Vattenfall Stops UK Offshore Wind Project Citing Costs and Lower Profits
Vattenfall has become the latest developer of wind farms to report that rising costs are undermining the economics of offshore projects. The Swedish energy company announced that it has decided to shelve a late-stage development project in the UK saying the market for offshore wind power is “challenging.” The company’s decision also raised broader concerns for the UK’s offshore wind energy sector which is a key component of the government’s future energy plans.
“We have decided to stop the development of Norfolk Boreas in its current form,” Vattenfall President and CEO Anna Borg announced in the company’s mid-year financial report. “We will examine the best way forward for the entire Norfolk Zone, which in addition to Boreas also includes Vanguard East and West.”
The project was planned for an area about 30 miles off the south east coast of Britain. Boreas was to have an installed capacity of 1.4 GW and was due to deliver its first power in 2027. The zone with the three wind farms was to consist of between 180 and 312 turbines with a total capacity of 3.6 GW.
“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,” Borg said in explaining the decision to suspend the development project. She told investors that the company has seen cost increases of up to 40 percent, saying that this affects the future profitability of the project. They are citing soaring material and project costs along with the impact of inflation and interest rates on the projects’ economics.
The company, which has grown its wind portfolio in the past year from 4.2 GW to 5.6 GW, said it is still convinced that offshore wind power is “crucial for energy security.” Nonetheless, based on the changing economics, they are recording a more than $500 million impairment charge against earnings to stop the development of these UK projects.
Vattenfall had previously said the Boreas project and its advancement was “great news” for the UK. They received planning consent for the project in December 2021 and won Contracts for Difference a year ago. The company reported the contract provided for a 15-year fixed revenue stream with Reuters estimating the guaranteed minimum price at nearly $58 per MW hour. The company signed grid contracts with Siemens Energy and Aker Solutions last October and was expected to make a final investment decision later this year for Boreas.
The decision to suspend the development is raising broader questions about the UK’s industry. The government has highlighted that it plans to have 50 GW of offshore wind energy as part of its energy plan. The UK currently has around 14 GW of installed capacity. The Boreas project was seen as among the most advanced of the UK’s future projects.
Addressing investors, Borg said that they now believe that the UK does not currently have the investment environment needed to meet its offshore wind targets. The company hopes that the contract prices might improve to make it possible to go forward with projects. They said the incentives currently available no longer reflect market conditions while noting that other developers including Ørsted have also called for target support of the industry.