Wind farm project for London hits turbulence

Credit crunch and the falling value of the English pound have left the project to build 341 turbines in the Thames on 'a knife edge'

LONDON // Energy companies trying to build the world's largest offshore wind farm are seeking a bailout from the European Investment Bank. The London Array, a £3 billion (Dh16.1bn) scheme to build 341 turbines in the Thames Estuary, has been in financial trouble since Shell pulled out of the project a year ago. Masdar, the Abu Dhabi renewable energy fund, later stepped in to take over Shell's 20 per cent stake but, since then, the credit crunch, tumbling energy prices and the falling value of the pound have left the project on what its backers admit is "a knife edge". The problem for the British government is that, unless the scheme goes ahead, it will make it impossible for Britain to meet its ambitious goal of producing 35 per cent of its electricity from renewable sources by 2020. The prime minister, Gordon Brown, has given his personal backing to the scheme, which would provide power to 750,000 homes, and he had hoped to have the first stage finished in time for the opening of the 2012 Olympics in London. But with banks now reluctant to lend and with the falling pound adding 20 per cent to the cost of imported turbine equipment, the three lead companies involved in the project - Eon, Dong and Masdar - have turned to the European Union's lending bank in a last-ditch attempt to save it. Three months ago, Masdar indicated that the finances of the London Array could be in trouble. "The economics of this project should be revisited," said Ziad Tassabehji, Masdar's director of innovation and investments. "We are working with our partners to study the feasibility of the project." The European Investment Bank has recently committed itself to investing at least £720 million a year in renewable energy. It is expected to make a final decision on whether or not to back the London Array by the summer. A spokesman for the bank would only say yesterday: "We are committed to funding offshore wind projects in the UK and are currently in discussions with project promoters who are actively promoting wind projects." Wind farms in the UK do not enjoy the level of subsidies that they do in other European countries, and the British Wind Energy Association (BWEA) is now calling for more government help when Alistair Darling, the chancellor of the exchequer, presents his budget to parliament next week. The London Array and four other large-scale wind energy projects are in danger of being delayed or shelved owing to higher costs and the difficulties of obtaining credit, according to the association. Maria McCaffery, the chief executive of the BWEA, said: "The current economic climate has caused a number of developers to put projects on hold, threatening the UK's targets and leaving the country exposed to volatile fossil fuel prices. "Building a clean energy sector in the UK is an important part of our economic recovery and we need to maximise the opportunities to develop sustainable energy projects which would otherwise be delayed by the recession." A report in The Times yesterday said investment in renewable energy schemes in the UK was less than a quarter of what it was a year ago - £79m in the first three months of 2009 compared to £377m over the same period last year. "The figures have raised fresh questions over the government's ability to fulfil its pledge to slash Britain's carbon emissions and produce more than one-third of the country's electricity from green energy by 2020," the newspaper said. Adam Bruce, chairman of the BWEA, said the figures reflected the need for the government to introduce new measures to support the industry. He was backed by Lord Smith of Finsbury, the chairman of the Environment Agency, who said it was crucial to Britain's future in renewables energy that more public funding be available. "We've already seen some companies pull out," he said. "We will see more of these things happening if we don't improve the funding. "Over the past 10-15 years we have tended to come too late to the table as a country when it comes to the development of renewable energy." Industry insiders believe the government will act to save the London Array and to give financial incentives to other wind farm projects when Mr Darling presents his budget. Pressure is building up on ministers not just from the energy industry but from the environmental lobby, worried about cutting the UK carbon emissions. In the run-up to the budget statement, the Institute of Public Policy Research will publish a report saying that Britain must act now if it is to seize the opportunity of building a wind energy industry that could employ as many as 70,000 people, compared to the 700 at present. [e-mail]