Ill wind blows turbines out of the water 

As the barge steamed away from the TAG Energy Solutions factory on the Tees, Stuart Oakley knew his company’s days were numbered. TAG specialised in making the 200ft-long foundation tubes for offshore wind turbines. On August 28, its last of its 650-ton tubes rolled off the line, destined for the Humber Gateway wind farm being built by energy giant Eon five miles off the Yorkshire coast.

Oakley, TAG’s former chief executive, did not have another contract to keep his workers busy.
“We knew that without another order we were looking into the eyes of administration,” he said.

The Gateway contract was TAG’s first and last. In September the company laid off its remaining 74 staff; last month it went into administration.

TAG’s demise is indicative of more than just a start-up running out of luck. It is an example of what industry sources say is a dawning reality that the government is loath to admit to: 13 years after the installation of the first offshore turbine in Blyth harbour in northeast England, the offshore wind industry is still struggling to take off. It may never.

This sounds counterintuitive. Thanks to billions in taxpayer subsidies, more wind turbines churn above British waters than in the rest of the world combined. But behind the headline a more nuanced picture emerges.

Siting wind turbines at sea is the priciest way to produce electricity. A modern gas-fired station of equal capacity can be built for one-fifth the price and run round the clock, unaffected by the uncertain nature of wind. Yet the Department of Energy and Climate Change put offshore wind power, with nuclear reactors, at the heart of its £200bn plan to replace fossil-fuelled power stations with cleaner alternatives.

These next-generation plants are wildly expensive but we will be compensated in three ways, the government has long argued.

One, Britain will slash its reliance on imported fuels and thus ensure greater “security of supply”; two, the revolution will bring with it a cornucopia of “green jobs”; and, three, carbon dioxide emissions will plummet.

All three promises now look shaky. Last week, National Grid revealed that going into this winter Britain has a “reserve margin” – a measure of the slack in the system – of just 4%, the lowest since 2007.

The squeeze has been created by the forced closure of polluting old plants and the unwillingness of industry to build new ones amid political meddling in the subsidies needed to underwrite them.

And what of all those green jobs? They certainly have not materialised in the way Gordon Brown envisaged when he predicted that 400,000 new posts would be created by Britain’s energy revolution.

For example, two-thirds of the £2bn spent on the soon-to-be-completed Gwynt y Mor project off Wales – the second-largest wind farm in the world after the London Array – went to foreign companies.

The environmental benefits, meanwhile, remain unclear. In 2009, 30% of Britain’s power came from coal, the dirtiest form of generation. A total of 48% was generated by gas plants. Wind accounted for 3%.

Today the industry’s carbon intensity doesn’t appear to have improved markedly, even if overall emissions have fallen in line with consumption. According to the trade body Energy UK, in September coal stations accounted for 34% of generation – four points up on five years ago – with 33% from gas and 3.2% from wind.

TAG’s collapse is poignant because of its heritage. For years it made subsea equipment for the oil and gas industry. The government’s apparent enthusiasm for offshore wind persuaded a pair of investors, Platina Partners and the Environmental Technologies Fund, to spend £20m in 2011 to overhaul it for the new age.

The high-flying policy has delivered far less on the ground. TAG specialised in foundations. Of the more than 5,500 wind turbines, onshore and at sea, that have been installed in Britain, the foundations of only 50 were fabricated here – including 16 TAG made for the Humber Gateway. The rest were shipped over from Germany, Holland and elsewhere.

Only this year did the government begin demanding at least 50% “UK content” as a condition of subsidy qualification. Oakley said: “Politicians can demand 50%, but there is no premium for UK content and they are not in a position to deliver on [that goal].”

Around the time TAG was undergoing its expensive overhaul, the Treasury had begun to take a keener interest in what the energy department was up to. George Osborne was alarmed at the cheques department mandarins were signing.

His solution was the levy control framework, which set a ceiling of £7.6bn on public funds available for subsidies for all renewable energy – solar and wind, biomass and geothermal – up to 2020.

Until now, offshore projects have secured deals guaranteeing them £155 or more for each megawatt hour produced – roughly three times the wholesale electricity price. The inflated rates were blended into household energy bills.

Led by the Treasury crackdown, the energy department has cut both the length of subsidy guarantees – from two decades to 15 years – and the level of support, from £155 per megawatt hour towards what will probably be about £140.

The aid cuts convinced several energy giants to slash their offshore plans or pull out entirely.

Centrica completed its exit from all new projects in July when the British Gas owner binned its planned £4bn Celtic Array off Anglesey. Last month, RWE Innogy abandoned its Galloper scheme off the Suffolk coast after its partner SSE pulled out, as well as three others, citing insufficient financial returns.

Mark Powell, head of energy at the consultant AT Kearney, said: “The Treasury seems to be losing its stomach for supporting large-scale offshore wind development. Given growing concerns around energy affordability and UK competitiveness, one must start to question the future of [the industry].”

Not everyone is baling out. In April the government identified five projects that will qualify for support. Together these have the capacity to power 3.1m homes and would cost about £10bn to build.

Beyond those the picture is less clear. The energy department last month released its “final budget notice”, in which it carved out just £235m for projects other than those already sanctioned. That leaves room for just one more farm.

There are still believers, however. Among them is Keith Anderson, Scottish Power’s chief executive, who last week opened the company’s £1.2bn West of Duddon Sands project in the Irish Sea. He said the half-dozen projects coming down the line are enough to ensure that the missing piece – a British supply chain – falls into place. “The pipeline of new wind farms is as big as the entire German offshore wind sector. If they can build an industrial base, why the hell can’t we?”

Siemens this year broke ground on a new turbine parts plant in Hull. If others don’t follow, the British wind boom will go down as a monumentally costly policy blunders.