Vattenfall has halted development of the 1.4GW Norfolk Boreas offshore wind farm after seeing costs rise by up to 40% due to recent global events.
Industry figures said the “shock news” should provide a “wake-up call” for ministers who must act now to ensure the success of upcoming Contracts for Difference auctions and prevent other low-carbon energy projects from suffering a similar fate.
Vattenfall made the announcement in its financial results for first six months of 2023. The Swedish energy firm said its earnings were impacted by a 5.5 billion Krona (around £420 million) impairment on the Norfolk Boreas project.
“Higher inflation and capital costs are affecting the entire energy sector, but the geopolitical situation has made offshore wind and its supply chain particularly vulnerable,” said Vattenfall president and chief executive Anna Borg. “Overall, we see cost increases up to 40%.”
She continued: “We have decided to stop the development of Norfolk Boreas in its current form and not take an investment decision now due to mentioned factors, which triggers the impairment. We will examine the best way forward for the entire Norfolk zone, which in addition to Boreas also includes the Vanguard East and West projects.”
Norfolk Boreas was one of several offshore wind farms to secure Contracts for Difference at a record low strike price of £37.75/MWh (2012 prices) in the fourth allocation round, the results of which were released in June 2022.
Writing on Twitter, Cornwall Insights senior modelling consultant Tom Edwards said a 40% cost increase would mean Vattenfall now needs a strike price of £52.29/MWh to maintain its margins. He said this “does not bode well” for the fifth Contracts for Difference (CfD) allocation round in which strikes prices for offshore wind projects will be capped at £44/MWh.
Further reaction
Sue Ferns, senior deputy general secretary of the Prospect union, said Vattenfall’s decision to shelve the Norfolk Boreas project is a “serious blow” to the UK’s renewable ambitions: “It must be a wakeup call to government that current mechanisms for supporting renewables projects are not fit for purpose in a world of high interest rates and supply chain pressures.
“As the US and EU become increasingly attractive destinations for green investment, the UK is suffering from a race to the bottom on costs that is now preventing renewables projects being built.
“The government must urgently get a grip on problems in the Contracts for Difference process to put our net zero and energy security goals back on track and give certainty to workers across the sector.”
Energy UK deputy director Adam Berman said it is “deeply concerning when a project that was already underway is stopped in its tracks.”
He said the renewable sector has been “warning for some time” that global events are increasing cost for developers, adding: “Industry stands ready to deliver, but without financially sustainable CfD prices, every day that passes will be one in which we could have benefitted from lower energy bills, lower emissions, and a more secure energy system.”
Dan McGrail, chief executive of RenewableUK, said: “As Vattenfall has pointed out, costs have been increasing significantly in the offshore wind supply chain, as they have for all major infrastructure projects and in the wider economy. Going forward, ministers are going to have to take account of these global inflationary pressures, which have significantly changed the economic landscape.
“We need a stronger industrial strategy for the sector, which the chancellor should support with new measures in the Autumn Statement as a matter of urgency.”
Jess Ralston, head of energy at the Energy and Climate Intelligence Unit, added: “If government gets the policy wrong on the current round of renewables auctions and doesn’t keep pace with increasing costs, the UK could end up even more reliant on foreign gas, leaving households on the hook with higher bills.
“Doubling down on renewables, which remain much cheaper than gas, means in future price spikes we’ll be less exposed.”
The government has set a target of delivering 50GW of offshore wind capacity by 2030.
Angus Walker, a partner at the law firm BDB Pitmans, said Vattenfall’s decision demonstrates the need for a “much greater” pipeline “as some projects will fall by the wayside”.
The Norfolk Zone
The 1.8GW Norfolk Vanguard project was granted planning permission in July 2020.
However, in February 2021, the decision was overturned by a High Court judge on the grounds that the secretary of state had failed to consider the cumulative impacts of the onshore infrastructure that was expected to be shared with its sister project Norfolk Boreas.
Following a re-examination of its application, the Norfolk Vanguard project was granted a fresh development consent order in February 2022. The decision came shortly after the Norfolk Boreas project was awarded planning permission in December 2021.
The Norfolk Vanguard project has yet to secure any Contracts for Difference.