November 14, 2008 / 1:30 PM / in 9 years

Centrica says reviewing new wind farm economics

LONDON (Reuters) - Britain’s Centrica is reviewing the economic viability of planned wind farms due to soaring costs and the credit crunch, the owner of British Gas said.

Centrica, which is raising 2.2 billion pounds ($3.26 billion) to help fund its proposed 25 percent stake in nuclear power generator British Energy, said it was “revisiting the economics of wind farms given rising raw material and credit costs.”

The company, which hopes to start full operation of its new Lynn & Inner Dowsing wind farms off the coast of eastern England by the end of the year, has yet to approve investment for three more farms that it plans to build in the North Sea.

“The costs of building offshore wind are at a very high level,” a Centrica spokesman told Reuters.

“This, coupled with the rising cost of credit given the economic situation, means we need to revisit all our numbers to ensure our projects are economic before we give them the go-ahead.”

Centrica said in a statement last month that it currently expects to invest about 1.5 billion pounds during the next few years in renewable energy generation schemes.

The company remained committed to developing further renewable generation capacity, provided it could see clear returns, the spokesman said.

Centrica has won government permission for its proposed 250 megawatt Lincs wind farm off the east coast and has said it plans to build two 500 megawatt farms, Race Bank and Docking Shoal, in the next eight or nine years.

The firm said in last month’s statement that it expects to seek government consent for Race Bank and Docking Shoal, which would be off the north coast of East Anglia, by the end of this year.

The high costs of developing offshore wind farms are among a number of issues that industry executives, investors and environmental groups say could threaten the government’s efforts to hit a target of producing 15 percent of Britain’s energy from renewable sources by 2020.

Offshore wind currently costs in the region of 2.5-3 billion pounds per gigawatt of capacity to build, according to industry figures.

By comparison, an equivalent one gigawatt gas-fired power station would cost 600 million pounds and nuclear is about 1.8 billion pounds per gigawatt.

The government has said the UK now generates three gigawatts of power from wind energy, enough to power more than 1.5 million homes.

Other hurdles highlighted by the industry include planning delays, difficulties in connecting farms to the UK’s national power grid and a shortage of wind turbines.

Ministers are facing calls to boost incentives to encourage firms to build more farms and to increase wind turbine manufacturing capacity.

The recent fall in oil prices has also cast doubt on the viability of renewable energy schemes such as wind farms, as the costs of traditional fossil fuel generation decline.

Reporting by Philip Waller; Editing by Hans Peters

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