$3 BIL FOR GIGANTIC LONDON OFFSHORE WIND

$3B pledge jump-starts massive offshore wind project
May 12, 2009 (E&E Publishing via NY Times)

SUMMARY
The London Array, a proposed 341-turbine, 1,000-megawatt offshore wind installation to serve the city of London, has struggled to get financing. With an announcement from the British government that it will double its incentives to the Array’s builders, the co-owners have decided they will begin construction.

The turbines will be built in a 90-square-mile area 12 miles off the coasts of Kent and Essex in the estuary where the Thames River meets the North Sea.

The difficulties with financing began when Royal Dutch Shell pulled out of the project. Danish energy giant DONG Energy, a world leader in offshore wind, currently owns 50% of it, with German utility E.ON owning 30% and Abu Dhabi’s Masdar Project owning the last 20%.

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Assured of increased support from the UK government, the 3 partners will invest $3 billion to build the 640-megawatt first phase of the Array, a 175-turbine undertaking. They intend to complete phase one in time to provide power to London during the 2012 Summer Olympics. Siemens AG will provide the turbines.

A decision on the financing of phase two, which would bring the Array to a 1,000-megawatt capacity, will be made on the basis of phase one’s performance and follow-up impact studies.

1,000 megawatts would power an estimated 750,000 homes, about one-quarter of Greater London.

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COMMENTARY
The UK government in recent years, under Gordon Brown, has been the world’s biggest builder of offshore wind and has the world’s most installed capacity. This year, it allotted huge new funds. (See BRITS PUT 5 BILLION POUNDS INTO NEW ENERGY)

The 2009 Brown budget will put £525 million into offshore wind subsidies between 2011 and 2014 in the form of increased renewables obligation certificates (ROCs). The increase in ROCs requires UK power suppliers to obtain 9.7% of their electricity from New Energy sources this year and ramp up to 15.4% by 2016. They meet their “obligation” with the certificates which are obtained through New Energy generation or by purchase from a fund used to build New Energy capacity. Under the new rules, the government will award 2 ROCs instead of 1.5 for every megawatt-hour of offshore wind power produced through 2010.

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There is £405 million more in the Brown government’s budget for “low-carbon” and “green” manufacturing. The intent is to put Britons to work building the 8,000 megawatts of UK wind projects that have been approved but not yet readied for installation.

According to analysts, the government funding was vital to the economic viability of the London Array.

The UK government's big cash injection for New Energy is in the same spirit and along the same lines as the Obama administration's funneling of stimulus funds to the U.S. New Energies, a vote of confidence that they will spur economic growth and job creation.

It is interesting to see how parallel the situations in the U.S. and the UK are. In both cases, the clamor last year was for incentives and the clamor early this year has been for financing. Both governments have taken advantage of the financial crisis to move stimulus funds into the New Energies because both the Brown and Obama administrations are strongly committed to the proposition that creating activity there will spur their economies.

The UK commitment to offshore wind stems both from the UK tradition as a seafaring nation and from the nation's familiarity with working the North Sea for energy, having enriched themselves with its oil in the 1980s and 1990s.

A DONG Energy offshore array in Europe. (click to enlarge)

The big advantage of the London Array is that it will require very little transmission infrastructure to power the vast and energy-hungry city of London just ashore form where the wind is to be harvested.

Environmentalists and the more liberal among the government’s constituency believe provisions in the new budget violate a platform commitment not to fund nuclear.

As in the U.S. and industrial nations around the world, activist environmentalists are also fighting funding for new coal plants in the UK.

The same UK activist constituency is resentful that a portion of the budget funding is directed at getting more production out of some of the UK’s fading North Sea oil fields.

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QUOTES
- Anders Eldrup, CEO, DONG Energy: "The decision to build the London Array offshore wind farm is a cornerstone in DONG Energy's strategy to increase the proportion of electricity generated from renewable energy sources…DONG Energy has built approximately half of all offshore wind farms in operation in the world today."
- Gordon Brown, UK Prime Minister: "The London Array is a flagship project in our drive to cut emissions by 80 percent by 2050 and meet future energy needs…The U.K. is a world leader in offshore wind farms, creating jobs and prosperity for the economy. That's why we have increased our support for this technology as we move toward a low carbon future."
- Sultan Al Jaber, CEO, Masdar: "The London Array represents Masdar's strategic approach to renewable energy, whereby real partnerships are formed between government and the private sector…This project is a great achievement for the U.K. government, E.ON, DONG Energy and Masdar, which exemplifies our commitment to build cooperation to take renewable energy further down the path to widespread global adoption."