SHELL TO QUIT WIND PLAN, RAISING RISK FOR E.ON
The Wall Street Journal Europe, 2 May 2008
Royal Dutch Shell PLC said it will sell its stake in the world's largest planned offshore wind-power station, by generating capacity, raising questions about whether the project will be able to proceed.The project, known as the London Array, involves Shell, E.On U.K. -- a subsidiary of German utility E.On AG -- and Denmark's Dong Energy A/S, each holding a one-third stake. It plans to put 341 large wind turbines in the River Thames Estuary in southeast England to generate 1,000 megawatts, or enough electricity to power as many as a quarter of the homes in the greater London area.Shell spokeswoman Eurwen Thomas said the decision was "part of our ongoing review of project and investment choices," and the company will instead invest in onshore wind projects in the U.S.E.On reaffirmed its commitment to the plan, but admitted doubts. "Shell has introduced a new element of risk into the project," Paul Golby, chief executive of E.On U.K. said in a statement. "The current economics of the project are marginal at best, with rising steel prices, bottlenecks in turbine supply and competition from the rest of the world all moving against us."
"We regret Shell's decision and we are now going to sort out the consequences of it with E.On," Dong spokesman Andreas Krog added.The cost of the Array was said to be at GBP 1.5 billion, or $2.98 billion, when it was announced in 2005, but estimates for a project of that size today have grown to between GBP 2 billion and GBP 3 billion.Soaring costs, coupled with what some say are weak and inefficient government policies promoting renewable energy, are slowing existing wind projects and making future investment in the sector less attractive, industry experts say. The combination could also jeopardize the British government's plan to generate 15% of all its energy from renewable sources by 2020 -- a sevenfold increase from current levels.
"This is a wake-up call for the challenge the U.K. faces," said Dieter Helm, Professor of Energy Policy at the University of Oxford.
The current cost of an offshore wind project is three to four times as much as building a gas-fired power plant, said Centrica PLC spokesman Andrew Turpin.Mr. Helm also argued that the U.K.'s current system of offering subsidies for wind-power generation is neither effective nor efficient compared with those offered by other countries.The British government has repeatedly expressed its commitment to offshore wind farms as a way of cutting emissions linked to global warming. As one of the windiest countries in Europe, Britain is a natural location for wind power generation.Environment Secretary Hilary Benn said Shell's decision was "very disappointing," adding, "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."Neither Shell nor any of the other partners would comment on possible buyers for Shell's stake.