Viability of wind farms poses a “sources of finance” challenge

A relevant article in the Guardian today looks at the financial challenges facing the London Array - a huge proposed offshore wind farm.

The London Array, which has been going through the planning permission process for several years, would be built more than 12 miles off the Kent and Essex coasts, in the outer Thames Estuary.

When fully operational, it would make a substantial contribution to the UK Government’s target of providing 15.4% of all electricity supply from renewable sources by 2015. Based on the current schedule, it is expected that the project would represent nearly 7% of this target. It would also avoid the emission of millions of tonnes of carbon dioxide over its life.

The Guardian article explains how the viability of the wind farm is being squeezed from two sides.  First, a contraction in the availability of credit.  Secondly, the selling price which the project might expect to obtain from the electricity it generates is falling in the face of the economic downturn.

The likely selling price is perhaps the key assumption in the project investment appraisal.  The investment returns will be very sensitive to movements in electricity prices.

The article explain that “there are fewer subsidies available for offshore wind farms in the UK compared with elsewhere in Europe, where developers are guaranteed a high price for the electricity they generate in the form of a feed-in tariff.”

We also learn that “energy companies are pressing the government to provide more subsidies to make building offshore wind farms viable. The UK will miss its renewable energy target if London Array and dozens of other offshore projects are not built.”

It will be interesting to see if the forthcoming budget makes changes to the public sector incentives for wind farm investors.

BUSINESS TEACHER RESOURCE NEWSLETTER
Get first news of business teaching resources, ideas and other materials from tutor2u. Over 5,000 business teachers from the UK and around the world receive our regular teacher email newsletters. Sign up for free here!

Comments