Aberdeen offshore wind farm company halts major UK project

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.

Swedish energy giant Vattenfall – the company behind the Aberdeen Offshore Wind Farm - is to shut down development of the Norfolk Boreas site.

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

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

Vattenfall has been planning the construction of the Norfolk Offshore Wind Zone, which was to power more than four million UK homes.

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.

Challenging conditions

"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 £415million on its earnings, Vattenfall said, as it released its second-quarter financial results on Thursday.

It added that 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 wind turbines, and supply chains are also struggling, the business added.

Profitability

"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."

Jess Ralston, head of energy at the Energy and Climate Intelligence Unit, told the BBC 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.

Strike price

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 any more.

"Costs of wind farms have been driven up by 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 that in future price spikes we'll be less exposed."

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