For the first time in recent history the UK is now consuming more energy than it is able to produce. Over the next 20 years natural gas reserves will become depleted and the UK will become increasingly dependent upon imported energy. This increased dependency on imported energy and the December 2007 announcement of a Strategic Environmental Assessment (SEA) to examine additional UK offshore wind energy generation capacity may be responsible for many of the recent investments in existing and new wind energy initiatives in the UK. In addition the Climate Change Bill to be debated in the House of Commons this week will commit the UK to cutting greenhouse gases by 80 per cent by 2050. An amendment put down by the UK Government will also require all companies to publicly reveal their greenhouse gas emissions by 2012. In recent years attractive subsidies and high electricity prices have turned Britain’s onshore wind farms into extraordinary profit centres, with a single turbine capable of generating significant profit per year. According to new industry figures, a typical 2 megawatt (2MW) turbine can now generate power worth £200,000 on the wholesale markets.

The lucrative outlook has led to a surge in planning applications for new wind farms. According to the British Wind Energy Association, there is currently 2,727 MW of operational onshore and offshore wind farms with an additional 2,022 MW under construction. Onshore wind farms outnumber offshore wind farms by a factor of 26 to 1 and by a factor of 6 to 1 in terms of operational energy capacity. However, it is the number of consented projects and the number of projects in planning phases that truly express the enormous increase in wind energy capacity the UK faces in the coming years. It is estimated that there are currently 122 consented projects, accounting for some 6,251 MW and an additional 8,680 MW of planned projects.

The emergence of a significant number of wind farms also presents some opportunities, and a recent study by Stanford University confirmed that interconnected multiple wind farms can be used to provide baseload electric power. Interconnecting wind farms with a transmission grid reduces the power swings caused by wind variability and makes a significant portion of it just as consistent a power source as a coal power plant. On a large enough scale, wind power energy can be used as reliable electric power source.

But the increased numbers of wind farms are not without their challenges. Principal among these are the issue of operating inefficiencies and claims of extensive and expensive builds as a result of excessive subsidies. In fact the availability of generous subsidies has been one of the principal reasons for the significant increase in planning applications and the development of some sites where the wind resource is very weak and the environmental impact severe. At a time when costs and emission charges associated with traditional power stations are under scrutiny, the issue of whether wind energy is too inefficient to replace fossil fuel power stations needs to be examined. Even with modern turbines, wind farms are unable to operate at full capacity because of the unreliable nature of the wind. The question then is whether winds farms give good value for money and if the incurred costs are reasonable when one considers the returns or the added costs consumers are asked to carry. The reality is of course, that wind farms are a new technology and like all new technologies face challenges and significant start up costs. In addition there is the added business overhead of taking on the fossil fuel industry and the traditional power plants while all the while trying to create something that can make a real difference to the climate change challenge. In the case of the UK, its investment in wind farms is timely with production from UK oil and natural gas fields having peaked in the late 1990s and declining steadily over the past several years, a situation likely to be experienced by other countries in increasing numbers over the next decades.

Vattenfall AB, one of the largest electricity generators in Europe, recently made an offer for the entire share capital of Eclipse Energy UK PLC. It follows Vattenfall AB’s acquisition of AMEC Wind Energy Limited, a major UK developer of commercial wind farms in early October 2008. This move enables Vattenfall to expand its presence in the UK market and to take an active role in the UK’s third licensing round for offshore wind development. Round 3 follows a December 2007 announcement by the Secretary of State for Business Enterprise and Regulatory Reform on the commencement of a Strategic Environmental Assessment to examine 25GW of additional UK offshore wind energy generation capacity by 2020. This follows the 8GW planned for Rounds 1 and 2. Offshore wind energy is expected to provide a large share of the UK’s renewable electricity and the EU renewable target to source 20% of Europe’s energy from renewable by 2020.

The completion of a 194MW wind farm off the coast of Lincolnshire sees the UK become the world leader in generating electricity from offshore wind. Offshore wind accounts for about 20% of the UK’s electricity from wind. In recent years there has been a steady increase in the number of companies who have made significant investments in UK wind farms. Much of this investment has been possible because of generous UK government subsidies. To meet EU targets for renewable energy, the Government has subsidised the wind turbine industry by half a billion pounds. Under the Renewables Obligation Certificate Scheme (ROCs) companies that meet green energy targets receive Government cash. The subsidies are only paid per unit of electricity supplied to the National Grid and not for the building of wind farms. But the subsidy is one of the most generous paid for any commodity and the wind power industry in the UK and in other countries has benefited significantly as a result. The subsidy is considerably greater than that received by coal generation plants and has in some part contributed to an increase in electricity prices to all consumers, whether or not they subscribe to a green tariff. In fact it could also be argued that without the subsidies, many of the wind farms would not even be built. Given the level of subsidies available for wind generated electricity and the challenges wind limitations presents for wind farm operators, some it could be argued from the poor positioning of wind farms, the question of whether wind farms provide value for money is an obvious one. From the perspective of the investors and operators, the favourable market conditions created as a result of the ROCs make it an attractive investment. At a time of financial uncertainty in traditional markets, energy companies and wind farm companies in particular now appear a rather attractive investment opportunity.

From the perspective of the end user the subsidies ultimately come from consumers in the form of rising energy prices, and this on top of recent increases in gas and electricity prices. There is a cost for installing wind power and ultimately reducing the dependency on imported energy, but the cost must take account of all the issues including the cost of wind power generation, the continued cost of maintaining traditional power plants to support wind instability and ultimately, the increased costs passed onto consumers. Gordon Brown, the UK prime minister, recently unveiled a £1bn energy package plan. The energy efficiency measures aim to help low-income families cope with soaring utility bills by making long-term savings. The energy package is being funded by the "big six" energy companies operating in the UK. It would be interesting to examine how many more energy package plans will be needed to offset increasing utility bills and to understand what proportion of the utility bill increases are a result of energy subsidy schemes. Ultimately the main reason for installing wind power is that it will save carbon dioxide (CO2) emission and consequently reduce the rate of Global warming. And that in the long term makes them the right investment option.