Tuesday, May 12, 2009

(Rewrites throughout, adds E.ON, UK Prime Minister quotes, detail.)

By Selina Williams

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--Partners in the world's largest offshore wind farm Tuesday gave the green light for EUR2.2 billion investment in the first phase of the London Array project off England's southeast coast, executives from German utility and partner E.ON AG (EOAN.XE) said.

The decision breathes new life into the project which had been on hold due to the credit crunch, weaker electricity prices and Sterling's falling value versus the Euro, E.ON executives said.

"The project has been borderline at various points," said Frank Mastiaux, Chief Executive of E.ON Climate and Renewables.

However, lower steel prices and the U.K. government's recent decision to increase the financial support for offshore wind have improved the economics of London Array, Mastiaux told reporters in a conference call.

"London Array wouldn't have been economic without this additional support," E.ON U.K. Chief Executive Paul Golby said on the conference call.

Onshore work for the eventual 1 gigawatt London Array project will start this year, with offshore construction beginning in 2011. London Array is scheduled to supply first power into the U.K. electricity grid from 2012, Mastiaux said.

Siemens AG (SI) will be supplying the turbines for the first phase, which will be for 630 megawatts. The investment decision for phase 2, which will take capacity up to 1 GW, will be made separately and is subject to delivery of phase 1 and further environmental study, E.ON said.

"The U.K. is a world leader in offshore wind farms, creating jobs and prosperity for the economy. That's why we have increased our support for this technology as we move towards a low carbon future," said U.K. Prime Minister Gordon Brown.

The U.K. government is counting on the development of around 33 gigawatts of offshore wind power to meet binding European Union targets to source 15% of its energy demand from renewables by 2020 from around 2% now.

But while the U.K. is currently leading the world in offshore wind with the most installed capacity, it's still a fledgeling industry with huge technical and financial challenges.

Denmark's DONG Energy A/S has a 50% stake in the London Array project to be built off the Kent coast. E.ON has 30% and the U.A.E.'s Masdar has the remaining 20%.

Company websites: http://www.eon-uk.com

http://www.masdar.ae

http://www.dongenergy.com

-By Selina Williams, Dow Jones Newswires; +44 207 842 9262; selina.williams@dowjones.com

(END) Dow Jones Newswires

12-05-09 1128GMT