What happened to wind power?

Beset by high costs, the Government's great hope for clean, sustainable electricity is drifting out to sea

Earlier this month, over 300 company executives, consultants and advisers gathered at the Queen Elizabeth II conference centre in Westminster for the annual offshore conference of the British Wind Energy Association (BWEA). Delegates say the mood was not as upbeat as in previous years. During coffee breaks, wind farm developers cornered turbine manufacturers to ask them when supply problems would be eased and the promised, more powerful models introduced. Talking among themselves, the developers agreed that many of the larger projects were no longer viable without more government support.

Offshore wind, like much of the policy on renewables trumpeted in the Energy White Paper three years ago, is floundering. Onshore wind isn't doing much better. Both are central to the Government meeting its targets for renewables.

The current energy minister, Malcolm Wicks (who writes below), is the third since the last review. He is preparing to start drafting the latest Energy White Paper after submissions to the consultation closed on Friday. Before he decides whether to sanction the building of more nuclear reactors, the Government is being warned that its last favoured technology, wind power, is in trouble.

At the end of 2005, according to the European Wind Energy Association (EWEA), the farms installed in the UK generated just over 1,300 megawatts (MW) of electricity, the vast majority produced onshore. That's enough to power a city slightly larger than Birmingham and amounts to around 1.6 per cent of the UK's total generating capacity. The total contribution from renewable sources is just under 4 per cent, the rest mostly made up from old hydro projects in Scotland.

To get anywhere near the Government's target of generating a 10th of the UK's electricity from renewable sources like wind by 2010, rising to a fifth by 2020, hundreds of wind farms need to be built. With many of the most practical onshore sites already taken, much of the new capacity will have to come from offshore farms.

Under current conditions, this is unlikely to happen, say developers surveyed by The Independent on Sunday. Rather than becoming cheaper with experience and economies of scale, as the industry and Government had hoped, building offshore wind farms has got more expensive, says Dave Farrier, head of development for UK renewables at the German-owned energy giant E.ON.

In the past two years, the cost of building offshore farms has increased from around £1.2m per MW to £1.6m - almost twice as expensive as onshore projects. The soaring cost of steel, and the demand from Asia and the US for wind farms, have pushed up the price of turbines and limited the availability of the equipment needed to install them. Turbine makers like General Electric and Danish firm Vestas are concentrating on the much larger, and more proven, global market for onshore farms. Indeed, while the UK is planning to build at least half its wind farms offshore, the EWEA reports that only 2 per cent of wind-generating capacity in Europe is offshore and this is unlikely to rise significantly.

Gearoid Lane, director of gas and power procurement at Centrica, the UK's largest offshore wind developer, says that for each MW of capacity built in the UK, the company loses £300,000. So with a 300MW plant, for example, the developer faces a £90m funding shortfall. "This makes the economics quite challenging for companies like ours."

In 2001, in the first phase of the Government's planned development of offshore wind power, it released licences for 13 sites to generate a total of 1,500MW. Of these projects, three are in operation, one is being built and two have been put on hold indefinitely because they are no longer economically viable. Of the seven projects remaining, all three developers that returned calls to the IoS last week said they would not be in operation until 2008 at the earliest - two years later than originally envisaged.

The prospects for the much larger second round of projects, slated to deliver between 5,400MW and 7,200MW, are worse still, although they are at a much earlier stage. Once all the planning consents have been received, over the next 12 months, developers will have to decide whether to go ahead, and the signs do not look encouraging.

Alastair Gill, development manager for "npower renewables", part of Germany's RWE, says: "We are seeing other companies put projects on hold because they can't make the economics work. I cannot say we would definitely go ahead with round two without more government support."

Mr Farrier at E.ON adds: "The hope was that two or three of the first-round projects would be constructed every year. But we are only managing one per year. It's difficult to see how round two can happen under current market conditions."

Most of the wind farm developers are global players and so can choose where to invest, and Mr Gill at npower says it is getting harder to secure backing for UK renewable projects. In Germany and Portugal, for example, there is more certainty because projects can sell their electricity on long-term contracts guaranteed by the government. In the UK, developers must rely on renewable obligation certificates (ROCs), which electricity suppliers have to buy on the market if they miss their renewable targets. The proceeds from the sale of ROCs are distributed among the developers.

Simon Currie, energy finance specialist at law firm Norton Rose, says: "Has this market-based incentive delivered the hoped-for rapid utilisation of abundant offshore wind resources? The answer is clearly no." His view is shared by most developers.

Progress has been made. The capacity of installed wind farms in the UK doubled in the two years to the end of 2005, and other technologies like clean coal are being developed (npower announced last week that it plans to build a plant in Tilbury). But the experiences of wind farms do not inspire confidence in the next set of promises that the Government will make in its Energy Review.