June 24 (Bloomberg) -- Wind-power development in U.K. waters risks losing momentum because a drop in planned construction after 2013 may deter new entrants that could drive down prices, the British Wind Energy Association said.

Building offshore turbines has become more expensive as the U.K. currency weakened in the past two years, according to a report published by the trade group today. Construction now costs as much as 3.1 million pounds ($5.1 million) a megawatt, it said. That compares with $3.45 million a megawatt as of May 2008, according to Danish wind-power consultant BTM Consult APS.

“We believe this is a short-term spike” in turbine costs, Maria McCaffery, BWEA chief executive officer, said today at a conference in London. “We won’t get past that spike until more manufacturers enter the market.” The exchange rate is “working very seriously against us because we don’t have an indigenous manufacturing base,” she told reporters.

U.K. offshore wind developments, which are costlier than land-based ventures, have been hurt as credit markets tighten, while a drop in electricity prices has curbed earnings for generators. Developers of the London Array offshore wind park, set to be the world’s biggest when completed, lost partner Royal Dutch Shell Plc last year when the company sold its interest in the project, citing rising costs.

More Capacity Needed

While Britain is set to install 5.5 gigawatts of wind turbines at sea by 2015, more may be needed to create a supply chain for the industry and persuade competing equipment makers to bring prices down, the BWEA said.

“Annual installation will remain inadequate to bring the industry to maturity, in terms of contractor competition, and provides limited potential for inward investment in U.K. facilities,” the association said.

The U.K., already having the most offshore wind capacity, could accommodate an additional 25 gigawatts of offshore projects, in addition to the 8 gigawatts already built or planned, the government said today.

A loss of momentum in wind-park construction could jeopardize Britain’s target to generate 15 percent of the energy it consumes in 2020 from renewable sources. U.K. offshore wind developers face a 30 billion-pound shortfall in revenue needed to meet that goal, according to the Ecofin Research Foundation.

“The contribution from offshore wind in 2020 should be equivalent to 20 gigawatts, and that’s achievable by ramping up the supply chain,” Gordon Edge, the BWEA’s director of economics and markets, told reporters. He suggested the government may consider subsidies to encourage foreign manufacturers to enter the U.K. market.

‘Market Confidence’

“People have to be completely sure that there’s going to be that market there. Market confidence is number one,” Edge said. In the five-year period to 2020, “it is quite difficult to see large numbers of turbine manufacturer setting up in the U.K., but I’m hopeful that we’ll have one or two by 2015.”

The U.K. called for tenders today to provide 15 billion pounds of cabling to connect new offshore wind farms. The energy regulator has had “informal” expressions of interest in the competition from about 20 potential bidders, Alistair Buchanan, its chief executive officer, said at the conference today.

The nation is also running a third round of tenders for wind developers to gain access to acreage at sea, with winners due to be announced by the end of the year.

“The more we do, the more experience we get, the cheaper it will become,” Energy Minister Phil Hunt told reporters today in London. “I’m confident that companies will want to invest.”

Hunt said providing certainty and stability to potential investors is the best way for the government to help the offshore wind industry supply chain.

‘Bigger Boys Game’

Germany’s E.ON AG and partners said May 12 they would build the first phase of the London Array wind park after the government increased subsidies for such projects. E.ON and Dong Energy A/S of Denmark agreed last July to pay Shell an undisclosed amount for its stake in the development.

Companies developing wind capacity in the U.K. include Iberdrola SA’s Scottish Power Ltd. and Vattenfall AB, Sweden’s largest utility, as well as Britain’s Centrica Plc and Scottish & Southern Energy Plc.

“Offshore has always been a bigger boys game” than onshore wind developments, Edge said. That means the investments are more likely to be from energy companies with “big balance sheets,” he said.

Some wind companies are considering U.K. expansion. Siemens Wind Power A/S, a unit of Europe’s biggest engineer, said it may assemble offshore wind turbines in Britain. The company is in discussions with British ports about a location for a possible plant, Chief Executive Officer Andreas Nauen told reporters in London today.

“We still have capacity for offshore wind turbines in the coming years,” Nauen said.

To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Lars Paulsson in London at lpaulsson@bloomberg.net

Last Updated: June 24, 2009 11:54 EDT