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Renewables target in doubt after Shell pulls out of offshore scheme

Plans to meet the UK’s 2020 renewable energy targets through mass construction of offshore wind turbines were dealt a blow last week when Shell pulled out of a 1GW development over rising costs.

The planned London Array windfarm, 32km off the Essex coast, was set to become the world’s largest offshore windfarm.

However, it now looks at best to be delayed after oil firm Shell pulled out of the project over its cost, which is understood to have more than doubled from £1bn to £2.5bn.

A Shell spokesman said the firm planned to focus its investment on renewable technologies on onshore windfarms in the US.

"We are now focusing on wind projects in the US as we can achieve greater economies of scale there," said the spokesman.

"They don't have the same issues with permitting and land over there, plus it is easier to build onshore."

E.ON and Danish company DONG Energy, the remaining shareholders in the London Array joint venture, are now reviewing the project and E.ON UK chief executive Paul Golby said it was struggling to look financially viable.

"The current economics of the project are marginal at best – with rising steel prices, bottlenecks in turbine supply and competition from the rest of the world all moving against us,” said Golby.

As Golby suggests, London Array's cost escalation is largely due to wider market factors likely to hamper Government ambitions for offshore wind to provide the majority of the renewable electricity needed to help meet the EU target of 15% of total UK energy demand coming from renewable sources by 2020.

In December 2007 business secretary John Hutton announced that the Government would free up offshore sites to allow the development of 33GW of capacity, 8GW of which is already in planning.

A scenario developed for NCE by Mott MacDonald anticipates that of the remaining 25GW in capacity up for grabs, 19GW will need to be built by 2020 to meet the targets.

Mott MacDonald energy director Simon Harrison said that offshore not only faced the same problem as onshore wind with a worldwide turbine shortage, but that there was also a shortage of infrastructure such as boats necessary for the installation of offshore turbines.

"I'm sure London Array will find someone willing to come in on the right terms, but the bigger question is how attractive is offshore in investment terms," said Harrison.

"It requires serious investment and the returns have got to be there for that."

However, British Wind Energy Association chief executive Maria McCaffery dismissed the view that offshore construction in the UK was in trouble, claiming the exit of Shell from London Array was "business as usual".

"Consortia come together to deliver large scale wind farms and then often re-group at various stages of project development, for instance at the planning stage, or once the bids from subcontractors come in," she said.

"This is common practice in the wind industry and has happened many times already both offshore and onshore."

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