Vattenfall AB is to halt development of an offshore wind project in the UK after costs soared, marking a major setback for a key part of the UK’s climate plans.
The Swedish company said a planned wind farm in the North Sea, which would provide power to 1.5 million UK homes, is no longer viable after the costs of the technology soared by 40 per cent. Vattenfall will take a hit of 5.5 billion Swedish crowns ($537 million) because of the decision, it said in a report published on Thursday.
“Although the demand for fossil-free electricity is greater than ever, the market for offshore wind power is challenging,” Vattenfall CEO Anna Borg said in a statement. “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.”
Vattenfall’s decision follows years of rising material, logistics and financing costs, threatening the viability of a technology that is key to reducing reliance on gas and coal-fired power plants. Nowhere is reliance on offshore wind greater than in Britain, which plans to almost quadruple its fleet of offshore wind farms by the end of the decade.
Vattenfall’s 1.4 gigawatt Norfolk Boreas wind farm was key to making the UK’s short-term plans a reality. It is among projects at an advanced stage of development and a final investment decision was expected later this year. Last year, the company was awarded a government-backed contract for the project that would have locked in record energy prices for 15 years. But the low price may have ended up dooming the project.
“The market framework in the UK that is supposed to incentivize investment in renewable energy does not reflect the current market environment,” said Helene Bistrom, head of Vattenfall’s wind business. “This is important for the UK, but Vattenfall must invest responsibly.”
Developers had warned the government that rising costs could jeopardize projects winning those contracts. However, some of the companies decided to go ahead, or have said they plan to. That eased some pressure, but any large wind farm not built leaves a power production gap that will need to be filled.
“If the government gets the policy wrong in the current round of renewable energy auctions and doesn’t keep pace with rising costs, the UK could end up even more dependent on foreign gas, leaving households on the hook for higher bills,” said Jess Ralston, head of energy at the Energy and Climate Intelligence Unit. “Doubling renewable energy, which is still much cheaper than gas, means that in future price spikes we will be less exposed.”
For Britain to meet its 2030 offshore wind target would require almost everything to go right. Now, with at least one major project on hold, achieving that goal is less likely. And it will be more expensive than thought.
Vattenfall said its overall wind business is profitable and it is looking at options for the Norfolk Boreas project and others it is developing in the same area.
