* Too many projects relative to subsidy support
* Licensing awarded sites for 40 GW of projects
* Developers choose most profitable projects
By Karolin Schaps
LONDON, Jan 8 Britain has built the world's
biggest offshore wind energy market but there are signs it may
have reached a tipping point as companies cancel and sell off
projects in the face of steep costs.
RWE and Scottish Power have both scrapped
or scaled back huge offshore wind farm projects in the last two
months citing the costs involved in developing deepwater sites.
Those costs are estimated at several billion pounds each.
The cancellations also come as government subsidies for
renewable energy including offshore wind face rising opposition
across Europe from consumers being asked to help foot the bill
for supporting green projects.
Site licensing rounds in Britain have allocated offshore
areas for development that can house more than 40 gigawatts (GW)
of capacity, well above the government's 2020 target of building
10 GW of wind farms.
"I expect we will see some more project cancellations over
the next six months or so. There's too many projects in
development relative to the amount of money set aside to fund
(offshore wind) until 2020," said Ronan O'Regan, a director at
The British government sets periodic budgets, called the
Levy Control Framework (LCF), which determine how much money is
available to subsidise low-carbon energy projects.
Britain wants to have offshore wind farms as part of its
energy mix in a bid to cut carbon emissions in the power sector
and to diversify its energy resources.
The LCF currently allows for 2.35 billion pounds ($3.85
billion) per year and will rise to 7.6 billion pounds from 2020
to support Britain's low-carbon energy projects.
In 2015/16, owners of offshore wind farms will receive a
guaranteed electricity price of 155 pounds per megawatt-hour
(MWh) produced, as part of a new government subsidy system. That
compares to a current British wholesale power price of about 48
Globally the offshore wind power market is growing rapidly,
with a 33 percent rise in capacity in 2012.
However, some large markets, such as Germany, have
encountered problems with grid connections and supply chain
bottlenecks that have delayed projects.
Britain's subsidies and speedy licensing have helped it
establish the biggest offshore wind market, with nearly 4 GW
installed so far. Denmark ranks second at 1.3 GW.
Offshore wind analysts and developers questioned refused to
speculate on which British other projects might face the chop,
but they are likely to be part of the Crown Estate's Round 3,
the latest licensing tender which allocated sites much further
out at sea than in previous rounds.
These include Dogger Bank Tranche D, located 240 kilometres
offshore and Hornsea Heron Wind and Hornsea Njord, 130
kilometres out to sea.
The allocated sites open new territories further out to sea,
ones which have not previously been assessed for housing wind
Growing wind power supply is seen helping Britain which
faces a short-term power capacity crunch as it shuts down ageing
power plants in the coming years, a process that has sparked
concerns about the risk of power cuts at times of peak demand.
Yet as in other forms of energy exploration and evaluation,
cancelled wind projects are seen as a natural part of the
"It would have been unrealistic to expect all zones to be
developed at the same time," said Adam Bruce, global head of
corporate affairs at Mainstream Renewable Power, an offshore
The company is building two offshore wind farms in Britain
with a combined capacity of 1,650 megawatts (MW).
After winning and paying for licences obtained from the
Crown Estate, the Queen's property manager that looks after
coastal areas, developers have to test ground conditions and
wave and wind strength, as well as assess any impact on
Only then can developers gauge how much it will cost to
build their projects and whether the risks and costs justify the
"If they've got 10 other pipeline opportunities, they will
go for the ones that give them the best rate of return," said a
banking source who has helped finance offshore wind projects.
British utility Centrica, for example, sold its Race
Banks offshore wind farm project off the east coast of England
to Denmark's DONG Energy last month, while it
continues to pursue its Celtic Array project in the Irish Sea.
Despite RWE and Scottish Power cancelling UK projects in the
past two months, both are continuing with other British offshore
Technology is also changing, offering offshore wind
developers hopes of lower costs in the future. Pilot projects
such as floating wind turbines could make it easier to overcome
challenges posed by adverse conditions.
"As technology recedes in price, as we get better at
building in deeper water and further from shore, as new grid
connections come on stream, then those projects that are being
postponed at the moment will become much more attractive over
the course of the next decade," said Bruce at Mainstream