Credit crunch threatens to sink Portuguese wave energy project

The world's first commercial wave energy project is on the brink of collapse after its main backer went into administration last week, casting doubt over the future of a project that has already been dogged by technical problems.

The Aguçadoura project was a joint venture between Edinburgh-based Pelamis Wave Power, Australian energy developer Babcock & Brown, Energias de Portugal (EdP) and Portuguese electrical engineering firm Efacec.

But Australian-listed investment specialist Babcock and Brown, a majority investor in the £7m project, which as part of a consortium with EdP and Efacec holds a 77 per cent stake, was placed into voluntary administration last week, casting doubt over the future of the scheme.

The consortium successfully installed three of Pelamis' snake-like wave generators three miles off the north coast of Portugal last autumn, hailing the project as the first commercial wave energy project to provide power to the grid.

But in mid-November, all three generators were removed from the water because of leaks in the buoyancy tanks. Further technical problems have followed and cannot be repaired until a new backer is found to replace Babcock and Brown. The units are currently sitting idle in Leixões harbour.

Max Carcas, spokesman for Pelamis, told the Guardian newspaper that the technical problems were not serious and would be relatively easy to fix once an investor is found.

"In a project of this nature, the world's first wave energy plant, it's inevitable that there will be niggles and issues to tackle," he said. "We have had nothing that isn't expected."

However, he admitted the project was currently "in a state of limbo" while the company seeks to raise fresh financing.

Despite the setback, Pelamis' technology is continuing to attract interest from customers. Last month, energy firm E.ON placed an order with the company for its next generation of converters, known as the P-2.

The P2, which is 180m long, 50m longer than the devices in Portugal, will be installed at the European Marine Energy Centre in Orkney and will be fully operational by 2010.

E.ON told the Guardian that despite the problems with the Portugal project, the Orkney installation was likely to go ahead.