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The world’s largest offshore windfarm dealt a huge blow by Shell’s decision to abandon the project

by Susanna Twidale

The government’s objective to source 10% of the country’s power generation from renewable sources by 2010 has been thrown into chaos after oil giant Royal Dutch Shell pulled out of what was set to be the world’s largest offshore windfarm project off the Kent coast.

The group says its decision to sell its 33% stake in the £2 billion London Array project is part of an ‘ongoing review of projects and investment choices’ but environmentalists and government officials have reacted with dismay.

Environment Secretary Hilary Benn described the move as very disappointing. ‘I think a lot of people would want to understand why that was the case especially in a week in which the company has announced record profits,’ he says, referring to Shell’s recent first quarter 12% profit rise to £3.92 billion.

Shell, however, defends itself by saying it is still involved in several wind projects in the rest of Europe and the US but it is a bitter blow to the UK eco-energy market, where the Renewable Obligation Certificate (ROC) system is seen as much less attractive than the incentives available in other countries. ROCs give renewable generators a premium but are generally regarded as less attractive than the feed-in tariffs available in other European countries like Germany and France which give generators extra revenues for any surplus renewable generation which makes its way onto the grid.

‘It is important both in a symbolic sense, as the UK was looking to recover ground against its EU peers through offshore wind, and materially in delivering power (1,000MW) to serve a quarter of London households,’ says Ambrian analyst Dean Cooper.

Germany’s E.ON and Denmark’s Dong energy hold the other two thirds of the project but Shell’s decision has also thrown their involvement into question. ‘While we remain committed to the scheme Shell has introduced a new element of risk into the project which will need to be assessed,’ says E.ON chief executive Paul Golby.

Wind up

Scottish & Southern Energy is already the largest renewable generator in the UK and it has previously expressed its frustration with the planning process in the country for getting wind facilities approved but it could still throw its hat into the ring. There have been early suggestions that Shell has looked to British Gas-owner Centrica to buy its stake but the project’s future is by no means assured. E.ON’s Golby says that the rising steel prices and bottlenecks in turbine supply had already left the economics of the project as marginal at best so it looks unlikely that E.ON would want to up its stake.

British Wind Energy Association director of communication Charles Anglin, however, remains confident that the project will go ahead. ‘Fundamentally nothing has changed and we are sure there will be an interest in taking over the stake,’ he says. ‘The reality is there will be increasing demand for wind energy as fossil and nuclear plants are decommissioned.’