Thursday 1 May 2008

Shell ditches renewable stake amid fears of a retreat to carbons

The future of the world's largest offshore wind farm and a symbol of Britain's renewable energy future was thrown into doubt last night after it emerged that Shell was backing out of the project and indicated it would prefer to invest in more lucrative oil schemes.

Shell said the decision to sell its 33% stake in the £2bn London Array off the coast of Kent was part of an "ongoing review of projects and investment choices" and was not part of any major rethink about renewables versus other oil and gas projects.

But environmentalists will see the decision to drop one of only two renewable schemes being worked on by Shell in Britain as a further sign that the company is retreating back to hydrocarbons at a time when the price of oil has risen to about $120 a barrel.

Shell, which earlier this week reported first quarter profits of £4bn, has been selling off much of its solar business while moving more into Canada's carbon-heavy tar sands. The Department for Business said last night that a number of successful offshore wind projects had seen changes of ownership in the past "and we would therefore anticipate that the project will be able to proceed".

But Shell's partner, E.ON, expressed disappointment at the decision and made clear the project was now on a knife-edge. "While we remain committed to the scheme, Shell has introduced a new element of risk into the project which will need to be assessed," said Paul Golby, chief executive of E.ON UK.

"The current economics of the project are marginal at best - with rising steel prices, bottlenecks in turbine supply and competition from the rest of the world all moving against us."

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