The UK’s efforts to promote renewable energy suffered a major blow after one of its largest offshore wind farm projects, which was stopped due to rising costs, was cancelled.
Vattenfall announced on Thursday that it had suspended construction on its 1.4GW Norfolk Boreas project after the cost of the project increased by 40%. The Swedish energy group planned to build three wind farms in the UK, with an investment total of approximately £10bn to £11bn.
Vattenfall CEO Anna Borg said, “What we’ve seen today makes it impossible to continue with this project.”
The company said that increased costs were putting “significant stress on all new offshore projects”. It stated that it “would not take an investment decision at this time” regarding Norfolk Boreas, and would book a impairment charge of SKr5.5bn (537mn).
This is a blow for the UK’s efforts to triple the offshore wind capacity from 14GW to about 50GW by 2030, in order to decarbonise its electricity system.
Carbon Trust, a net zero independent consultancy, warned that it could signal the beginning of a crisis for the UK offshore wind industry. It said: “We’re at a turning point. Policymakers need to take notice and act quickly to prevent further wind farms and developers from following the same path.”
Vattenfall made its move as Rishi Sunak’s government delayed a decision on relaxing rules that hinder new onshore wind farm construction until the fall. Both onshore and off-shore wind farms, say supporters, are needed to reach net zero.
Norfolk Boreas was one of the largest planned offshore wind project in the country, with 140 turbines to provide power to up to 1.5 million homes.
Vattenfall’s three planned wind farms off the east coast of the UK would generate enough electricity for more than 4 million households.
Developers have been saying for months that projects that had low electricity rates locked in have become uneconomical due to rising costs of items like wind turbines, and supply chain issues after the Ukraine war.
reported that Vattenfall and Denmark’s Orsted, as well as other wind farm developers, were seeking tax breaks or subsides in response.
Vattenfall announced its decision after the UK promised approximately £500mn as subsidies to India’s Tata Group in support of a £4bn factor for battery-powered electric vehicles.
Kemi BADENCHOT, ‘s business and trade minister, wrote that “those who still believe in a semblance a of free market” are “competing against countries willing to offer eye-watering amounts to lure business away from their shores”. This was an apparent reference the US Inflation Reduction Act, which is worth $369bn.
Last year, the British government guaranteed Norfolk Boreas prices that are linked to inflation over a period of 15 years. Prices will start at £37.35/megawatt-hour at 2012 prices.
In July 2022, the development was awarded one of five offshore wind farm contracts at this price. Ministers welcomed the auction at the time for its sign of falling costs.
Kathryn Porter, a consultant at Watt-Logic, argues that the contracts for July 2022 ignore the “economic realities” of the cost pressures which were already evident. She said that there was no reason to lower the price for last summer.
Vattenfall’s announcement will likely put pressure on the government as it is currently awarding fixed-price contracts for the next round. Developers already claimed that the £44/MWh price in 2012 was too low.
The Department of Energy stated that it was listening to the concerns of companies.
The government has already switched to annual price auctions in order to “boost further investment and increase developer’s confidence”.
Mads Nipper was last month “inconceivable”, that UK offshore wind projects weren’t struggling.
Borg stated that the two other Vattenfall project could be eligible for higher government contracts. This would mean they can still proceed. She said, “We’ll now investigate the situation to find the best possible way forward for these projects. The energy is urgently needed.”