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Shell Quits Wind Venture

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THE WALL STREET JOURNAL: Shell Quits Wind Venture

Sale of Stake Clouds 
Plan to Put Turbines 
In Thames Estuary
By JAMES HERRON
May 2, 2008

LONDON — Royal Dutch Shell PLC said it will sell its stake in the world’s largest planned offshore wind-power station, by generating capacity, raising questions about whether the project will proceed.

Known as the London Array, the project involves Shell, E.On U.K. — a subsidiary of German utilityE.On AG — and Denmark’s Dong Energy A/S, each holding a one-third stake. It plans to put 341 large wind turbines in the River Thames Estuary in southeast England to generate 1,000 megawatts, or enough electricity to power as many as a quarter of the homes in greater London.

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Shell spokeswoman Eurwen Thomas said the decision was “part of our ongoing review of project and investment choices,” and the company will instead invest in onshore wind projects in the U.S.

E.On reaffirmed its commitment to the plan, but admitted doubts. “Shell has introduced a new element of risk into the project,” Paul Golby, chief executive of E.On U.K. said in a statement. “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.”

“We regret Shell’s decision and we are now going to sort out the consequences of it with E.On,” Dong spokesman Andreas Krog added.

The cost of the Array was said to be at £1.5 billion, or $2.98 billion, when it was announced in 2005, but estimates for a project that size now are between £2 billion and £3 billion.

Soaring costs, coupled with what some say are weak and inefficient government policies promoting renewable energy, are slowing existing wind projects and making future investment in the sector less attractive, industry experts say. The combination could also jeopardize the British government’s plan to generate 15% of all its energy from renewable sources by 2020 — a sevenfold increase from current levels.

“This is a wake-up call for the challenge the U.K. faces,” said Dieter Helm, Professor of Energy Policy at the University of Oxford.

The current cost of an offshore wind project is three to four times as much as building a gas-fired power plant, said Centrica PLC spokesman Andrew Turpin. Centrica is building a small 180-megawatt wind farm off the Lincolnshire coast and plans several other projects, but the price tag for it all has risen 50% to £3 billion over the past three years.

Mr. Helm also argued that the U.K.’s current system of offering subsidies for wind-power generation is neither effective nor efficient compared with those offered by other countries.

Neither Shell nor any of the partners would comment on possible buyers for Shell’s stake.

Write to James Herron at [email protected]

 

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