The United Kingdom’s ambitious endeavors toward green energy have encountered a major setback as Swedish energy behemoth Vattenfall announced the suspension of its plans for the colossal Norfolk Boreas offshore wind farm, situated off the Norfolk coast. The halt was attributed to soaring supply chain expenses and escalating interest rates, rendering the project unprofitable.
The Norfolk Boreas wind farm, originally designed to supply the energy needs of approximately 1.5 million British homes, will no longer proceed as Vattenfall’s costs have skyrocketed by a staggering 40%. This cost escalation is primarily due to the surge in global gas prices, which has directly impacted manufacturing expenses, putting immense strain on all new offshore wind projects.
Vattenfall’s Chief Executive, Anna Borg, asserted, “It simply doesn’t make sense to continue this project.” She elaborated that the entire energy sector is grappling with higher inflation and capital costs. However, offshore wind and its intricate supply chain have been particularly vulnerable to the recent geopolitical situation.
Notably, Vattenfall secured the Norfolk Boreas project with a UK government contract last year after offering an unprecedented low price of £37.35 per megawatt-hour (MWh) for the generated electricity. However, in the face of the transformed economic landscape, Borg emphasized that the current price would now require a “significantly higher” figure to remain financially viable.
The company’s decision to suspend the project has come at a substantial cost, amounting to 5.5 billion Swedish krona ($700 million). Nonetheless, Borg defended the move, asserting it was a prudent step, considering the project’s future profitability implications.
Borg urged the UK government to adopt the financial framework governing prices and revealed Vattenfall’s ongoing “constructive discussions” with officials. Without a revision in the government’s financing approach, experts warn that the UK may miss its target of increasing offshore wind capacity to 50GW, a fivefold increase by 2030.
Jess Ralston, head of energy at the Energy and Climate Intelligence Unit think tank, noted that the starting price for the next contract auction was set before the global surge in market prices, rendering it now too low. This could potentially exclude projects grappling with supply chain price inflation from participating in the auction, urging for a more inclusive approach to capacity allocation.
The UK government’s existing scheme allows developers to vie for contracts, offering a guaranteed price for the electricity generated. If wholesale market prices fall below this level, the project receives a “top-up” payment funded through a levy on energy bills. Conversely, when market prices exceed the “strike price,” the project must reimburse the difference to consumers, leading to lower energy bills.
Ralston suggested that setting a higher starting price for the auction would still yield contract prices significantly lower than the prevailing market rate, meaning wind farms would continue to reimburse households for the foreseeable future.
Dan McGrail, the Chief Executive of RenewableUK, highlighted the need for the UK government to consider the substantial global inflationary pressures that have dramatically altered the economic landscape. He called for a robust industrial strategy to bolster the sector, urging the Chancellor to introduce new measures in the autumn statement to expedite growth throughout Britain.
In light of Vattenfall’s suspension of the Norfolk Boreas wind farm and the mounting challenges in the green energy sector, it is evident that a comprehensive and adaptable approach from the government is crucial to realizing the nation’s sustainable energy ambitions.
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