Blowin' in the wind: the answer to Britain's looming energy crisis

Ministers want offshore wind to power one in six homes. Hot air or realistic hope?

In seven years' time Britain will be generating enough electricity from offshore wind to power every home in the South-east of England. Eight million households running on green, pollution-free energy. Science fact or science fiction? A realistic goal for UK energy policy or a lot of hot air?

For supporters of renewable energy, the holy grail of producing 10 per cent of the country's electricity from "green" sources by 2010 came a big step closer yesterday when the Government gave the go-ahead for the most ambitious programme of offshore wind farms yet seen.

Britain is still a long way from a full-blown energy crisis but time is eating away its margin of comfort. The Government has clearly decided that wind power is the answer, not just to its environmental goals but also to the question of security of supply.

Nuclear is off the agenda for the time being and much of our indigenous coal resources will be gone in a decade. The UK will become a net importer of gas by 2006 and of oil by 2010. By 2020, the country could be dependent on imported energy for 80 per cent of its needs, much of it gas piped in from potentially unstable regions of the world.

Under the plans announced yesterday by Patricia Hewitt, the Secretary of State for Trade and Industry, 6,000 megawatts of offshore wind capacity could be in operation by the end of the decade. That would be enough to power one in six of the country's households or meet 5 per cent of total UK electricity demand. Together with a similar contribution from onshore wind farms, Britain would be capable of hitting its 2010 target comfortably.

The environmental lobby, predictably enough, gave Ms Hewitt's announcement a rapturous welcome. Greenpeace said it "marks the dawn of a new clean energy era", while Friends of the Earth said it marked a "sea change" in UK energy policy.

Tim Yeo, Ms Hewitt's Conservative shadow, was more sceptical. He said the pledge to power one in six homes with wind energy "sets a new standard of absurdity", adding that offshore wind could not be economic without big subsidies from the taxpayer.

The new wind farms - to be erected in the Thames Estuary, the Greater Wash and off the north-west coast of Britain between North Wales and the Solway Firth - will be big business, creating 20,000 jobs and generating £6bn worth of orders.

They will also dwarf those currently being built. Britain's first commercial offshore wind farm of any size, North Hoyle off the Welsh coastline, will open around the turn of the year. Developed by National Wind Power, part of Innogy, it will consist of 30 turbines generating 60 megawatts of power.

The new generation of wind farms announced yesterday by Ms Hewitt will be 10 times the size - 100 or more giant turbines each the height of the London Eye producing up to 500 megawatts of electricity and visible from land for miles.

For that reason, and for the protection of migrating seabirds and inshore fishermen, the Government has stipulated this new breed of wind farms must be a minimum of five miles offshore and, in some cases, as much as eight miles from land. "On a cloudy day they will be scarcely visible and on a sunny day they will look like the tiny masts of distant yachts," says Ms Hewitt.

So far the Government and its Crown Resources agency, which owns the rights to the seabed around the UK coast, have approved 17 smaller wind farm developments, eight of which have been granted full consent. They each take about six months to install.

Their big brothers, however, are a different breed altogether. The turbines themselves are larger at up to 5 megawatts each and the consent process is likely to take until 2005. After that it will take a further three years to complete construction, meaning it will be 2007 or 2008 before we see the first of them in commercial operation.

The "fuel" for offshore wind farms is free and we have plenty of it - the British Isles are reckoned to account for 40 per cent of Europe's entire "wind resource". But because the turbines typically operate at only 35 per cent of capacity and because they are expensive to construct and connect to the grid, offshore is much more expensive than gas or coal and even nuclear - anything up to £50 a megawatt hour compared with £22 for new coal stations. At the moment, that does not matter because of something called the Renewables Obligation, which requires electricity suppliers to take an increasing amount of their needs from green sources of generation or buy certificates from those who have more than met the requirement. The obligation is presently set at 3 per cent, rising to 10 per cent by 2010, and the certificates currently change hands for £45 a megawatt hour.

That means any developer opening a wind farm now has seven years of guaranteed revenues at reasonably predictable prices. The nearer we get to 2010, however, the harder it will become to raise finance from the capital markets for new wind farms. For that reason, the green lobby is urging the Government to bring forward its review, scheduled to take place in three years' time, of what happens to the renewables obligation after 2010. Ideally, it would like the answer tomorrow but Alan Moore, managing director of National Wind Power and chairman of the British Wind Energy Association, says he would settle for the review being speeded up to next year. "This is absolutely critical for us, otherwise there is a real danger that offshore wind farms will not get built beyond the latter half of this decade," he says.

The alternative fear is that developers go on building wind farms and the industry finds itself with a glut of capacity if the 10 per cent threshold for the renewables obligation is not raised after 2010. "In that case prices would crash. We could see them fall by as much as a half," adds Mr Moore.

The other concern the offshore wind industry has is over the future of capital grants for new wind farms. To date, the Government has handed out about £70m in grants - enough to meet about 10 per cent of the costs of building those wind farms which have so far gained consent. But the new Energy minister, Stephen Timms, made it plain yesterday that capital grants were likely to become the exception rather than the rule. "We wouldn't exclude entirely the possibility of some grant funding in future," he said.

Mr Moore says the industry may be able to grow without capital grants provided three things happen. First, the national electricity grid needs to be extended offshore so that wind farm developers can reduce the costs of connecting up. Second, the economies of scale that should flow from building much larger wind farms need to demonstrated in practice. Third, the Government needs to clarify its position on the renewables obligation sooner rather than later.

If Ms Hewitt wants to see her green dream become a reality, then she may have to put her money where her mouth is.