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Shell ditches renewable stake amid fears of a retreat to carbons

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Winds of change: Shell ditches renewable stake amid fears of a retreat to carbons

· £2bn UK windfarm project now at risk, says partner
· Move comes as company invests in Canadian oil

Terry Macalister
The Guardian, Thursday May 1 2008

The future of the world’s largest offshore wind farm and a symbol of Britain’s renewable energy future was thrown into doubt last night after it emerged that Shell was backing out of the project and indicated it would prefer to invest in more lucrative oil schemes.

Shell said the decision to sell its 33% stake in the £2bn London Array off the coast of Kent was part of an “ongoing review of projects and investment choices” and was not part of any major rethink about renewables versus other oil and gas projects.

But environmentalists will see the decision to drop one of only two renewable schemes being worked on by Shell in Britain as a further sign that the company is retreating back to hydrocarbons at a time when the price of oil has risen to about $120 a barrel.

Shell, which earlier this week reported first quarter profits of £4bn, has been selling off much of its solar business while moving more into Canada’s carbon-heavy tar sands. The Department for Business said last night that a number of successful offshore wind projects had seen changes of ownership in the past “and we would therefore anticipate that the project will be able to proceed”.

But Shell’s partner, E.ON, expressed disappointment at the decision and made clear the project was now on a knife-edge. “While we remain committed to the scheme, Shell has introduced a new element of risk into the project which will need to be assessed,” said Paul Golby, chief executive of E.ON UK.

“The current economics of the project are marginal at best – with rising steel prices, bottlenecks in turbine supply and competition from the rest of the world all moving against us.”

The London Array is a vital part of the government’s plans to produce more low-carbon power as North Sea oil and gas runs out and climate change bites. The wind farm, 12 miles out to sea, would provide 1,000 megawatts of clean power – more than double the amount of Britain’s existing capacity of 400MW.

Britain is already struggling to meet the EU target of producing 20% of the country’s total energy from renewables by 2020. That target has been reduced to 15% but even that is a major leap given the current level of 2% – a figure that has not increased for several years.

Last week, plans for a massive wind farm on the Hebridean island of Lewis were scrapped after Scottish ministers decided the turbines would devastate an important peatland.

The government said yesterday it was doing all it could to help win new schemes which will play a vital role in helping it meet the EU target.

“Because this technology is new, we are seeking powers to provide additional financial incentives to offshore wind as well as making connection to the grid easier as set out in our energy white paper,” it explained.

“We have announced plans to open up the UK’s seas to a massive expansion of offshore wind – enough to potentially power the equivalent of every home in the UK by 2020. Three new offshore wind farms are due to be completed by the end of this year and we will shortly become the leading country in terms of offshore wind operating capacity.”

Shell said its decision to dispose of the shareholding in London Array was part of its normal business practice. “We constantly review our projects and investment choices in all of our businesses, focusing on capital discipline and efficiency,” it said last night in a written statement.

The retreat should not be seen as an indictment of the tax treatment of renewable schemes, it insisted.

“We emphasise that the UK government has established a positive policy and support framework for offshore wind projects and the decision to divest our equity is not related to this support.

“Indeed, the government and NGOs have been very supportive in taking the project thus far and we are hopeful that it will proceed as planned,” it added.

Nor should it be interpreted as disillusionment with wind projects generally, Shell argued. It pointed out it was involved in 11 such operations spread across the US and Europe, with a total capacity of around 1,100 megawatts – of which Shell’s share was 550MW.

But Shell has in recent years been selling off much of its solar business while its rival oil group BP – under new chief executive, Tony Hayward – has also talked about selling part of in its alternative energy division, abandoned a carbon capture scheme in Scotand and moved into the Canadian tar sands for the first time.

BP was the first oil company that seemed to understand the importance of climate change, with its former chief executive, John Browne, once promising to go “beyond petroleum.”

The company’s new boss insists that the “green” agenda has not been dumped and he points to the investment in United States wind farms and commitments to biofuels.

But the £4bn the company is spending on renewables over 10 years compares with well over double this amount being poured into oil and gas investment annually.

No guarantees

· Plans for one of Europe’s largest onshore wind farms in the Outer Hebrides were formally rejected after Scottish ministers ruled the £500m scheme would devastate a significant peatland. The 181-turbine project would have had “significant adverse impacts” on rare and endangered birds.

· BP and partners Southern and Scottish Energy dropped plans for an innovative carbon capture and storage (CCS) experiment at Peterhead, Scotland, blaming lack of government guarantees. It would have been the largest plant of its kind in the world. A report by Policy Exchange think tank found the number of proposed CCS projects in the UK has halved since last year.

· BP considers floating or selling all or part of its renewable operations, which it believes are worth $7bn (£3.5bn).

· Britain has some support programmes for renewables but spending has virtually stalled. It is one of the worst performing countries among its EU peers, producing only 2% of its energy from renewables and on current policies will miss the EU target of 15% by 2020.

http://www.guardian.co.uk/business/2008/may/01/royaldutchshell.oil

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