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United Kingdom

Investors line up for London Array -- Shell abandons flagship project

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Global media coverage of Shell's decision to put its interests in the world's largest offshore wind project up for sale is understood to have generated interest from a number of unexpected quarters wishing to buy its stake in the project. Shell announced at the end of April that it was to dispose of its shareholding in the 1000 MW London Array project in the outer Thames estuary off England's east coast.

Shell is one of three joint venture partners in the project with E.ON UK and Denmark's Dong Energy. The global oil company claims the decision to abandon the offshore wind project comes after a routine review of investments "focusing on capital discipline and efficiency." Shell adds that its focus for new wind projects is in the United States where it can leverage its business development, project management and power trading skills and take advantage of government incentives to deliver competitive returns.

E.ON's chief executive, Paul Golby, does not hide his annoyance in his reaction to Shell's announcement. The company is "very disappointed, he says. "While we remain committed to the scheme, Shell has introduced a new element of risk into the project which will need to be assessed." The economics are marginal at best, he says, "with rising steel prices, bottlenecks in turbine supply and competition from the rest of the world all moving against us." Some delay to the project is inevitable now, adds Golby.

The London Array consortium, having secured all necessary consents, was in the midst of the procurement process and about to evaluate tenders for the major construction contracts when Shell dropped its bombshell. The company says it is continuing to support London Array through the procurement process by allowing its staff to continue working on the project.

Although Shell has come in for some sharp criticism for its decision, the publicity has brought the project to the attention of a large number of prospective buyers. A source reveals that Shell has received some unsolicited expressions of interest from unexpected areas. Some observers, however, believe it would be preferable for E.ON and Dong to buy Shell's stake, rather than bringing in a third party at this late stage who is unfamiliar with the project.

Olympics hope

A further stakeholder who has an interest in keeping the project on track is the UK government, which had been hoping London Array would be up and running in time to boost the country's green credentials by 2012, the year that Britain is to host the Olympics. Environment minister Hilary Benn told the House of Commons that Shell's decision was "very disappointing." Many people would want to understand why it is to sell up, "especially in a week in which the company has announced record profits." The government has given, and will continue to give, full support to the project, he said.

The British Wind Energy Association (BWEA) is at pains to stress that Shell's decision to quit London Array is part and parcel of developing large scale projects. "This is business as usual," says the BWEA's Maria McCaffery. Consortia come together and then often re-group at various stages of wind farm development, she says. "This is common practice in the wind industry and has happened many times already both offshore and onshore."

BWEA maintains that the economics of offshore wind remains sound. Share prices for renewable energy companies are climbing fast and project valuations reaching new records, the association points out. The sector is seeing investor interest reach all time highs. McCaffery adds: "While it's easy to understand the frustration from the other scheme partners at the delay this announcement will cause, the fundamentals of the project and the wider industry haven't changed. We expect to see a great deal of industry interest in taking over Shell's share in the London Array."

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