Centrica warns on wind farm costs (another one bites the dust in the wind)

Centrica, one of the UK's biggest energy generators, has warned that the prospect of making money from wind farms is looking "marginal".

The company says that the rising cost of off-shore wind farms could end up ruining the government's renewable energy targets.

The comments come a week after Shell withdrew from a project that was set to become the world's largest wind farm.

Mr Sambhi, Centrica's director of power business unit, says the firm is still planning to build three new wind farms in the UK, but believes that current conditions are making the government's renewable plans look very ambitious.

"The worrying trend is that if the manufacturing costs continue to increase, then I think that the wind target is under threat," said Mr Sambhi.

This week Centrica's Lynn and Inner Dowsing project will deliver power to the National Grid.

The opening of the wind farm comes at a time when the economics of off- shore wind generation are coming into question.

But the wind farm off the coast of Skegness has doubled in price in the last three years because of the rising cost of steel and copper.

There are effectively only two companies that produce wind farms for the UK market - Vestas of Denmark and the German company Siemens.

Both have a huge order book, with Vestas alone having nearly £4bn worth of orders yet to be delivered.

The turbine manufacturers point to the rising cost of raw materials and the difficulty they have in securing the parts they need.

Uncertainty over the future of the 1,000 megawatt London Array wind farm off the coast of Kent has increased tension in the industry.

Shell, one of the three major partners in the London Array - meant to be the world's largest wind farm, last week pulled out of the project.

- - Each turbine can power 2,500 homes
- - Turbines are 100m high and nearly 100m in diameter
- - Each turbine weighs approximately 260 tonnes
- - The 54 turbines have a combined generating capacity of 180 MW

After Shell's decision, one of the other partners - E.ON - said that the economics of the project were "marginal at best".

The cost of the project is thought to have doubled since 2003, when it was estimated at £1bn.

The BBC has learnt that just one turbine manufacturer made a tender for the project, increasing the impression amongst some in the industry that manufacturers are able to choose their price for the projects they take on. High costs have forced the energy companies to look elsewhere for funding.

Centrica is aiming to build another three wind farms with a total capacity of around 1250 megawatts but does not want to fund the projects alone.

In a bid to keep the projects on track the company is looking for investment from City institutions, including from private equity firms.

But this innovative tactic might not have the desired results according to Dieter Helm, Professor of Energy Policy at Oxford University.

"Investors are saying that the current policy for wind energy in the UK is not fit for purpose."

"Unless the government wants to revamp and rebase its wind structure, it isn't going to get what it wants from wind," said Mr Helm.

This view is echoed by Charles Anglin from the British Wind Energy Association, who says that a lack of clarity has affected investment.

"The fact that the government was slow to wake up to the opportunity of wind did push up uncertainty, and that has affected prices and meant that manufacturers have delayed investment," he said.

It says that there are financial incentives in place to encourage energy companies to invest in wind farms.

It also points to the fact that Britain is due to over take Denmark as the largest wind energy generator by the end of the year.

"The economics at the moment make the returns marginal."

Of course, this is of no concern to the state.

In Nevada, the state has mandated 15-20% renewable energy sources by regulated utilities by 2015 or so.

So giant solar energy plants are being constructed and subsidized. Green architecture gets property tax breaks.

Well, duh "The economics at the moment make the returns ~~marginal~~ negative" causing increases in utility rates and taxes.

yitbos

In Nevada, the state has mandated 15-20% renewable energy sources by regulated utilities by 2015 or so.

Simply a transfer of money from pockets of taxpayers and ratepayers to "green" investors like al-Gore and friends.

Of course, wait till they start redefining "renewable" the same way they kept redefining the goalposts of "success in Iraq" and Global Warming into climate change.

May I suggest one perfectly "renewable" resource - whale blubber oil? Due to advances in technology we don;t have to kill whales to get it, just do a "harpooned liposuction" from tankers right in the ocean...

Of course, problem with all these projects, like biofuels, wind, solar etc., is a little thing called "scalability", but we can think of this later, after getting grant money or even forgoing research altogether and getting Congress convinced to subsidize the "project" on grand, national scale for maximum financial "effect".

Correct on all accounts.

The state is willing to approve utility rate increases. It is willing to subsidize capital through municipal bonds. The problem occurs in determining a "reasonable return" on capital expenditures for infrastructure.

A few decades ago during Carter's inflation (think California here, that's what I am familiar with), the state demanded utilities expand to service new populations but denied them a competitive return on capital expenditures. How can the Public Utilities Commission increase rates enough, morally, to guarantee 25% return on the cost to build gas and power lines, generating plants, etc. to keep pace with 18% inflation plus a decent profit?

Utilities had a dilema, ask investors to buy utility bonds paying 8% interest when inflation is 15% and Treasuries are paying 18%, or use its availabe capital to diversify into areas where they had no expertise.

This is what led to utility hedges, Enrons and the like. Utilities divesting production from transmission. Utilities buying sporting goods and drug store companies. And going broke. Because the state refused a competitive return on investment yet required capital expenditures.

Now we see the same thing with alternative fuels.

If the state is going to mandate and subsidize something, private industry will capitalize on it before any benefit is seen by a taxpayer. Ask corn farmers. Ask Al Gore.

yitbos

Wind, solar, and bio-mass energy sources are dependent upon notoriously unreliable nature. What happens if peak demand exceeds the ability of wind powered electric generating units to keep up? What if climate change, despite all the arguing about it, is a permanent feature of the earth, not subject to man's puny efforts, and the wind dies down in an area where wind power is vital?

