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Analysis: Blowing in the wind

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From Times Online: Analysis: Blowing in the wind

May 1, 2008
Carl Mortished, World Business Editor

In typical elephantine fashion, Shell poked its head through the window of the Government’s green tuck-shop, sniffed at the range of renewable goods on offer and is now trying clumsily to back out, pulling the window off its hinges in the process. We can now get a clear view of the mess that is the Government’s renewable strategy and it is a huge embarrassment, not for Shell, which has other irons in the fire, but for the whole sorry cabal of government, environmental lobbyists and green careerists.

The London Array, an offshore parade of 341 wind turbines to be sited at the mouth of the Thames Estuary, was always a financially speculative venture and Shell’s decision that it doesn’t remotely stack up as a business proposition is not very surprising, given the cost of erecting so many steel structures in open water. The price of steel, concrete and steel engineering has risen by 40 per cent. A project originally billed at £1.5 billion now looks a bit more like £2 billion and by raising the bar so high the economics of offshore wind look increasingly dubious.

Enthusiasts of wind energy are denouncing Shell’s retreat, suggesting that it has lost its green credentials, as if it ever had any. This is not an environmental charity but an oil and gas company that is dabbling in renewables in an effort to find something that works, something that will pay its way as a sound energy investment for the long term. Shell says that it would rather invest in wind in the US where onshore projects are cheap and it can achieve huge economies of scale, but offshore wind in Britain is probably not viable and E.ON, the German-owned power company and a big investor in wind energy, is beginning to sound a bit nervous. “The economics are marginal at best,” admits Paul Golby, head of E.ON in the UK.

For E.ON, the numbers are the same as for Shell but the politics are very much more difficult because the German company is heavily invested in the UK electricity grid, selling power to consumers. E.ON has to have sufficient Renewable Obligation Certificates (ROCs) to meet its requirement under UK law to supply a certain proportion of “green” power. E.ON can generate wind power, buy it from others or buy ROCs in the market but it must have enough renewable power if it is to stay in the market.

What this means for E.ON is a headache but that is nothing to what it will cost you and I. What Shell and E.ON are really saying is that the Government is determined to foist on the public a massive increase in the cost of electricity. No doubt the London Array will be built — the Government says that it will increase the number of ROCs available to offshore wind investors to secure more megawatts to meet our EU renewable targets. E.ON will carry on, knowing that if wind is pricey, it can always balance that with cheap coal from its much-derided power project at Killingholme.

However, the cost of power will remain high and that cost will be passed through to consumers who have little or no choice over what form of electricity they consume. As the Prime Minister mouths platitudes about ending fuel poverty we should remember who wanted those jolly windmills on the horizon.

http://business.timesonline.co.uk/tol/business/industry_sectors/utilities/article3856588.ece

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