Developer cancels offshore wind farm due rising costs and windfall taxes

A British onshore wind developer, one of the largest in Britain, has announced that it will stop developing its biggest project ever due to increasing costs and government windfall taxes on green energy.

Community Windpower received planning permission for a new onshore wind farm in Southern Scotland in August. The project will produce enough electricity to power approximately 350,000 homes, making it the UK’s fourth largest onshore wind project.

The Cheshire-based firm said that a 80 percent increase in development costs for the Sanquhar 2 project, from £300mn up to £550mn over the last two years, coupled with a new tax on clean energy generators , meant it was impossible to proceed.

The UK’s renewable energy sector has suffered a further blow after offshore wind developers halted projects, claiming that the UK Government had not done enough to account for rising costs.

Vattenfall, a Swedish developer, halted an offshore development in the North Sea, claiming that it was no longer feasible under the fixed price of electricity it had agreed upon with the government for July 2022 after its costs soared by 40%.

Rod Wood, the managing director of Community Windpower and its owner, stated: “We have run financial models. . . We can’t get the return that we need on our capital to cover bank financing requirements.

We’re forced to pause. This is a missed opportunity. Wind power is needed to provide energy security. All the pieces are in place. . . We can’t make this work unless economics changes.”

Sanquhar II was to be completed in 2026, approximately 50 miles south-west of Glasgow. It is the largest project for the company.

Last year, the government imposed a windfall on low-carbon generators of electricity following an increase in electricity prices caused by turmoil on the energy markets linked to Russia’s war against Ukraine.

Wood claimed that the windfall tax is a “huge obstacle” to new investments in the UK. He also accused the government of refusing to “[listen]” to warnings about the cost pressures coming from the industry. He said that the windfall tax was a “total policy failure” when compared to the urgent need for renewable capacity.

The government’s annual auction for contracts to support clean energy received no bids by offshore wind developers who warned that they were too low.

The cost of wind energy has increased for everything from cable to turbines to financing. Wind developers are particularly vulnerable to rising interest rates due to their high upfront costs.

The Ministers were sensitive to the requests of developers for financial incentives that could affect consumers during a period of high inflation.

Rishi Sunak, the prime minister, relaxed his plans last week to phase out fossil-fuel cars and boilers. He cited cost as an explanation, saying that “it is not right for Westminster impose costs so significant on working people”.

Electricity Generator Levy is a 45 percent levy that runs from January 20,23 to the end of March, 2028. It’s based on revenue from electricity sales above £75/MWh. The threshold will be indexated to inflation starting in April 2024. In the UK, the day-ahead price of electricity is around £96 per megawatt hour.

This applies to projects such as Sanquhar II that plan to sell electricity at market prices without government assistance.

Energy UK, a trade group for the energy industry, stated in June that this tax “[disincentivizes] the exact technologies that will help to insulate the UK against future energy price crisis”.

Community Windpower has threatened to sue government over the windfall tax, unless changes were made. They claim it is “discriminatory”, because it does not apply to coal and gas-fired power stations.

Wood refused to comment on the future of legal action.

The Treasury stated: “Continued investment by generators is vital to long-term security of energy and this levy leaves companies with a portion of the upside that they receive during times of high wholesale price.”