Shell set to sell off stake in London Array

The UK government has today attempted to downplay concerns that the future of the world's largest planned offshore wind farm is at risk after it emerged oil giant Shell is set to pull out of the project.

Shell confirmed today that it has taken a "strategic decision to look at disposing of its shareholding in the London Array", the recently approved £2bn offshore wind farm that is expected to provide 1,000MW of clean energy, enough renewable power to meet the needs of a quarter of London's homes.

The company's partner in the project, E.ON, expressed disappointment at Shell's decision to try and sell its 33 per cent stake, adding that "some delay to the project is now inevitable".

Dr Paul Golby, chief executive of E.ON UK, said that the company remained committed to the project, but admitted that "Shell has introduced a new element of risk into the project" which will now need to be assessed by both E.ON and its joint venture partner, Danish company DONG Energy.

"The current economics of the project are marginal at best," he added. "With rising steel prices, bottlenecks in turbine supply and competition from the rest of the world all moving against us."

However, a spokeswoman for the Department for Business, Enterprise and Regulatory Reform (BERR) insisted that the government remained confident that the project would continue.

"A number of successful offshore wind projects have changed ownership in the past, and we would therefore anticipate that the project will be able to proceed," she said, adding that the government was committed to supporting the project through additional financial incentives for offshore wind and efforts to making connection to the grid easier.

She also insisted that the prospects for the UK's embryonic offshore wind sector remained upbeat. "We have announced plans to open up the UK's seas to a massive expansion of offshore wind - enough to potentially power the equivalent of every home in the UK by 2020 - three new offshore wind farms are due to be completed by the end of this year and we will shortly become the leading country in terms of offshore wind operating capacity," she said.

Shell is likely to be roundly criticised by environmentalists who have recently accused the company of exploiting rising oil prices to back track on its commitments to the renewables sector while ramping up investment in Canada's carbon intensive tar sands.

A source in the wind industry said that Shell's commitment to the London Array had always been "qualified", and that industry figures had been expecting it to ditch the project for sometime.

However, a spokeswoman for the oil giant – which this week announced record profits of £7.2bn - insisted the move should not be interpreted as a retreat from the alternative energy sector, noting that the company remained committed to 11 wind energy projects in the US and Europe and also boasts interests in biofuels, second generation solar technologies and hydrogen fuel cells.