No cash - no wind, energy groups tell the Government

Huge offshore wind farms vital to meeting carbon-reduction targets will not be built without more state aid, energy companies have warned. It is the latest blow to the Government's controversial wind-farm construction programme.

Huge offshore wind farms vital to meeting carbon-reduction targets will not be built without more state aid, energy companies have warned. It is the latest blow to the Government's controversial wind-farm construction programme.

Companies including Scottish Power and E.on have told the Department of Trade and Industry that they want capital grants to help pay for the £9.4bn programme, or an offshore national grid company to be set up to link the developments to the existing grid.

The DTI said it was planning to consult companies this summer to try to resolve the row over who will pay for the next round of wind farms. These will be located in three offshore sites - in the Thames Estuary, the Wash and the North-west. The first of the 20,000 turbines, able to generate a total 7200MW of electricity (enough for a city the size of London), are scheduled to be in operation in 2008.

Offshore wind farms cost 30 per cent more to build and operate than those on land, mainly because the operators must extend the national grid along the seabed to connect the turbines.

Some companies are warning that, as a result, many of the projects are uneconomic and that they could be forced to scale back their size drastically or pull out altogether.

One finance chief of a major operator said: "There are murmurs in the industry that, without government incentives, these projects are marginal at best. Some of the larger players are looking to re-evaluate the projects."

In some cases, developers are being asked to provide guarantees to the National Grid that they will finance connections to the offshore farms, even before planning consent is granted. This would leave them liable if planning permission is refused.

Alan Mortimer, head of renewable policy at Scottish Power, said: "Finance is a big issue for offshore wind. There is a lot of work going on in government to find out what is required to get offshore wind off the ground."

Earlier this year, some of the companies involved in the project at the Wash, which include Amec and National Wind Power, met energy minister Mike O'Brien to voice their concerns.

Financing from banks could also be a problem without government help. Simon Curry, a partner at law firm Norton Rose, part of a wind-farm- financing joint venture, said: "Banks are not going to be keen to provide non-recourse debt to something new like offshore wind."

The Government wants 10 per cent of all electricity to come from renewable sources, such as wind, by 2010.