Axing of Celtic Array teaches us three things


August 1, 2014

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British Gas owner Centrica last week set out a manifesto for how to solve the UK’s energy crisis. It said the UK should stop building pricey offshore wind farms.

So it comes as no surprise that the company’s half-year results yesterday revealed it has scrapped plans to develop the Round 3 Irish Sea zone. The utility was planning to develop capacity of 4.2GW in the area in the 50:50 joint venture Celtic Array with Danish developer Dong Energy. The first project proposed in the area was the 2.2GW Rhiannon wind farm, but no longer.

The partners said they have stopped activity due to difficult seabed conditions, which make the project financially unviable. Seabed landlord the Crown Estate has agreed with Celtic Array’s assessment of the site, and said it has no plans to re-offer the zone to the market but it may do so in future as technology improves.

Such a site assessment could hardly be better for Centrica given its change of heart about offshore wind farms. Given the company’s proclamations on offshore wind last week, it was always likely to want some reason to scrap Celtic Array.

The positive spin is that at least this heads off any uncertainty.

The utility’s change of heart on offshore wind is understandable. It is partly driven by a sense of injustice about being blamed for rising energy bills. Its manifesto last week blamed Government policies for the rising bills, which it said are the result of the Government’s focus on green energy sources.

The company reported that scrapping the plans had cost it £40m, principally in writing off the total book value of the project, and this drove its renewable business to an operating loss in the first half of 2014. This is a small sum for Centrica seeing as its total operating profit for the first half of this year came in at more than £1bn.

There are some lessons we should take away from Celtic Array.

First, it shows that if the UK Government really does want a major programme of offshore wind development by 2020 then it must tread carefully. It is tough to give utilities a public kicking over rising energy bills and then expect them to toe the line on green energy. You can’t force someone built a project that they don’t want to.

Second, it is a reminder for investors about how tough it is to get projects through the planning system. There are many challenges — environmental, technological, financial, political — to get schemes built, and the seabed is one. Offshore wind is maturing, but many of these big headline-grabbers are still expensive gambles.

And third, it highlights the folly of basing the future UK wind solely on offshore. It makes little sense to be so hostile to schemes on land given the challenges out at sea. And, let’s not forget, the offshore industry is reliant on a handful of large firms. But Centrica is now not one of them.

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