Shell pulls out of UK offshore wind farm

The attractiveness of the UK as a site for offshore wind farms was thrown into doubt after the oil company Shell pulled out of a flagship project.

The UK was set to be the world leader in building offshore wind farms, but Shell said it was selling its stake in what would be the world’s biggest, a 1 gigawatt farm known as the London Array.

Offshore wind farms are seen as particularly important in the UK, as the development of onshore farms has been held up by the complexities of obtaining planning permission.

Onshore farms face vocal opposition in many parts of the country, but wind turbines off the coast are more acceptable because they are out of sight.

The British government has pinned its hopes on offshore wind farms as the main way of meeting its obligations under the European Union’s proposal to generate 20 per cent of energy from renewable sources by 2020.

Britain faces an uphill struggle to meet that target, which would probably require it to derive about 40 per cent of its electricity from renewables. Currently, only about 5 per cent of the UK’s electricity comes from renewable sources.

The UK government announced plans last year to encourage the building of 33GW of offshore wind-generating capacity.

But concerns over the commercial viability of such projects surfaced when Shell said on Wednesday that it would sell its one-third stake in the London Array, a plan for 341 turbines in the Thames Estuary, off the south-eastern coast of the UK, which at 1GW would have enough generating capacity to power a quarter of London’s homes.

Shell said the withdrawal was part of a review of its operations, but one of its partners in the project raised concerns about the economics of the project, given the spiralling costs of erecting offshore turbines.

Paul Golby, chief executive of Eon, one of the three companies in the London Array consortium, said: “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 third partner, Denmark’s Dong Energy, said it was considering its options.

The cost of the London Array project is thought to have more than doubled since 2003, when it was estimated at £1bn ($2bn, €1.3bn). Wind turbine manufacturers have raised their prices as commodity prices have risen, and strong demand for turbines means there is a two-year waiting list.

Shell said it would continue to invest in onshore wind projects in the US, where it is easier to gain permission to put up turbines. Its decision raised questions about whether other multinationals would prefer to invest in wind assets in countries such as the US rather than the UK, in spite of the UK’s generous system of subsidies and high winds.

The UK government said the London Array was likely to go ahead without Shell’s participation.