Wind power companies fear that rapid increases in capital costs are undermining the economic viability of offshore projects.

Renewables trade body the British Wind Energy Association (BWEA) said that offshore wind farm construction had gathered pace, matching that of onshore projects for the first time.

"But this progress has been accompanied by a sharp increase in capital costs which is a concern for continuation of that success story, with economic viability now a major barrier to deployment for offshore wind projects," said BWEA in its report UK Offshore Wind: Charting the right course which was published last week.

The report says capital costs are on average £3.1M per megawatt of capacity installed and that supply chain confidence is seen as a key factor in future costs.

Uncertainty about the sector's future

At present there are few suppliers in the market because there is some uncertainty about the sector's long term future. As a result new suppliers are reluctant to enter the market and those already working in the sector are able to charge a premium for their products and services.

Grid access, availability of capital, a cumbersome regulatory regime and a bottleneck in the supply chain were among other problems highlighted in a second BWEA report UK Offshore Wind: Staying On Track, also published last week.

It says that the "level of annual installation [of wind turbines] will remain inadequate to bring the industry to maturity...and provides limited potential for inward investment in facilities".

The report says that against the BWEA's 2007 forecast, the forecast delivery rate through to 2012 has held firm - due in no small part to the 2009 Budget proposals keeping a significant number of projects on track. BWEA now says that by 2015 the industry will be building 800MW less wind farm capacity than it had originally forecast in 2007.

The pace of offshore wind development is largely controlled by the Crown Estate, which owns the seabed around the UK. It has released sites for development in stages, with the contracts to develop the latest round of sites to be made available, Round 3, to be awarded this Autumn.

Round 3 builds on the 8GW of offshore wind farm projects currently under development and to be delivered by rounds 1 and 2 of offshore wind farm development.

If successful, the addition of 25GW from Round 3 would lead to a potential total of 33GW of wind energy coming from offshore wind resources.

However, from discussions with developers, BWEA said the drop in installation rate appears to be a result of three factors:

* Future rounds coming into play later than previously expected:

* Round 2 delivery having a longer tail than previously foreseen with BWEA's projections having around 1.5GW of Round 2 capacity remaining to be built after 2015;

* Project rated power not reaching nominal levels, with Round 2 falling around 1GW short of the nominal figures announced in the Crown Estate leasing process Green Party leader Caroline Lucas said the government must act to speed up delivery.

"We need urgent government commitment and serious government funding to make sure Britain's wind industry can reach its full potential to help tackle climate change."