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Green goals hit by rise in offshore wind cost

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Green goals hit by rise in offshore wind cost

By Fiona Harvey in London

Published: May 29 2008 03:25 | Last updated: May 29 2008 03:25

The construction of offshore wind farms is becoming more costly, creating further problems for the European Union in meeting its renewable energy target.

An analysis from Cambridge Energy Research Associates (Cera) has found that the capital cost of offshore turbines is likely to increase by a fifth in the next two to three years, from €2,300 (£1,800, $4,600) per kilowatt to €2,800 (£2,200).

Turbine prices have already risen by about 30 per cent in recent years, so the extra costs will be hard to bear.

“The sector could be at risk, given ongoing increases in capital costs, especially if government subsidies do not keep pace,” said Matt Brown, senior director and head of European power at Cera. This would make it “more challenging” to meet the target proposed by the European Commission of generating 20 per cent of the bloc’s energy from renewable sources by 2020.

Europe had about 1.1 gigawatts of offshore wind generation capacity at the end of last year.

Shell recently highlighted problems in the sector when it pulled out of what was designed as the world’s biggest offshore wind farm – the London Array in the Thames estuary. The company said it could get more value by investing in onshore wind farms in the US, where the wind market is growing rapidly after a slow start compared with Europe.

Paul Golby, chief executive of the electricity company Eon which, along with Shell and Denmark’s DONG Energy, was a partner in the London Array consortium, called the economics of the project “marginal at best” because of such issues.

Mr Brown said rising prices could encourage other companies to reconsider proposed investments. “If [the offshore wind farm developers] face a squeeze, they could move their investment to other opportunities.”

Offshore wind farms are seen as essential to meeting the EU target. Turbines sited off the coast benefit from stronger winds and are often bigger than land-based turbines, and can therefore generate more electricity.

But they are more expensive than onshore developments, as the turbines need to be more robust, and because of the difficulties of siting them, particularly in deeper water, and of connecting them to the electricity grid.

Mr Brown said rising raw material costs, and demand outstripping turbine supply, had led to higher prices.

The offshore sector has to contend with another problem: competing with each other and with oil and gas companies for the specialised vessels needed to install turbines and other heavy equipment at sea.

Matthew Melville, chief underwriting officer at GCube, an insurance company specialising in renewable energy, said that smaller companies, relying on project finance to set up wind farms, would find conditions most difficult.


Wind farm ambitions dealt a blow – May-02

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