UK renewable energy plans hit after Vattenfall halts wind farm project

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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.

Vattenfall said on Thursday it had suspended work on its 1.4GW Norfolk Boreas site after a 40 per cent rise in the costs of the project, which the Swedish energy group intends as the first of three UK wind farms with a total investment of about £10bn-£11bn.

“What we see today, it simply doesn’t make sense to continue this project,” said Vattenfall chief executive Anna Borg.

The company added that the increased cost was putting “significant pressure on all new offshore wind projects”. It said it would “not take an investment decision now” on Norfolk Boreas and would book an impairment charge of SKr5.5bn ($537mn).

The move is a blow to the UK government’s bid 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 country’s biggest planned offshore wind projects, and was intended to power 1.5mn homes with up to 140 turbines.

Overall, the three wind farms planned by Vattenfall off the UK east coast, would provide electricity to more than 4mn households.

But developers have said for months that projects with locked-in low electricity prices have become uneconomic, because of rising costs for items such as wind turbines and supply chain problems in the wake of the Ukraine war.

The Financial Times reported in February that Vattenfall, Denmark’s Ørsted and other wind farm developers have been seeking tax breaks or subsidies in response.

Vattenfall’s announcement follows the UK’s promise of about £500mn in subsidies to India’s Tata Group to support a £4bn battery factor for electric vehicles.

Writing in the FT this week, Kemi Badenoch, business and trade secretary, said “those of us who still believe in some semblance of a free market,” were “competing with countries prepared to offer eye-watering sums to pry business away from our shores” — an apparent reference to the US’s $369bn Inflation Reduction Act.

The British government last year guaranteed Norfolk Boreas inflation linked prices over a 15-year period, starting at £37.35 per megawatt hour at 2012 prices.

Ministers said the figure was well below others agreed in previous years.

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 said the maximum price of £44/MWh in 2012 prices is too low.

“We understand there are supply chain pressures for the sector globally, not just in the UK, and we are listening to companies’ concerns,” the Department of Energy said.

It added that the UK is already home to the four largest offshore wind farms in Europe with enough capacity to power 10mn homes a year and that the government had already shifted to annual price auctions to “bolster further investment and increase developer confidence”.

Mads Nipper, chief executive of Ørsted, the world’s largest offshore wind developer, told the FT last month that it was “inconceivable” that UK projects were not struggling.

Borg said the other two Vattenfall projects may be able to get higher government contracts, meaning they could still go ahead. “We will now look into the situation and find the best way forward for all these projects — the energy is desperately needed,” she said.