Centrica Secures Final Investment Approval for 270-Megwatt U.K. Offshore Wind Power Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Integrated energy firm Centrica plc (OTC:CPYYY) (Windsor, England) announced that it has received final investment approval for the £725 million ($1.2 billion), 270-megawatt (MW) Lincs offshore wind power project and expects to begin project construction in 2010. With commercial operations expected to commence by the end of 2012, the windfarm will provide electricity to 200,000 customers of Centrica subsidiary British Gas (Windsor).

Originally proposed by Renewable Energy Systems Limited (Kings Langley, Hertfordshire), the Lincs wind project was acquired by Centrica in 2003. In October 2008, the firm received official consent from the U.K. government to proceed with the project. The facility will consist of 75 turbines of 3.6 MW each supplied by Siemens AG (NYSE:SI) (Munich, Germany), and will be located eight kilometers off the Skegness coast in Lincolnshire. The project is expected to reduce carbon-dioxide emissions by 300,000 to 710,000 tons per year. Centrica will also invest an additional £229 million ($378.3 million) in the development of offshore electricity transmission assets to bring the wind farm online.

The Lincs project will be eligible for two Renewable Obligation Certificates (ROCs) for each megawatt-hour (MWh) of power produced. Under the Renewable Obligation scheme, power suppliers in the U.K. are obliged to sell an increasing proportion of electricity from renewable sources. The accredited power producer and the licensed electricity supplier receive an ROC for every MWh of eligible output generated from renewable sources. Electricity suppliers that do not accumulate a sufficient number of ROCs to meet their obligations are required to pay an equivalent amount into a fund that is distributed on a prorated basis to the suppliers that have presented sufficient ROCs. Electricity suppliers in the U.K. will be subject to the Renewable Obligation scheme until March 31, 2027.

The British government plans to have 10,000 wind turbines installed in the country by 2020, with plans to generate 15% of energy from renewable sources by this time. In an attempt by the government to render renewable energy projects feasible, power generated from these projects command a premium over base load electricity prices.

In another development, Centrica is selling equity stakes of 50% each in three wind power assets: the 97-MW Lynn offshore windfarm and the 97-MW Inner Dowsing offshore windfarm in Lincolnshire, and the 26-MW Glens of Foudland onshore windfarm in Scotland. The facilities will be sold to U.S.-based investment company, TCW (Los Angeles, California), in a cash deal of £84.4 million ($139 million). The deal is part of the firm's strategy to sell stakes in wind power assets and raise funds for investments in gas storage projects, offshore windfarms, and new nuclear power ventures.

Centrica will earn profits of about £50.3 million ($82.9 million) from this transaction, which is expected to be completed by the end of the year. The firm has also secured non-recourse project finance of £342.3 million ($563.6 million) from a consortium of 14 banks for the three assets, and expects to attain financial closure in November this year. Centrica and TCW will also enter into a joint venture agreement governing co-ownership of the three windfarms. Centrica will sign a 15 year power purchase agreement to sell electricity generated from these windfarms and 50% of the ROCs to its subsidiary British Gas.

The Lynn and Inner Dowsing windfarms together comprise 54 turbines of 3.6 MW each. The two windfarms are capable of supplying clean electric power to about 130,000 homes and reduce carbon-dioxide emissions by 500,000 tons per year. The projects were fully commissioned in March this year. Centrica acquired the Glens of Foudland windfarm from RES in 2004, and began commercial operations in May 2005. It comprises 20 Siemens turbines of 1.3 MW each.

Centrica also operates the 72-MW Braes of Doune wind power plant in a 50:50 joint venture with Scottish and Southern Energy plc (OTC:SSEZY) (Perth, Scotland), and the 90-MW Barrow wind power project in another 50:50 joint venture with Dong Energy (Fredericia, Denmark). The firm has also submitted applications for the development of the 620-MW Race Bank and the 540-MW Docking Shoal wind power projects.

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