Political disarray forces postponement -- Offsore 120 MW stymied

Uncertainty about tax regulations has led to a one year delay in the construction of the Dutch Q7-WP 120 MW offshore wind farm, which has been set back to 2004, says Mathieu Kortenoever of project initiator E-Connection. The delay in the Netherlands' only true offshore project is due to the government's failure to rule on its eligibility for accelerated depreciation on environmental investments, a tax break known as VAMIL.

The issue at stake is whether a wind farm in the Netherlands' offshore economic exclusion zone qualifies for the tax break. "Our lawyers and the lawyers of Fortis Bank, who are arranging the finance, all agree that it should qualify -- and oil and gas platforms in the zone can claim VAMIL -- but with an investment of this magnitude, we have to be absolutely certain about the tax position," says Kortenoever.

"We first asked the finance ministry for a ruling on whether a wind farm in the exclusive economic zone would be eligible under this scheme way back in July 2001," he continues. As yet, however, the ministry has not replied. "First we were told to wait until after the elections in May, and now our request seems to have been lost on the minister's desk."

The delay has caused the consortium -- which includes Vestas, electrical engineering giant ABB and maritime contractors Smit Transport -- to miss the deadline for ordering the undersea cables and high voltage gear, says Kortenoever. "This material has lead times of 12 to 14 months, and without being sure we would have those components in the North Sea on time, we couldn't be certain that the project would be completed by the end of the working season." Construction has been postponed until April 2004.

Worst case scenario

The contracts stipulate that the wind farm must be operational by December 2004 or forfeit the VAMIL claim. "Meeting the construction deadline won't be a problem, but we have got to get the ruling. If we get a negative ruling, we will appeal because we are very certain of our case," says Kortenoever. "But what they are doing at the moment is the worst possible scenario -- they are just not answering." The issue is further complicated by the suspension of VAMIL in September by the now dissolved new government, though since Q7-WP contracts were all signed before then, Kortenoever says investors still get the tax break.

Once completed the Q7-WP, consisting of 60, Vestas 2 MW units 23 kilometres off the Dutch coast in water depths of 20-25 metres, is expected to produce power for around 142,000 Dutch households, boosting current annual domestic wind energy production by around 25%.