Offshore wind builders to cut more projects in world's top market
LONDON (Reuters) - Britain has built the world's biggest offshore wind energy market but there are signs it may have reached a tipping point as companies cancel and sell off projects in the face of steep costs.
RWE (RWEG.DE) and Scottish Power (IBE.MC) have both scrapped or scaled back huge offshore wind farm projects in the last two months citing the costs involved in developing deepwater sites.
Those costs are estimated at several billion pounds each.
The cancellations also come as government subsidies for renewable energy including offshore wind face rising opposition across Europe from consumers being asked to help foot the bill for supporting green projects.
Site licensing rounds in Britain have allocated offshore areas for development that can house more than 40 gigawatts (GW) of capacity, well above the government's 2020 target of building 10 GW of wind farms.
"I expect we will see some more project cancellations over the next six months or so. There's too many projects in development relative to the amount of money set aside to fund (offshore wind) until 2020," said Ronan O'Regan, a director at consultancy PwC.
The British government sets periodic budgets, called the Levy Control Framework (LCF), which determine how much money is available to subsidise low-carbon energy projects.
Britain wants to have offshore wind farms as part of its energy mix in a bid to cut carbon emissions in the power sector and to diversify its energy resources.
The LCF currently allows for 2.35 billion pounds per year and will rise to 7.6 billion pounds from 2020 to support Britain's low-carbon energy projects.
In 2015/16, owners of offshore wind farms will receive a guaranteed electricity price of 155 pounds per megawatt-hour (MWh) produced, as part of a new government subsidy system. That compares to a current British wholesale power price of about 48 pounds.
Globally the offshore wind power market is growing rapidly, with a 33 percent rise in capacity in 2012.
However, some large markets, such as Germany, have encountered problems with grid connections and supply chain bottlenecks that have delayed projects.
Britain's subsidies and speedy licensing have helped it establish the biggest offshore wind market, with nearly 4 GW installed so far. Denmark ranks second at 1.3 GW.
Offshore wind analysts and developers questioned refused to speculate on which British other projects might face the chop, but they are likely to be part of the Crown Estate's Round 3, the latest licensing tender which allocated sites much further out at sea than in previous rounds.
These include Dogger Bank Tranche D, located 240 kilometres offshore and Hornsea Heron Wind and Hornsea Njord, 130 kilometres out to sea.
The allocated sites open new territories further out to sea, ones which have not previously been assessed for housing wind farms.
Growing wind power supply is seen helping Britain which faces a short-term power capacity crunch as it shuts down ageing power plants in the coming years, a process that has sparked concerns about the risk of power cuts at times of peak demand.
Yet as in other forms of energy exploration and evaluation, cancelled wind projects are seen as a natural part of the process.
"It would have been unrealistic to expect all zones to be developed at the same time," said Adam Bruce, global head of corporate affairs at Mainstream Renewable Power, an offshore wind developer.
The company is building two offshore wind farms in Britain with a combined capacity of 1,650 megawatts (MW).
After winning and paying for licences obtained from the Crown Estate, the Queen's property manager that looks after coastal areas, developers have to test ground conditions and wave and wind strength, as well as assess any impact on protected wildlife.
Only then can developers gauge how much it will cost to build their projects and whether the risks and costs justify the investment.
"If they've got 10 other pipeline opportunities, they will go for the ones that give them the best rate of return," said a banking source who has helped finance offshore wind projects.
British utility Centrica (CNA.L), for example, sold its Race Banks offshore wind farm project off the east coast of England to Denmark's DONG Energy DOENRY.UL last month, while it continues to pursue its Celtic Array project in the Irish Sea.
Despite RWE and Scottish Power cancelling UK projects in the past two months, both are continuing with other British offshore wind projects.
Technology is also changing, offering offshore wind developers hopes of lower costs in the future. Pilot projects such as floating wind turbines could make it easier to overcome challenges posed by adverse conditions.
"As technology recedes in price, as we get better at building in deeper water and further from shore, as new grid connections come on stream, then those projects that are being postponed at the moment will become much more attractive over the course of the next decade," said Bruce at Mainstream Renewable Power.
(Editing by Jason Neely)
- Tweet this
- Share this
- Digg this
- Qatar will not host 2022 World Cup, says FIFA's Zwanziger
- Arab Bank liable over Hamas attacks - U.S. jury
- Tesco cuts profit outlook again and suspends staff after accounting error |
- Insight - Frankfurt exchange's China dream turns to nightmare
- French national taken in Algeria, group claims kidnapping