The Lynn and Inner Dowsing wind farms, off the east coast of England, are a flagship project for their operator Centrica, the UK energy group, and for Europe.
Its 54 Siemens turbines have a total capacity of 180 megawatts, making Centrica the leading company in Britain, and Britain the leading country in the world for offshore wind power.
Offshore wind is a vital part of what José Manuel Barroso, the European Commission president, has described as the “third industrial revolution”: the transformation of the energy industry to cut greenhouse gas emissions and the European Union’s reliance on gas and oil. If the EU is to hit its target of deriving 20 per cent of its energy from renewable sources by 2020, offshore wind will play a crucial role.
Centrica has big plans to join that revolution, building a total of 1,600MW of offshore wind capacity.
Yet those plans are under threat. Centrica has said it is reviewing that programme, which would demand a further £4bn ($6bn) of investment, as the cost of building offshore wind farms has soared.
Similar stories are being played out across the EU. As the credit crunch bites, utilities are going over their investment plans to see whether they are still viable; not just for renewable energy but for all projects. Several, including Eon of Germany and Iberdrola of Spain, have warned they are likely to slow the rate at which they are investing.
The financial crisis has hit the outlook for investment in three ways: by raising the cost of funding, cutting the prices of gas and electricity, and scaling back expectation of future demand.
European energy companies, many very large and often government-backed, have been less exposed to the financial turmoil than their US counterparts, but all have been affected.
In the spring of 2007, Enel of Italy raised the money it needed for its €42.5bn acquisition of Endesa of Spain in just two hours. Since then, the financial climate has been transformed.
This month, it has been reported that even EDF, 85 per cent-owned by the French government, has been making slow progress with the syndication of the loan for its £12.5bn acquisition of British Energy, the nuclear generator.
Unlike many companies, large secure utilities can still access the markets for fund-raising. Centrica last month announced a share issue to raise £2.2bn. Several energy groups, including EDF and GDF Suez of France, Eon, ENBW and RWE of Germany, and Iberdrola have raised bond finance recently.
Securing that funding is coming at a price. When credit was cheap, utilities could pay as little as 0.15 percentage points more than government bonds for their money. For Iberdrola, to take one example, that spread had rose to 3.5 percentage points this month.
As the cost of capital rises, expectations of future revenue are falling, as a result of weaker demand and the prospect of lower gas and electricity prices.
Some aspects of the credit crunch may help energy companies. Jürgen Grossmann, the chief executive of RWE, has argued the downturn is a reason for governments to support energy companies’ investment plans so they can create jobs. For RWE, which relies heavily on coal-fired generation, that would include protection from the impact of phase three of the EU’s emissions trading scheme, in which they are set to be forced to pay for all of their permits, penalising the use of coal.
Dieter Helm, energy expert at New College Oxford, argues that the crisis will also help to protect the big incumbent companies. “Quasi-national champions will be the bedrock of any investment strategy. In those circumstances, competition is bound to suffer,” he said.
However, he raises a prospect that it ominous for all European energy companies. Another EU target is to raise energy efficiency by 20 per cent by 2020; a measure that would cut both costs and carbon dioxide emissions. If that is successful, much of the demand that is disappearing during this downturn will never return.
Its 54 Siemens turbines have a total capacity of 180 megawatts, making Centrica the leading company in Britain, and Britain the leading country in the world for offshore wind power.
Offshore wind is a vital part of what José Manuel Barroso, the European Commission president, has described as the “third industrial revolution”: the transformation of the energy industry to cut greenhouse gas emissions and the European Union’s reliance on gas and oil. If the EU is to hit its target of deriving 20 per cent of its energy from renewable sources by 2020, offshore wind will play a crucial role.
Centrica has big plans to join that revolution, building a total of 1,600MW of offshore wind capacity.
Yet those plans are under threat. Centrica has said it is reviewing that programme, which would demand a further £4bn ($6bn) of investment, as the cost of building offshore wind farms has soared.
Similar stories are being played out across the EU. As the credit crunch bites, utilities are going over their investment plans to see whether they are still viable; not just for renewable energy but for all projects. Several, including Eon of Germany and Iberdrola of Spain, have warned they are likely to slow the rate at which they are investing.
The financial crisis has hit the outlook for investment in three ways: by raising the cost of funding, cutting the prices of gas and electricity, and scaling back expectation of future demand.
European energy companies, many very large and often government-backed, have been less exposed to the financial turmoil than their US counterparts, but all have been affected.
In the spring of 2007, Enel of Italy raised the money it needed for its €42.5bn acquisition of Endesa of Spain in just two hours. Since then, the financial climate has been transformed.
This month, it has been reported that even EDF, 85 per cent-owned by the French government, has been making slow progress with the syndication of the loan for its £12.5bn acquisition of British Energy, the nuclear generator.
Unlike many companies, large secure utilities can still access the markets for fund-raising. Centrica last month announced a share issue to raise £2.2bn. Several energy groups, including EDF and GDF Suez of France, Eon, ENBW and RWE of Germany, and Iberdrola have raised bond finance recently.
Securing that funding is coming at a price. When credit was cheap, utilities could pay as little as 0.15 percentage points more than government bonds for their money. For Iberdrola, to take one example, that spread had rose to 3.5 percentage points this month.
As the cost of capital rises, expectations of future revenue are falling, as a result of weaker demand and the prospect of lower gas and electricity prices.
Some aspects of the credit crunch may help energy companies. Jürgen Grossmann, the chief executive of RWE, has argued the downturn is a reason for governments to support energy companies’ investment plans so they can create jobs. For RWE, which relies heavily on coal-fired generation, that would include protection from the impact of phase three of the EU’s emissions trading scheme, in which they are set to be forced to pay for all of their permits, penalising the use of coal.
Dieter Helm, energy expert at New College Oxford, argues that the crisis will also help to protect the big incumbent companies. “Quasi-national champions will be the bedrock of any investment strategy. In those circumstances, competition is bound to suffer,” he said.
However, he raises a prospect that it ominous for all European energy companies. Another EU target is to raise energy efficiency by 20 per cent by 2020; a measure that would cut both costs and carbon dioxide emissions. If that is successful, much of the demand that is disappearing during this downturn will never return.
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