Related Articles
Forward article link
Share PDF with colleagues

UK: Wind struggles to broaden investor pool

THE COUNTRY has overtaken Denmark as the world's largest producer of offshore wind power. But serious doubts remain about the feasibility of the government's ambitious plans for the wind sector, as potential investors, including BP, shy away.

The capacity boost has come from Centrica's Lynn and Inner Dowsing project off the coast of Lincolnshire, eastern England; most of the plant's turbines are now functioning. Capacity at the world's biggest offshore wind farm is set to rise to 194 megawatts (MW) by the end of 2008, when all 54 of the 3.6 MW turbines are operational. UK installed offshore capacity at that point will be around 600 MW, compared with 425 MW in Denmark.

However, such headline statistics have done little to assuage concerns in some quarters over the ability of producers to meet a government target requiring 15% of total electricity to come from renewable energy, most of it wind power, by 2020. Wind accounts for little more than 1% of the country's capacity at present. Power company and wind-farm developer Scottish and Southern estimated earlier in 2008 that, at the then-prevailing rate of construction, renewable energy would provide just 7% of UK power by 2020.

While existing power generation firms – which will be required to increase the proportion of their production derived from renewables in the coming years – have been investing more in the sector, there has been little appetite for investment in the sector by oil companies.

Earlier this year, Shell pulled out of the proposed 1 gigawatt (GW) London Array offshore project. Ownership has now been restructured to include Abu Dhabi's Masdar (20%), as well as the original partners, Denmark's Dong (50%) and Germany's E.On (30%) (PE 06/08 p35). Now, BP has said it is abandoning planned investments in UK wind and will make all of its wind investments in the US onshore sector, where Shell is also directing much of its wind investment. BP has also called off studies of potential wind investments in India, China and Turkey.

BP is keen not to portray the move as "pulling out" of the UK sector, given that it has no existing operational wind projects in the country and had only one small onshore project in southeastern England at the planning stage. But its decision to rule out future investment highlights a disparity between its view of the US and UK industries.

In the US, the wind sector is almost entirely onshore, where investments are reaping attractive returns, because of the cheapness and abundance of land, economies of scale and the financial incentives on offer. In the UK, where land is relatively scarce and onshore planning permission is hard to come by, most capacity expansion is taking place offshore, which is a much more costly and difficult environment in which to build and maintain a wind farm.

"The US is a place where we can put wind farms up fairly quickly, run them viably and make some money out them," says BP. The company plans to have about 1 GW of wind capacity installed in the US by end-2008 and around three times that amount in two years time. BP says it has already secured land and partnerships, which could enable it to boost its US wind capacity to more than 15 GW.

Also in this section
Big investors put pressure on big oil
15 October 2019
Oil firms may still able to raise billions of dollars for big upstream projects, but institutional investors are starting to demand emissions reduction measures
Solving the CCS cost conundrum
3 October 2019
Changes to the energy mix and government-backed development of CCS would put the climate goal within reach, according to DNV GL
To drill or not to drill
3 October 2019
Producers’ view of the future may run the risk of complacency