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Threat to Britain’s green energy plans as work on offshore windfarm halted as costs soar

A Swedish electricity group announced it is stopping work on a major offshore wind project off the coast of Norfolk due to soaring costs.

Vattenfall warned the UK could struggle to meet its wind targets without improved incentives for developers. The 1.4 gigawatt (GW) Norfolk Boreas project, scheduled to begin producing electricity in the late 2020s for up to 1.5 million homes, was being halted.

“What we see today, higher inflation and capital costs are affecting the entire energy sector, but the geopolitical situation has made off-shore wind and its supply chain particularly vulnerable,” said Anna Borg, Vattenfall chief executive.

The project’s overall costs had increased by around 40 per cent the company said.

Vattenfall won a contract-for-difference (CfD) in a British auction last year, guaranteeing a minimum price of £37.35 per megawatt hour (MWh) in 2012 prices for the electricity produced, which equates to around £45 pounds/MWh today.

Helene Bistrom, Vattenfall’s wind business head, said the incentives offered no longer reflected the current market conditions. “It simply doesn’t make sense to continue with this project,” she said.

It said it was re-examining the best way forward for the entire Norfolk zone which includes two other windfarm sites. Combined, the three projects were expected to produce some 4.2 GW of electricity, supplying 4 million homes.

Vattenfall will not face any penalties for stopping work on the windfarm. It cannot put the same scheme forward for a new contract in next year’s Government auction but can put it forward in 2025.

In March, Denmark’s Orsted warned that it might pause the Hornsea 3 project in the UK – expected to be the world’s largest wind farm when it opens – unless it gets help with surging costs. Hornsea 3 has the same £37.35 per MWh strike price as Norfolk Boreas.

Jess Ralston, at the Energy and Climate Intelligence Unit (ECIU), said: “Costs of wind farms have been driven up by ongoing high gas prices causing supply chain inflation, just like for other industries. As the Office for Budget Responsibility recently stated, the UK is one of the countries still most reliant on gas, and this is putting us at risk of future crises potentially adding the equivalent of 13 per cent of GDP to national debt.

“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.”

RenewableUK, which represents the off-shore wind industry, urged ministers to lay a new approach to enable the pipeline of green energy projects to proceed.

Dan McGrail, RenewableUK’s chief executive, said: “Whilst it’s very disappointing when any renewable energy project is put on hold, Britain’s off-shore wind industry still has a strong track record of building vital new energy infrastructure as fast as economic and political conditions allow. We have the second-largest pipeline of off-shore wind projects in the world, and we are taking every step we can to create jobs and build up new supply chains around the UK.

“Costs have been increasing significantly in the off-shore 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. Growing the UK’s supply chain won’t only bring new jobs to Britain – it will also help to ensure we can get on with the job of building new projects to provide cheap power for consumers, strengthening our energy security and tackling climate change.

“Even with these cost increases, offshore wind still remains the lowest cost way of generating new electricity. That’s why international competition for skills and supply chain is continuing to intensify, with the US and EU setting attractive incentives to try to lure renewable energy companies away from the UK and lead the global market. The Government needs to step up with a robust response to enable industrial growth throughout Britain.”

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