Green light for the world's biggest offshore wind farm

Plans to build the world's biggest offshore wind farm in the Thames Estuary have finally been given the go-ahead thanks to changes to the incentive scheme for renewable energy investments.

The first phase of the 90 square mile London Array will see 175 turbines producing 630 megawatts (MW) of electricity seven miles off Kent, the development consortium of E.ON, Dong Energy and Masdar said yesterday.

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Planning work for the €2.2bn (£2bn) programme will start this year with offshore construction under way in 2011 and the first electricity produced in 2012. The second stage is dependent on future environmental evaluations, but the ultimate aim is for 341 turbines producing 1 gigawatt (GW) of power, enough for a quarter of all the homes in Greater London and by far the biggest off shore development in the world.

The London Array has been on the stocks since 2006. But one major backer, Shell, pulled out last summer, and even the arrival of Masdar, the Abu Dhabi sovereign wealth investment vehicle, could not make the business plan stack up. The boost to the Renewables Obligation Certificate (ROC) incentive mechanism, announced in last month's Budget, was crucial.

Paul Golby, the chief executive of E.ON UK, said: "The project was on a knife edge but the changes to the incentive regime tipped the balance. The London Array would not have been economic without the additional support."

Extra-large wind farms are crucial to meeting the commitment to ensuring 15 per cent of all UK energy is from renewable sources by 2020. But funding is not the only issue for budding developers. There are also questions about the wind industry's capacity to support such rapid expansion. Limited access to everything from turbine blades to ships has dogged developments across Europe and resource issues were a major topic in the decision about the London Array. In harsh weather conditions and such deep water, time schedules for construction are inflexibly tight. So only once the parts, range of ships and skilled staff were sourced was the project given the green light.

Frank Mastiaux, the chief executive of E.ON Climate and Renewables, said: "The three critical things are having the right turbines, the right vessels and the right people. Overall the industry that will be building gigawatts of these schemes in the future will have to find a way to resource the projects."

The Government is trying to address the problem. Ed Miliband, the Energy Secretary, said: "The London Array sends an important signal about the UK renewables market and the confidence of major suppliers, and vindicates the decision in the Budget about the ROCs."

Notwithstanding the recent closure of Vestas's Isle of Wight turbine factory supplying the US market, there are also talks with major suppliers about setting up plants in the UK. "There is a lot of interest in locating in this country and we are having discussions with a range of companies," said Mr Miliband.

In comparison with other energy projects, wind farms are hugely expensive. At current costs, offshore developments come in at about £3bn per GW, compared with £1.8bn for nuclear and just £600m for a gas-fired power station.

The ROCs regime was developed to offset the imbalance. Electricity retailers are required by law to derive a growing proportion of power from renewable sources. By issuing the ROCs to generators – to be sold on to utilities to prove the obligation has been fulfilled – the system provides an extra revenue stream. Under the new rules, the allocation for offshore wind has gone up to 2 ROCs per MW hour (MWh), compared with 1 ROC per MWh for onshore wind.

The London Array is not the only development to have stalled pending discussions over ROCs. Centrica's 250MW Lincs scheme was passed by planners in October, but is yet to be signed off by the company.