Planet Gore

Wind not at the sails for UK wind-farm project

Today’s WSJ takes a look at yet another example of the realities of renewables, as the plug has been pulled on what would’ve been the world’s largest offshore wind farm:

LONDON—A major European utility said Tuesday it would scrap a wind farm that was due to become the largest offshore wind project ever built, a sign of the struggles the industry is having in attracting investment.

The Atlantic Array, in the Bristol Channel off the west coast of England, could have generated up to 1,200 megawatts of electricity, almost twice as much as the largest farm operating in U.K. waters. But RWE said that continuing with the project faced problems that were “prohibitive in current market conditions.”

RWE’s decision highlights the central difficulty in achieving Europe’s wind targets. Huge projects are planned, but few investors are willing to stake the billions needed to build them in an environment where government subsidies are essential but uncertain and costs can skyrocket.

Catch that? Government handouts “are essential” to the viability of this project, as they are for the wind industry as a whole.

The U.K. has pioneered offshore wind power, maximizing its island status with more turbines than any other country, but some investors have balked at the relatively new technology and the cash outlay needed for the next phase of development.

“You worry at the moment, when [offshore] is very expensive, and relies on a long-term government contract at a very high price. And you also don’t know how it’s going to be to operate in very harsh conditions” out at sea, said Emma Tinker of private-equity firm HgCapital, a long-established investor in renewable energy.

Again, offshore wind depends on “a long-term government contract.” 

HgCapital, which has £5.6 billion under management, is putting its money into onshore wind and solar, technologies that could be competitive with fossil-fuel power and “shouldn’t need cash subsidies” within five years, according to Ms. Tinker. The high cost of building offshore wind generation, by contrast, means that government support is required to make the price competitive.

“You have to spend a huge amount of money before the first turbine starts to turn…You could have a couple of years where you have hundreds of millions of pounds out and no return,” said Richard Nourse, managing partner at Greencoat UK Wind, UKW.LN -0.24% an infrastructure fund that invests solely in British wind farms but won’t risk money on building offshore installations.

Unlike governments, businesses generally need to be mindful of whether they are spending money wisely.

To make matters worse, the bounty of cheap oil and gas from U.S. shale has made renewable energy even less competitive.

Advocates of green energy say sticking with fossil fuels is a short-term plan. But the market preference for cheaper alternatives means only government can force through plans for new, expensive technologies.

The market for conventional energies is so successful that “only government can force through plans for new, expensive technologies” like wind and solar.

Of these, offshore wind is arguably the priciest, and uncertainty over how subsidies will work is another reason for investors hanging back.New energy legislation, due to pass in the U.K. before year’s end, might provide some clarity. But utilities remain concerned.

None of this is a surprise. None of this is new. Markets get it. Pie-in-the-sky politicians and regulators don’t.


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