Centrica threatening to pull plug on £2bn offshore wind farm plan

British Gas owner Centrica prepares to abandon £2bn offshore wind farm plan because subsidies offered by the government are too low.

Centrica is preparing to abandon a £2bn offshore wind farm project because subsidies offered by the government are too low.

The British Gas owner will not build the Race Bank wind farm, 17 miles off the north Norfolk coast, unless proposed subsidies are significantly increased, three sources told The Telegraph.

Ministers will not confirm final subsidy levels until December but are thought unlikely to increase draft prices enough for the project, which Centrica said could power 450,000 homes, to go ahead.

The move will raise fresh doubts over the future for the offshore wind industry, which ministers publicly insist they want to see developed.

They have privately indicated that they are happy to see some planned wind farms scrapped because they believe some companies, such as Centrica and its unnamed financial partner for Race Bank, are demanding too high returns.

Subsidies for wind farms will be paid for through levies on consumer energy bills, just as ministers are attempting to reduce such “green taxes” that companies, including Centrica, have blamed for pushing up household energy bills.

British Gas raised prices by 9.2pc last month and defended its right to make a 5pc post-tax profit, the highest of the Big Six suppliers, so as to fund investments.

“We believe these are fair profits, funding investments in UK energy infrastructure and securing future energy supplies for the UK, keeping homes warm and keeping the lights on,” the company said.

Its probable abandonment of Race Bank would, however, be its third high-profile withdrawal from planned UK investments on the grounds that subsidies footed by consumers were too low.

In February, it abandoned its 20pc stake in EDF’s planned Hinkley Point nuclear plant, writing off £231m, after complaining the returns were not attractive given the timescale and high cost. EDF last month agreed a subsidy deal for the project that analysts say could yield £1bn a year in pre-tax profits.

In September, Centrica wrote off £240m for planned gas storage facilities, which it had argued should be subsidised to avoid price spikes when supplies ran low.

Michael Fallon, the Energy Minister, rejected the claim, telling The Telegraph at the time: “I am not prepared to see fuel bills rise further just to give Centrica additional subsidy.”

Centrica had planned to invest up to £200m of the Race Bank project with partners funding the rest. It opened talks with the government about terms of a subsidy deal earlier this year.

In May, chairman Sir Roger Carr warned: “If the Government wish to have as part of their mix the renewable wind offshore, there is a price for that. We are happy to deliver the product provided we get the return that is reasonable. If we do not get the return it is not something, like nuclear, we can contemplate.”

In June, ministers unveiled the proposed levels of subsidies for offshore wind farms for the rest of this decade, which the company believes are too low.

Under the plans, wind farms that begin operating in 2014-15 will be offered £155 for every megawatt-hour of power they generate over a 15 year contract, about three times the market price of electricity, with the difference paid for in subsidies.

The subsidised price would fall 10pc to £140/MWh for projects starting up in 2017-18 and £135/MWh the year after.

The Committee on Climate Change, the government’s official adviser, said in September that the cut was too steep and the plans would “put required investment at risk”.

It said investors were also spooked by suggestions ministers envisaged as little as 8GW of offshore wind would being running by 2020, compared with previous plans for as much as 18GW, up from 3.3GW now.

Mr Fallon told The Telegraph this weekend that he was still reviewing consultation responses over the draft subsidy levels and could yet increase them, but that some wind farm developers were happy with the existing plans.

Centrica began planning Race Bank in 2004 and was granted consent for the project from the Department of Energy and Climate Change in July 2012. It had hoped to take a final investment decision early this year but said last month that any decision had now slipped into 2014.

Its plans for another offshore wind farm were rejected because it would have killed too many Sandwich terns.

Centrica declined to comment.