(Adds comments from companies and UK govt, background)
LONDON (Thomson Financial) - German energy group E.ON and Danish utility Dong Energy have agreed to acquire Royal Dutch Shell's 33 percent stake in the 1,000-megawatt wind farm project in Britain, known as London Array, for an undisclosed sum.
The pair, each owning a one-third stake in the project currently, are to become 50-50 partners in London Array which, once finished, could supply electricity to over 750,000 homes.
'We hope to be able to keep the project on track and we should be able to complete the first phase by the end of 2012, subject to securing a number of important contracts, such as those for the wind turbines,' said Paul Golby, chief executive of E.ON UK.
Both E.ON and Shell declined to provide the financial terms of the transaction.
London Array is considered to be the world's largest offshore wind proposal. Shell has committed to leave its staff in the project until the end of the year to enable a smooth transition and handover.
The project consists of up to 341 wind turbines to be built off the Kent and Essex coasts. It hopes to avoid emissions of over 1.5 million tonnes of carbon dioxide each year once.
Britain's Energy Secretary John Hutton welcomed the deal, saying 'it is great news that E.ON and Dong Energy will be taking this exciting project forward together'.
'It will play an important role in our ambition to dramatically increase the amount of energy we get from renewable sources. And it will provide enough clean, green energy from our own shores to power a quarter of the homes in central London,' he said.
Shell decided to withdraw from the project in May following a strategic review of the business. It did not say the reason behind the move but many analysts believe soaring costs were one of the major factors.
Industry-wide cost inflation brought about by the oil price boom boosted the cost of the project, which is now worth over 2.5 billion pounds, way above the consortium's original estimate of around 1.5 billion pounds three years ago.
Mike Lewis, E.ON's managing director for Europe on Climate and Renewables, said the economics of the project remain 'challenging'.
Nevertheless, 'we believe this flagship project will give us invaluable experience as we go forward with the next generation of offshore projects. That means that we can take the lessons we learn from London Array for future projects that are further offshore and, potentially, even larger,' he said.
E.ON plans to invest 6 billion euros in renewable energy projects worldwide by 2010.
Some of the major utilities, including Centrica, Scottish Power, France's EDF and RWE Npower, made first-round bids in an auction run by Dresdner Kleinwort, reported the Sunday Times. monicca.egoy@thomsonreuters.com mbe/jlc COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.