Iberdrola to slash UK wind investment 40 per cent

The government's wind energy plans have received a major blow after the world's biggest investor in wind power, Spanish energy giant Iberdrola, announced it was to cut its investment in the UK by £300m.

According to The Times reports, the company is to cut its budget in the UK by 40 per cent, equivalent to the investment required to build a wind farm capable of powering 200,000 homes.

Xabier Viteri, chief of Iberdrola Renewables, whose Spanish parent company owns ScottishPower, told the newspaper that the decision was the result of the economic crisis. But he added that problems specific to the UK could force the company to invest in wind projects in other countries as an alternative.

The move is the latest in a series of blows to the UK's wind energy programme that have undermined the credibility of the government's claims that the country is an attractive location for renewable energy investment.

Both BP and Shell have pulled out of projects in the UK in the past year arguing they can achieve better returns elsewhere, while the backers for the planned £3bn offshore wind farm in the Thames Estuary have also warned that the economic case for the project is looking increasingly "marginal".

Industry insiders are concerned that a combination of tightening credit conditions and the impact of the weak pound on the cost of importing turbines from Germany and Denmark could lead to more project postponements throughout this year.

The move will crank up pressure on the government ahead of next month's budget when representatives from the industry are expected to call for some form of rescue package, most likely built around loan guarantees and other mechanisms to improve project financing.

Duncan Ayling of the British Wind Energy Association told The Times that the sector needed "strategic leadership from the highest levels", adding that "we are only going to do this if the government is brave enough to tackle these problems head on".

He also called for the formation of a Cabinet-level sub-committee to help ensure the government's target of delivering 33GW of offshore wind energy by 2020 is met.

The reports came as energy minister Mike O'Brien today told a meeting of the Renewable Energy Association that the government remained fully committed to supporting the renewable energy industry, hinting that it would seek to increase support for the embattled sector.

Arguing that the government had already changed the planning laws and increased support for the sector in an attempt to accelerate development, he added that it was "fully aware of the investment challenges facing some parts of the industry" and was looking at how it could help alleviate the impact of the downturn.

"We are examining how we can help ensure there is sufficient finance and other support available for viable projects which are short of the investment they need," he said. "We are determined to meet the targets for 2020 that we have set out and having passed Denmark as the leading country for offshore wind, and trebled renewables in the last five years. We believe that with the right decisions, we can see the continued growth in the renewables sector that we need."