What happens to the power generation grid if we get an unexpected tornado through a wind generating farm? How long will that take to bring back on line? Will people be willing or able to wait a year or more for the turbines to be rebuilt? What happens to bio-mass energy in a drought period (think Dust Bowl / Grapes of Wrath here)?

The people who have taken responsibility (more like siezed control) for our future, the Congress and the Federal bureaucracy, are complete, utter, dangerous fools. We're going to have to stand up to this at some point, or the consequences are going to be severe, immediate, and deadly, unlike global warming, which is no worse than a sweaty day in an apartment with no air conditioning, if it exists at all.

“In Nevada, the state has mandated 15-20% renewable energy sources by regulated utilities by 2015 or so.

So giant solar energy plants are being constructed and subsidized. Green architecture gets property tax breaks.”

We are wasting huge sums of money on this junk. Pouring it down the drain. Solar plants that cost $10 million produce less electricity than $1 million invested in coal or nuclear.

Environmental mandates are destroying our prosperity.

Wind, solar, and bio-mass energy sources are dependent upon notoriously unreliable nature.

Yes. Also, as corollary, besides the scalability issues involved in each, at least wind and solar are not "portable" technologies of energy sources simply due to geographic limitations for each. Nor, as has been noted, are they cheap, standalone or after "subsidies" which of course is simply a transfer of the cost somewhere else.

We are wasting huge sums of money on this junk. Pouring it down the drain. Solar plants that cost $10 million produce less electricity than $1 million invested in coal or nuclear.

Or even worse... From WSJ : "Wind ($23.37) v. Gas (25 Cents)"

Some clarity comes from the U.S. Energy Information Administration (EIA), an independent federal agency that tried to quantify government spending on energy production in 2007. The agency reports that the total taxpayer bill was $16.6 billion in direct subsidies, tax breaks, loan guarantees and the like. That's double in real dollars from eight years earlier, as you'd expect given all the money Congress is throwing at "renewables." Even more subsidies are set to pass this year.
An even better way to tell the story is by how much taxpayer money is dispensed per unit of energy, so the costs are standardized. For electricity generation, the EIA concludes that solar energy is subsidized to the tune of $24.34 per megawatt hour, wind $23.37 and "clean coal" $29.81. By contrast, normal coal receives 44 cents, natural gas a mere quarter, hydroelectric about 67 cents and nuclear power $1.59.
The wind and solar lobbies are currently moaning that they don't get their fair share of the subsidy pie. They also argue that subsidies per unit of energy are always higher at an early stage of development, before innovation makes large-scale production possible. But wind and solar have been on the subsidy take for years, and they still account for less than 1% of total net electricity generation. Would it make any difference if the federal subsidy for wind were $50 per megawatt hour, or even $100? Almost certainly not without a technological breakthrough.

“They also argue that subsidies per unit of energy are always higher at an early stage of development, before innovation makes large-scale production possible. “

Thanks. Do people not realize that wind power is 1,000 plus years old (thanks to the Dutch)?

If technology can improve solar and wind, it can also improve nuclear and coal.

Do people not realize that wind power is 1,000 plus years old (thanks to the Dutch)?

al-Gore and his ilk stand to benefit from selling the Grand "Green" Fallacy and faux "green energy solutions" to their ignorant followers. People who are buying the scam and will eventually be paying for it are literally "tilting at windmills".

If federal government must provide initial subsidies for building energy infrastructure, at least one better idea could be to provide the states the same amount whether they decide to build wind, solar or coal or nuclear plants - and let states decide and settle on solution and having to live with their decisions, i.e. later having to explain their decision (prices and availability/amount of power) to citizens of their states.

You know the #1 lobbyist for cap-n-trade carbon trading,before they went kaput?

ENRON.

AGW is the ENRON of environmental movement.

” to provide the states the same amount whether they decide to build wind, solar or coal or nuclear plants”

The level playing field should be in terms of a subsidy/kilowatt-hour that is the same for all forms of energy that are not polluting or CO2 emitting.

You know the #1 lobbyist for cap-n-trade carbon trading,before they went kaput? ENRON.

Yes, CO2 is just another [derivative] instrument that can be traded, bringing in trading volume and potential for "creative" derivatives and options associated with that, especially in largely invented, regulated and ever-expanding environment.

The level playing field should be in terms of a subsidy/kilowatt-hour that is the same for all forms of energy that are not polluting or CO2 emitting.

Exactly. Obviously, the assumption is that this is what a rational, reasonable and accountable to its citizens state government would choose, thus avoiding the top-down one-fits-all federal government's decision.

Of course, what constitutes "rational, reasonable and accountable state government" will vary from state to state and be open to interpretation, but the amount and price of energy output won't be - thus the onus on state government and the day of public reckoning will be for wrong decisions based on anything other than energy output. This way the rational (non-liberal) state governments can bypass Federal energy stalemate (assuming of course that there are waivers and no federal limitations on the kind of energy tied to subsidy) and go ahead with the best and most cost-efficient technologies, and potentially affect the neighboring states' choices.

That's why usually Democrats like to make decisions on federal level, and most Republicans prefer to defer to the states.

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