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UK efforts to boost renewable energy have suffered a major setback after one of the country’s biggest offshore wind farm projects was halted due to surging costs.
Swedish energy group Vattenfall on Thursday said it had suspended development of its 1.4GW Norfolk Boreas wind farm after costs on the project rose 40 per cent.
Increased cost was putting “significant pressure on all new offshore wind projects”, the company said, adding that it would “not take an investment decision now” on the project and would book an impairment charge of SKr5.5bn ($537mn).
“What we see today, it simply doesn’t make sense to continue this project,” said Vattenfall’s chief executive Anna Borg.
The UK government is seeking to more than triple offshore wind capacity by 2030 — from about 14GW to 50GW — to help decarbonise the country’s electricity system.
Norfolk Boreas had been one of the biggest new projects in the offshore wind pipeline, set to help power 1.5mn homes. The wind farm was due to be the first out of three to be built by Vattenfall in the UK on the east coast, to power more than 4mn homes.
The wind industry has warned over the past few months that rising interest rates as well as turbine and labour costs have been putting UK projects at risk.
The British government last year awarded the Norfolk Boreas project a contract guaranteeing a fixed price of £37.35 per megawatt-hour for its electricity for the first 15 years, in 2012 prices and linked to inflation. Ministers celebrated a sum that was well below the ones agreed in previous years.
However, developers have argued that surging costs linked to supply chain problems in the wake of Russia’s full-scale invasion of Ukraine mean the projects may no longer be economically viable under these terms.
Vattenfall’s announcement is likely to heap pressure on the government which is in the process of awarding the next round of fixed-price contracts. Developers have already warned that the maximum price of £44/MWh in 2012 prices is also too low.
Mads Nipper, chief executive of Ørsted, the world’s largest offshore wind developer, told the The Washington City Times last month that it was “inconceivable” that UK projects were not struggling.
The other two Vattenfall projects may be able to get higher government contracts, meaning they could still go ahead, Borg said. “We will now look into the situation and find the best way forward for all these projects — the energy is desperately needed,” she said.