Oil Energy Money

When Shell Pulled out of a consortium to build the London Array in May, further development looked doubtful for the world’s largest planned off-shore windfarm.

Now the remaining members of that consortium, German energy group Eon and Denmark’s DONG, have bought over Shell’s share and the first phase of the project is on track for completion by 2012.  Energy groups Centrica, Scottish Power, EDF and RWE Npower made first-round bids for Shell’s stake but  Eon and DONG won the bid to increase their stake from 33% each to a 50/50 split.

The fundamental question is, why bother? The duo must now shoulder $5bn of development costs, which have spiralled from an initial $3bn estimate three years ago.  Many considered Shell’s pullout a smart move, citing the increased raw material costs of turbine developments and better returns on similar American wind projects.  Even Mike Lewis, Eon’s managing director for Europe on Climate and Renewables, called the project’s economics ‘challenging’.

The 1000Mw development now seems like a public relations gesture more than a prudent energy investment.  Most firms are focusing on Britain’s nuclear possibilitie, providing greater amounts of energy with lower development costs. 

Paul Golby, chief executive of Eon UK, called the project’s economics “marginal at best”, a statement severly lacking the enthusiasm required for a complicated project such as the London Array.  Oil Energy Money would be happy to be proven wrong on this call, but Eon and DONG’s move seems like a case of throwing good money after bad.  Watch this space for further news on the project, be it apology or eulogy.