Regno Unito : February 19, 2009

The onward march of the wind farm, colonizing both land and sea, may encounter some opposition. The unexpected turbulence in the world financial markets and the rapid decline of oil prices have resulted in declining energy demand across the industrialized world resulting in fast and loose play with wind farm project economics.

One problem is the declining price of carbon that, at the time of this writing, is hovering around €9/tonne of CO₂ – a considerable drop in line with the decimation of industrial and commercial demand. The price of carbon is an important element in the viability of a project as in the UK renewable projects such as wind farms are issued with renewable obligation certificates or ROCs. These ROCs are sold to those industries which need them to cover their carbon emissions and are an important revenue stream in developing renewable energy resources such as wind farms.

The price of oil has also dropped by more than $100/bbl significantly impacting UK power prices as over 40 percent of the country’s generation is gas based and this commodity is closely tied to the price of oil. As a consequence, the current base load wholesale price is at a level below the minimum required to obtain any satisfactory wind farm project return.

Suspect investment returns lead to the availability of project finance for marginal developments. In the current difficult credit markets there is little appetite to apply scarce funds to marginal projects. As a result, it is expected that many of the wind farms in the planning stages will now be put on hold to await recovery in the financial sectors, industrial demand, as well as power and carbon prices.

Offshore wind farms are regarded by many as better propositions than their land born counterparts as fewer planning consents are required and the consistency of wind is greater resulting in higher outputs. However, offshore wind farms are more expensive due to the higher cost of producing and maintaining turbines in a harsh environment. Anecdotal evidence suggests that the flagship 1,000 MW London Array to be constructed in the outer Thames Estuary is suffering from the economic downturn. Shell withdrew from the consortium in mid 2008 leaving only E-On and DONG Energy (a Danish utility) as partners.

As the English once pondered, “An yll wynde that blowth no man to good, men say.”