UK licenses largest offshore wind farm

LONDON, ENGLAND - Britain has awarded energy companies the rights to develop the world's biggest offshore wind project in hopes the country will become a leader in the emerging industry, which is vital to slash carbon emissions.

The Crown Estate, in charge of Britain's coastal seabed, announced winners for the Round 3 tender, including Portugal's EDP Renewables, Britain's Centrica, Germany's E.ON and Sweden's Vattenfall.

In total, the government hopes the program will deliver up to 32 gigawatts (GW) of generation capacity, or enough to meet a quarter of the UK's electricity need by 2020.

It is expected to bring a step change to the global offshore wind industry, which currently has installed capacity of only about 1.5 GW, accounting for mere 1 percent of the total installed wind capacity of around 150 GW, including onshore.

"This is a great day for energy policy, sustainable energy and the environment. This is a great day also for the United Kingdom," British Prime Minister Gordon Brown told reporters.

He said Round 3 would make Britain the number one market for offshore wind development and create about 70,000 jobs by 2020.

"We are determined to do everything we can... to bring these jobs to the country," Brown said.

However, obtaining funding for cash-intensive offshore wind farms is not easy, and larger utilities have often resorted to using cash from their own balance sheets.

The projects' location, in deep water and far offshore, presents many technical challenges, including how to provide maintenance and cope with potential gearbox failures in winter.

"Attention will now turn to delivery, where the private sector will now need to demonstrate it can develop the technical and financial solutions needed to deliver. The race for capital is on," said Arnaud Bouille, a Director in Ernst & Young's Energy and Environmental Infrastructure Advisory team.

Rob Hastings from the Crown Estate said there was a lot more interest in the tender than expected, with entries accounting for projects totaling about 40 GW — 60 percent more than its initial target for 25 GW.

"We were very encouraged by the confidence that the developers had in setting up their targets," Hastings, director for the Marine Estate, told Reuters:

Gordon Edge, director of Economics and Markets from the British Wind Energy Association (BWEA), told Reuters construction costs for 32 GW would total 75 billion pounds-80 billion pounds ($119.6 billion-$127.6 billion).

Costs are expected to drop as new technology for offshore wind farms is developed, the number of turbine makers rises from just two at present and a supply chain is set up in Britain.

Currently, no turbines are made in Britain due to the country's slow development of onshore wind farms.

It has just begun developing a supply chain for the offshore wind industry, using its experience in offshore oil and gas.

"If you look at what happened with onshore costs... we would expect over the period of time that costs of 3-3.2 million pounds (per megawatt) to come down... to 2.5 million pounds," said Keith Anderson, ScottishPower Renewables Director.

BWEA said research was under way to develop a UK-built offshore wind turbine as large as 10 MW, up from around 3 MW common among offshore farms now. It also expected there would be around six offshore turbine manufacturers by 2015.

While the government has increased support for the industry under the Renewable Obligations Certificate (ROC) scheme, it is unclear if this will last beyond 2014.

British Gas owner Centrica called for a support mechanism to help ensure project viability.

"Offshore wind is expensive to build and we will need a long-term, stable support mechanism to make these investments commercially viable for the foreseeable future," said Sarwjit Sambhi, Managing Director of Power Generation at Centrica.