Page last updated at 23:12 GMT, Thursday, 8 May 2008 00:12 UK

Centrica warns on wind farm costs

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A closer view of an offshore wind farm

Centrica, one of the UK's biggest energy generators, has warned that the prospect of making money from wind farms is looking "marginal".

The company says that the rising cost of off-shore wind farms could end up ruining the government's renewable energy targets.

The comments come a week after Shell withdrew from a project that was set to become the world's largest wind farm.

The government wants 33 gigawatts of offshore wind capacity built by 2020.

Mr Sambhi, Centrica's director of power business unit, 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 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.

Wind farm expansion

This week Centrica's Lynn and Inner Dowsing project will deliver power to the National Grid.

Turbines being installed at Lynn and Inner Dowsing
Centrica's Lynn and Inner Dowsing project will power the National Grid.

The opening of the wind farm comes at a time when the economics of off- shore wind generation are coming into question.

But the wind farm off the coast of Skegness has doubled in price in the last three years because of the rising cost of steel and copper.

There are effectively only two companies that produce wind farms for the UK market - Vestas of Denmark and the German company Siemens.

Both have a huge order book, with Vestas alone having nearly 4bn worth of orders yet to be delivered.

The turbine manufacturers point to the rising cost of raw materials and the difficulty they have in securing the parts they need.

Big projects

Uncertainty over the future of the 1,000 megawatt London Array wind farm off the coast of Kent has increased tension in the industry.

Shell, one of the three major partners in the London Array - meant to be the world's largest wind farm, last week pulled out of the project.

LYNN & INNER DOWSING FACTS
Each turbine can power 2,500 homes
Turbines are 100m high and nearly 100m in diameter
Each turbine weighs approximately 260 tonnes
The 54 turbines have a combined generating capacity of 180 MW

After Shell's decision, one of the other partners - E.ON - said that the economics of the project were "marginal at best".

The cost of the project is thought to have doubled since 2003, when it was estimated at 1bn.

The BBC has learnt that just one turbine manufacturer made a tender for the project, increasing the impression amongst some in the industry that manufacturers are able to choose their price for the projects they take on. High costs have forced the energy companies to look elsewhere for funding.

Centrica is aiming to build another three wind farms with a total capacity of around 1250 megawatts but does not want to fund the projects alone.

In a bid to keep the projects on track the company is looking for investment from City institutions, including from private equity firms.

Government policy

But this innovative tactic might not have the desired results according to Dieter Helm, Professor of Energy Policy at Oxford University.

Wind farm in the North Sea
Uncertainty around wind farms has put off some investors

"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.

This view is echoed by Charles Anglin from the British Wind Energy Association, who says that a lack of clarity has affected investment.

"The fact that the government was slow to wake up to the opportunity of wind did push up uncertainty, and that has affected prices and meant that manufacturers have delayed investment," he said.

But the government believes that the future for wind power in the UK is secure.

It says that there are financial incentives in place to encourage energy companies to invest in wind farms.

It also points to the fact that Britain is due to over take Denmark as the largest offshore wind energy generator by the end of the year.


SEE ALSO
Shell pulls out of big wind farm
01 May 08 |  Business
MPs reject renewable energy move
30 Apr 08 |  UK Politics
EU energy: Revolution for the UK?
24 Jan 08 |  Science/Nature
Wind energy company in Euro call
15 Apr 08 |  Highlands and Islands
Fast-track call for wind schemes
02 Apr 08 |  Highlands and Islands

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