U.K. Change to Offshore Wind Plan Threatens Projects, Eneco Says

U.K. plans to change how it supports the development of offshore wind farms risk curbing investments and reducing the country’s ability to meet clean energy targets, according to a unit of Dutch utility Eneco Holding NV.

“The government is saying it will only provide contracts for a certain amount of offshore wind,” Eneco Wind U.K. Ltd. Managing Director Guy Madgwick said. “No one has clarity as to how much, or when they are going to bring the guillotine down.”

Madgwick’s comments come a day after lawmakers found plans to overhaul the power market were “unworkable.” The proposals include offering long-term contracts guaranteeing prices to low- carbon generators, without saying how many will be allocated.

“You can get a fully consented project but you still don’t know if you’ve got a contract,” he said. “Suppliers of cables, turbines and vessels are going to turn around and say you haven’t got a contract, how do we know this is a firm order?”

The contract volumes and guaranteed, or strike, prices for power will be published in a 2013 “delivery plan” for the 2014 to 2018 period, state documents shows. Plans to use the so- called contracts for difference would also guarantee prices for nuclear power and carbon capture and storage.

“The purpose of the CFD and strike price is to try to give predictability so that the cost of capital is lower,” luring investors, Energy Secretary Ed Davey said July 11 in London.

‘Unacceptable Risk’

Scottish Power Ltd. Chief Corporate Officer Keith Anderson said in the Energy and Climate Change Committee report the risk of investing as much as 150 million pounds ($233 million) in offshore wind without a confirmed contract is “unacceptable.”

The government, in documents accompanying its plans, said it recognized they may lead to delays in spending decisions, adding it would work with developers to enable investment.

Eneco and EDF Energy Plc are developing the U.K.’s Navitus Bay project with as much as 1.2 gigawatts of capacity. Prime Minister David Cameron’s government plans to build 18 gigawatts of wind power at sea, compared with about 2 gigawatts now, after pledging to be “the greenest government ever.”

Electricity market changes that would shift liability for contracts to suppliers may undermine that goal, Madgwick said.

“We need a government counterparty which really does achieve a lower cost of capital,” he said. “Projects will struggle to achieve bankable terms in the debt markets.”

Multiparty Model

Davey said July 11 the “multiparty model” had caused consternation among industry, and the government was looking at a single-party model. The Energy and Climate Change Committee said yesterday the government was in “danger of botching” its clean energy plans unless the Treasury backed contracts.

Under multiparty plans, suppliers would collectively make good any payments to generators if one of the group failed to.

The U.K. is nearing a deal on cuts for renewable energy subsidies and may announce a decision as early as this week.

Chancellor of the Exchequer George Osborne is sympathetic to the Energy Department’s suggestion subsidies for onshore wind farms should be cut 10 percent and is preparing for an announcement this week, said an official at the Treasury, following government policy in declining to be named.

To contact the reporter responsible for this story: Sally Bakewell in London at Sbakewell1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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