Norfolk Boreas: Work on offshore wind farm stops over soaring costs

Vattenfall has shelved plans to develop the Norfolk Boreas offshore wind
farm after winning the contract last year

Work has stopped on one of the UK's largest offshore wind farms after its
developer said it no longer made financial sense to continue.

The Swedish energy giant Vattenfall is to shut down development of the
Norfolk Boreas site, off the Norfolk coast.

Market conditions had deteriorated since it signed a contract to fix the
price of electricity it sells for 15 years, the company said.

Two other sites, known as Vanguard East and Vanguard West, will be
reviewed.

Chief executive Anna Borg said: "Offshore wind is essential for affordable,
secure and clean electricity, and it is a key element of Vattenfall's
strategy for fossil-free living.

"But conditions are extremely challenging across the whole industry right
now, with a supply chain squeeze, increasing prices and cost of capital,
and fiscal frameworks not reflecting current market realities.

"Vattenfall believes in the strong fundamentals and rationale for the
Norfolk projects.

"However, considering market conditions today, we are stopping the current
development track for Norfolk Boreas and evaluating the best way forward
for all three projects in the Norfolk Zone."

The move will cost Vattenfall 5.5bn Swedish krona (£415m) on its earnings,
Vattenfall said, as it released its second-quarter financial results on
Thursday.

It said the market conditions were challenging, as costs for the offshore
wind industry had risen by 40%.

It has become more expensive to borrow money to build the wind turbines,
and supply chains are also struggling, the business said.

"We have attractive wind power projects in the pipeline, and investment
decisions will always be based on profitability," the company said.

"We are convinced that offshore wind power is crucial for energy security
and meeting the climate goals in Europe."

'Supply chain inflation'

Jess Ralston, head of energy at the Energy and Climate Intelligence Unit,
said the government needed to take into account rising costs for wind farm
companies when it awarded contracts.
For much of the past decade, offshore wind farms have been promised a fixed
price for the electricity they produce through a so-called contract for
difference (CfD).

This means that if electricity prices are below the promised price then
companies get a subsidy to make up the difference.

Equally, if prices rise above that level then they have to pay back their
additional gains.

Last year, Vattenfall won one of these contracts to build the Norfolk
Boreas wind farm at a joint record-low strike price of £37.35 per megawatt
hour.

But since winning the auction, Vattenfall and others have warned that costs
have increased far too fast for these projects to be economical anymore.

"Costs of wind farms have been driven up by ongoing high gas prices causing
supply chain inflation, just like for other industries," Ms Ralston said.

"If the 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."

The business will be banned from putting the same project forward for a new
contract in next year's government auction.

<https://www.bbc.co.uk/news/uk-england-norfolk-66263340>

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