gigawatts of offshore wind power built by 2020.

"The economics at the moment make the returns marginal.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.

Only two companies in Europe produce the largest wind-turbines: the German company Siemens and Vestas of Denmark. Although their order-books are full, the cost of raw materials and parts keeps spiralling upwards and may make major investors such as governments and large corporations wary of investing in these alternative energy projects in the future.


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