print
Winds of change blowing through UK energy as world's biggest offshore wind farm opens
05.07.2013

 

http://www.telegraph.co.uk/finance/newsbysector/energy/10161145/Winds-of-change-blowing-through-UK-energy-as-worlds-biggest-offshore-wind-farm-opens.html

 

Benj Sykes is none too familiar with the red-throated diver. "I wouldn't know one if it sat on my head," he confesses. "I'm not a twitcher, I'm afraid."

 

Financially, if not ornithologically, however, Sykes - UK manager for wind power for DONG Energy - has an interest in the fate of this little bird. The Danish company and its partners, Germany's E.On and UAE's Masdar, have just built the world's biggest offshore wind farm, the London Array.

The 175-turbine, £1.9bn project sprawls across almost 40 square miles, some 12 miles north off the Kent coast.

With 630MW capacity it is capable of powering 500,000 homes a year. It also happens to be close the spot where thousands of red-throated divers like to spend winter. The project, formally opened by David Cameron on Thursday, had its design amended amid concern for the birds.

A planned second phase, another 240MW, will only be allowed if the impact on the birds from first phase proves not to be too damaging; DONG must await studies before it can proceed. Have there been many casualties so far? "I don't know," Sykes says. "It's not like it's raining birds when you're out there."

The jury may be out on the cost to wildlife, but there's no denying offshore wind has a big cost for energy billpayers. It currently costs almost three times the market price of power of about £50 per megawatt hour (MWh); if energy policy was decided by price alone, London Array would not have been built.

But ministers have backed a major expansion of offshore wind to help Britain meet its green targets. From 3.3GW of installed capacity now, they want to see as much as 16GW by 2020.

For every MWh of electricity London Array generates over the next 20 years, it will get subsidies, currently worth about £90, on top of the power price - all paid for by consumers.

The Prime Minister hailed the opening of London Array as "a great day for Britain and a big win for renewable energy".

Dr John Constable, director of Renewable Energy Foundation, disagrees. "There is little to celebrate here," he says. The REF, which despite its name is a stern critic of green costs, calculates that London Array's owners could be in line for £190m a year in subsidies. "This is neither good value for the consumer nor an economically compelling climate policy," he says.

London Array's owners won't disclose their likely profits, although Bader Al Lamki, director of Masdar Clean Energy, does say that the investment will pay for itself in "less than 10 years".

Sykes says the rates of return are "not stellar" but "acceptable". "We wouldn't do it if it wasn't good business," he says, but it is "not a lucrative business" like oil.

Having spent 21 years developing oil projects for Shell and Hess (before taking a "scary pay cut" to move to an industry his kids would be "proud of"), he should know.

"The margins are so slim compared to oil and gas that a couple of slips and you're massively in the red on the project," he says. "Our job is to make it an investable industry without being unfair to consumer."

High subsidies refect the fact offshore wind is a "young" technology compared with, say, nuclear.

"Our aim is to bring our cost down to parity with other technologies as fast and efficiently as possible," he says. "Building the world's biggest offshore wind farm is a very important step in taking us to the scale that will enable us to drive the cost down."

Ministers want costs reduced to £100/MWh by 2020. An industrial strategy on the issue is expected soon.

This is also intended to help ensure that a bigger share of the costs of future wind farms - as much as 50pc - is spent in the UK. For London Array, it was just 10pc; most of the parts were shipped in from elsewhere in Europe.

"The UK needs to step up to the plate and deliver a competitive indigenous supply chain," Sykes says. "We have to find the right balance between driving the cost of energy down and at same time making sure the UK gets benefits of this scaling up of offshore wind."

To the scepticisim of many, DONG believes it can undercut the 2020 target and reach £85/MWh. Part of the answer is scale: bigger turbines and bigger wind farms.

The tips of London Array's turbines reach 482ft above the sea, making the boats that service them look like bathtub toys. Their blades span almost 400ft in diameter. But they will be dwarfed by those that DONG plans to build off Yorkshire, which will have a diameter of 509ft.

Building and maintaining these giant farms is a huge logistical challenge; Sykes says DONG is considering asking the likes of FedEx or DHL for advice on streamlining operations.

But it is "too early to tell" whether all these efforts will mean that future projects such as phase two of London Array, or other more ambitious projects, will be economic for the subsidies on offer.

The current system is being replaced by long-term contracts guaranteeing a 'strike' price for power, with the wholesale price 'topped up' by subsidies. Draft prices published last week offer £155/MWh from 2014, falling to £135/MWh by 2018.

Sykes dismisses the idea these are more generous than current subsidies, pointing out the new contracts last a shorter period, at 15 years. Their true value, and whether they attract investment, will depend on details.

But the cost of energy does not equate to the strike price, he stresses; even if the cost is cut to £100/MWh, the strike price will be higher as the subsidies are "compressed to 15 years". "You get the wholesale price plus the top-up only for 15 years; the rest of the field life you only get the wholesale price".

The headline cost is not the only issue. Wind doesn't always blow; when the Prime Minister visited London Array on Thursday, wind was generating about 9pc of the UK's needs; when the Telegraph visited the day before, it was only around 2.5pc.

Critics such as Peter Lilley MP argue the prices don't reflect the fact "you have to have equal amount of gas capacity built for when the wind is not blowing".

Sykes bristles at this. "That shows a fundamental lack of understanding of how the energy system works," he says. "It's one of the big myths that every time we build 1GW of wind you have to build 1GW of backup."

The costs of managing intermittent wind at planned levels should be "very modest", he insists - but "we would never say renewables on its own is going to be the answer".

While Sykes may have moved on from oil and gas, he's not saying the world should. "We need petroleum, it's a vital part of our energy infrastructure and it's going to remain so for some time. It's not question of choosing between hydrocarbons or low carbon."

 

 

Phone. +373 22 232247
Fax +373 22 232247
Copyright © 2024 "I.P. UIPM". All Rights Reserved