Offshore wind farm plans in jeopardy without support

Government's target for renewable energy will not be met, suppliers warn

Plans to build the world's biggest offshore wind farm in the Thames estuary are under threat unless the Government boosts incentives for renewable energy investment, it is claimed.

The London Array project is not the only one in jeopardy. Without an overhaul of the rewards system, the offshore installations vital to meeting ambitious EU environmental targets will simply not get built, energy suppliers are warning.

Once up and running, the London Array's 341 massive turbines, covering 90 square miles, will produce one gigawatt (GW) of electricity, enough to power 750,000 homes. But construction costs for offshore wind farms have shot up by more than a third in the past year. One high-profile backer, Shell, has already walked away because the economics of the investment could not be made to work. Even the involvement of Masdar, the Abu Dhabi sovereign wealth fund which bought into the consortium in October, cannot guarantee the project's future, according to E.on, a partner in the scheme.

"We are coming to the crunch point with London Array and it is not a done deal by any stretch of the imagination because we still don't know if the project is going to be economic or not," said a spokesman for E.on. "Clearly, getting a third party in helps because it spreads the risk, but if the sums don't add up then either the project gets put off or we just can't build it."

E.on is not the only power supplier pushing for reform. Centrica submitted a planning application for the 500MW Docking Shoal development off the coast off Wells, Norfolk, this week. Plans for another 500MW installation, Race Bank, will be submitted in January. But although it is pushing ahead with the lengthy planning process, Centrica is not convinced it makes sense to build the proposed farms. Its 250MW Lincs scheme off Skegness received planning consent in October, but the group is re-assessing its costs before deciding whether to build it. "The costs of building offshore wind farms are very high," said a spokesman for a Centrica. "We are therefore running through all our construction and other costs before we give them the go-ahead."

The pressure on ministers centres on Renewables Obligation Certificates (Rocs). The law requires power firms to derive a growing proportion of their electricity from renewable sources. Certificates are issued to generators on a 1 Roc per megawatt-hour (MWh) basis, to be sold on to power suppliers so they can prove their obligation has been fulfilled. By providing an extra revenue stream, on top of the price of electricity, Rocs help to justify the investment in infrastructure. Offshore installations are so much more costly than onshore farms that their power is eligible for 1.5 Rocs per MWh – but it is not enough.

Big offshore projects like the London Array are crucial to meeting Britain's commitment to ensuring that 15 per cent of its energy is from renewable sources by 2020. But the boom in demand is putting such pressure on the industry's meagre supply chain that prices have gone through the roof.

Offshore wind farms currently come in at about £3bn per gigawatt, compared with about £2bn a year ago and just £600m for a gas-fired power station. Even nuclear power – at about £1.8bn per GW, looks a lot cheaper by comparison.