Energy giant Ørsted has halted worked on the final wind farm of the mammoth Hornsea zone in the North Sea.
The Danish multinational has citied rising supply chain costs, higher interest rates and increased timeline risks surrounding the construction of the 2.4GW Hornsea Four wind farm. It deals a blow to clean energy ambitions in the Ƶ following the project's approval in 2023, and to the wind farm's Grimsby service base.
Ørsted had planned a 180-turbine development to complete the Hornsea zone which includes Hornsea One and Two - already in operation - and Hornsea Three which is under construction. The development secured a contract for difference award in September last year.
In an update to investors, Ørsted said it had stopped spending on the project and terminated supply chain contracts. Costs of between 3.5bn-4.5bn Danish Krone (£399m-£513m) are now expected following the decision, including a write-down of assets and contract cancellation fees.
However, Ørsted says it will consider future development as it hangs on to seabed rights, a grid connection agreement and a Development Consent Order.
Rasmus Errboe, group president and CEO of Ørsted, said: "We remain fully committed to being an important partner to the Ƶ Government to help them achieve their ambitious target for offshore wind build-out and appreciate the work they’ve done to deliver a clear framework to support offshore wind.
"However, our capital allocation is based on a strict and value-focused approach, and after careful consideration, we’ve decided to discontinue the development of the Hornsea 4 project in its current form, well ahead of the planned Final Investment Decision later this year.
“We’ve been maturing the project over the past nine months and have been working relentlessly with stakeholders and suppliers to manage the different project risks for a project of this scale.
"Throughout the development phase we’ve been very diligent in our approach to capital commitment to our suppliers, and our committed capital is well below our threshold. The adverse macroeconomic developments, continued supply chain challenges, and increased execution, market and operational risks have eroded the value creation.
"I’d like to emphasise that Ørsted continues to firmly believe in the long-term fundamentals of and value perspectives for offshore wind in the Ƶ. We’ll keep the project rights for the Hornsea 4 project in our development portfolio, and we’ll seek to develop the project later in a way that is more value-creating for us and our shareholders."
A Department for Energy Security and Net Zero spokesperson said: "We recognise the effect that globally high inflation and supply chain constraints are having on industry across Europe, and we will work with Ørsted to get Hornsea Four back on track.
"We have a strong pipeline of projects to deliver clean power by 2030 and our mission-led approach ensures we can steer our way through global pressures and individual commercial decisions to reach our targets.
"Through our mission we will deliver an energy system that brings energy bills down for good and bolsters Britain’s energy security as part of our Plan for Change."
Jane Cooper, RenewableƵ's deputy chief executive, said that while it was disappointing to see a project paused the Ƶ remained one of the best places in the world to build offshore wind farms and that everything should be done to provide a stable market for developers.
She said: ”The Ƶ is still a global leader in offshore wind with the second largest amount of operational capacity in the world and the second largest pipeline of future projects. It remains one of the most attractive destinations for private investment, thanks to a positive policy framework put in place by the Government to ensure that offshore wind is at the heart of our future energy system, including a clear target to reach clean power by 2030, backed up by new reforms to planning.
"The fact that supply chain constraints have been cited as one of the reasons for this decision highlights the importance of investing to support the Ƶ companies across the wind value chain as a central part of the Ƶ’s industrial strategy. We urge the Government to remove uncertainty for investors in this year’s auction for new clean power projects by ensuring auction parameters reflect the cost increases we’re seeing in the supply chain and inflationary pressures. Additionally, Government should rule out the introduction of zonal pricing which would drive the cost of investment up even further."
Michael Tholen, OEƵ’s director of policy and sustainability, said: "This decision shows conditions remain challenging for firms across our diverse offshore energy mix including wind which means it’s also a difficult time for the people who are affected and their families. Our thoughts must be with them.
"The Government’s consultation on the future of the North Sea has just closed. OEƵ is urging policymakers to now listen to industry and safeguard all forms of homegrown offshore energy and jobs to unlock investment. The success of offshore wind and its people and supply chains is bound up with offshore oil and gas production.
"This combination is the foundation of our energy future alongside technologies such as carbon capture and hydrogen. We must move away from a polarised debate that pits people against each other and choose a pragmatic path to our energy future that leaves no one behind."
