Green energy targets will not be met without government aid

Without government assistance the UK will not meet its renewable energy targets, according to a stark warning from the wind industry.

Falling power prices, frozen finance markets and a weak pound are combining to put the brakes on wind farm developments needed to meet the deadline for 15 per cent of all energy – or about a third of electricity – to be from green sources by 2020.

Some £10bn-worth of wind installations are all ready to start being built. But unless the Government can tweak the investment case, they will not make it off the drawing board in time, says the British Wind Energy Association (BWEA).

"The 2020 targets will be in jeopardy if the current economic conditions continue," said Adam Bruce, the chairman of the BWEA. "The issue is how we deal with the short-term fall-out after the collapse of Lehman Brothers and the fall of sterling against the euro. The answer is that government has to be prepared to take short-term measures."

The problem is not that developers do not want to build. Almost 3.5 gigawatts (GW) of wind power is already in operation, another 9GW is in the pipeline, and a further 8GW is awaiting planning consent. But twice as much again is needed in the next decade, and progress is stalling.

In the onshore market – despite record growth of 425 megawatts since October – the number of new applications is at its lowest level since 2002 as developers struggle to raise finance. Offshore, the business case is even trickier. Equipment is bigger, more expensive and harder to install. With power prices falling, but the strong euro pushing component prices through the roof, Lincs and the London Array are just two of the growing list of plans put on hold.

Solutions to the impasse were included in a BWEA budget proposal submitted to the Treasury yesterday. Given the current claims on the public purse, the majority do not include direct subsidies. One possibility is that, for a premium, the government underwrites a floor price in the Power Purchase Agreements between generators and utilities to woo wary banks spooked by the falling electricity price. Alternatively, a "good" bank could be created specifically to provide lending for infrastructure programmes.

For offshore, the cost of building a grid connection – which can be as much as a fifth of a project's price tag – could be spread out across the whole generating sector rather than borne by the individual developer.

Equally, offshore wind could be allocated a higher number of Renewables Obligation Certificates, the credits which can be sold on to electricity suppliers to prove their green sourcing.

The prize for the successful creation of a major offshore industry is not only environmental. The Prime Minister told The Independent this week that "green industry" will be central to the UK's economic recovery. Europe's potential offshore wind market is huge if the UK's nascent supply chain can steal a march on continental rivals. But a fall-off in momentum in the current crop of projects, and knock-on delays to the massive 25GW of offshore capacity to be licensed later this year, will put paid to such ambitions.

A spokesman for Centrica said: "We are at a key point for the industry. If a lot of projects are not pushed through because of the economics, then quite quickly the UK's renewables supply chain, which is already weak, will be lost to more attractive markets like the US and Germany."