UK WIND: HOIST ON ITS OWN SUCCESS

The wind energy industry is growing so much, so fast, that turbine manufacturers are two years behind on orders and they can’t get the parts they need. The industry is hoist on the petard of success, hung up by all its self-generated opportunity.

Centrica, a huge UK power producer, is not backing out of commitments to build offshore wind farms. But it IS warning the government costs might come in high, compromising returns.

Demand and inflation are driving the price of structural materials like steel and copper up.

Royal Dutch Shell recently withdrew from the 1000-megawatt London Array project of the coast of Kent, citing “marginal” economics. It is the same description Centrica Director Sarwjit Sambhi used to describe Centrica’s Race Banks, Docking Shoal and Links offshore projects in the planning stages.

The London Array cost was estimated in 2003 at £1bn but is now expected to cost £2bn.

Shell left E.ON without a partner and made the entire British wind industry uneasy. Only one turbine supplier has made an offer to take Shell’s place. Centrica is innovatively turning to investment institutions instead of energy companies for partners but has not been successful.

Dieter Helm, Professor of Energy Policy, Oxford University: "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…"

Both the British Wind Energy Association and the Brown government are far more sanguine, expecting the projects to get financed and the nation’s goals for wind to be met. Incentives are in place to attract financing. Britain will this year overtake Denmark and become Europe’s biggest wind power generator. The size of Britsh wind’s growth is a blessing and a curse but most of all it is a fact, a success that has its own momentum and inevitability.

Centrica is busy installing wind offshore, helping turn the UK into the world leader. (click to enlarge)

Centrica warns on wind farm costs
8 May 2008 (BBC News)

WHO
Centrica (Sarwjit Sambhi, Director)

The fate of the world's largest offshore installation is now in doubt. (click to enlarge)

WHAT
Rising costs of materials like steel and copper makes wind turbines in Britain more expensive and creates doubts about favorable return on investment for wind farm builders.

WHEN
- The UK’s current Labour government has the goal of obtaining 33 gigawatts of wind generated electricity by 2020.
- Centrica's Lynn and Inner Dowsing project will begin delivering power to Britain’s National Grid the week of May 8.

click to enlarge

WHERE
The Lynn and Inner Dowsing project is off the coast of Skegness. The
Race Banks, Docking Shoal and Links offshore projects are in the same region.

WHY
- Centrica is one of the biggest UK power providers.
- Two companies produce wind farms for the UK market, Denmark-based Vestas and Germany-based Siemens.
- Vestas has ~£4bn in undelivered orders.
- The Lynn and Inner Dowsing project has doubled in cost over the last 3 years due to the prices of steel and copper.
- Facts on the Lynn and Inner Dowsing project: Each of the 54 3.6 megawatt turbines (1) powers 2,500 homes, (2) is 100m high and nearly 100m in diameter, and (3) weighs approximately 260 tonnes.

click to enlarge

QUOTES
- Sarwjit Sambhi, Director, Centrica: "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…"
- Charles Anglin, British Wind Energy Association (BWEA): "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…"