The Crown Estate, the state agency that manages the British monarchy’s commercial real estate, is betting the U.K.’s drive for alternative energy will boost its revenue as bigger wind farms are built on its marine territory.
The Crown Estate will link the rent it charges developers to the price of electricity they sell, in addition to a fee for leasing the sites, Roger Bright, chief executive officer of the London-based corporation, said in an interview. His team is studying bids from 18 companies or groups including Germany’s E.ON AG in a third tender for wind parks on its property.
The U.K. is already the nation with the most offshore wind capacity and could build 25 gigawatts more in English and Welsh waters, on top of the 8 gigawatts already operating or planned, the government said June 24. That would curb energy imports and reduce carbon-dioxide emissions from power plants. Builders will tap subsidies for the power they generate to help recoup the additional 77.5 billion pound ($125 billion) development costs.
“Potentially for us, there’s a big prize while we actively promote and contribute in the area of renewable energy,” Bright said. The Crown Estate may pay up to 50 percent of the costs for bringing offshore sites to the point of investment, he said.
Building offshore turbines, which are costlier than land- based ventures, has become more expensive as the U.K. currency weakened in the past two years, according to a June report from the British Wind Energy Association. Tighter credit markets and lower power prices are also reducing their profitability.
Building Gigawatts
The association, known as BWEA, estimates construction costs at 3.1 million pounds per megawatt. At that rate, building the 25 gigawatts of capacity up for grabs in the Crown Estate tender would need an investment of 77.5 billion pounds.
The government is subsidizing the developments, which may capture stronger or more reliable winds than onshore equivalents and face less planning opposition. E.ON and partners said May 12 they would build the first phase of the London Array offshore wind facility that will be the world’s biggest when completed, after an increase in subsidies for some developments. It was awarded development rights in a Round 2 Crown Estate tender.
Britain has a target for 15 percent of energy supplies to come from renewable sources in 2020. It needs to cut carbon dioxide emissions by at least 34 percent from 1990 levels by that time.
Renewable Commitment
“What drives the scale is the government’s commitment to ensure higher proportions of electricity are generated by renewable resources by 2020,” Bright said.
The Crown Estate owns rights to more than half the British coastline, including parts of the seabed up to 12 miles off the coast and sections further offshore. The value of these assets appreciated by almost 11 percent to 409.5 million in the financial year ended March 31, while revenue rose 18 percent to 49.7 million pounds, according to earnings to be announced today.
The landowner is seeking a share of the revenue from wind turbines built on its marine territories. The previous two tender rounds for development areas fixed fees at 1 pound a megawatt hour for Round 1 and 1.07 pounds a megawatt hour for Round 2, spokeswoman Clare Lovett said in an e-mail. For Round 3, there will be an “ongoing link to the evolving value of the output electricity,” she said.
Paying Crown Estate
The terms for the current tender round include a so-called lease premium, which is a one-off payment to be made to the Crown Estate just before construction starts, and an overage payment in the event a project is sold before commissioning, Lovett said.
The corporation may contribute to expenses including feasibility studies and planning applications, Bright said in the interview. It will name the winners of the tender, narrowed down from 40 bids by companies based in nine different countries, by the end of the year. They will complete a zone- development agreement for one of the nine zones being tendered.
“Offshore has always been a bigger boys game,” Gordon Edge, the BWEA’s director of economics and markets, told reporters June 24. The Crown Estate, which saw projects for the first two rounds of tenders it held delayed by transactions, isn’t “going to give sites to small players for the most part because they are very focused on getting things delivered,” he said. “They want to give out sites to consortia that will deliver those projects.”
Two of the groups that have confirmed participation in the tender include Scottish & Southern Energy Plc, the U.K.’s second-biggest power producer. A third group includes E.ON, Dong Energy A/S and Fred. Olsen Renewables AS. Another is a joint bid from Vattenfall AB and Iberdrola SA.
