Hornsea Three is set to become the world’s largest wind farm upon completion, but there’s a chance that it will never achieve that goal, according to Orsted.
Hornsea Three is expected to have a capacity of almost 3 GW when it’s completed, enough to power around 3.2 million homes, but at a cost of £8 billion, the developer Orsted says that it needs Government support to ensure it can viably build the wind farm.
Orsted received planning consent for the Hornsea Three wind farm back in December 2020, with it initially having won a Government contract at auction with a minimum price guarantee of £37.35 per MWh in 2012. That price has since increased in-line with inflation, but at £45 per MWh today, that is still significantly less than the average price of electricity today, which hovers around £130 per MWh.
Given the increase in electricity prices, as well as the increase in interest rates and construction costs, Orsted is calling on the UK Government to offer support to ensure that it can complete the wind farm. It notes that project costs have soared significantly, while the price of the electricity the wind farm will generate hasn’t seen the same increase.
“Since the auction there has been an extraordinary combination of increased interest rates and supply chain prices,” Duncan Clark, Head of Orsted UK & Ireland said in a statement.
“Industry is doing everything it can to manage costs on these projects but there is a real and growing risk of them being put on hold or even handing back their CfDs.”
So, what can the Government do? Well, Clark believes the Government should offer targeted support for the renewable sector, which could include tax breaks on investments, similar to what is offered in the oil and gas sector.
Clark added, “The upcoming Spring Budget offers a unique opportunity for the UK to take decisive action to maintain its leadership position in renewable energy and maximise the economic benefits for the UK.”
“In the midst of intense global competition for investment, skills and supply chain resources, we are in a position where nationally significant projects like our proposed Hornsea 3 offshore wind farm are at risk unless the government takes significant action to maintain the attractiveness of the investment environment.
“The AR4 contracts are excellent value for society, providing electricity at a price that is less than a quarter to a half of average wholesale prices over the last two years.
“This is why the sector is asking the Government for targeted support to ensure the UK remains an attractive destination for investors.
“It would send a powerful message if the Government would consider a more suitable capital allowances regime, as it has for the oil and gas sector, which acknowledges the significant upfront investment required for these projects and enables us to recycle capital more effectively.”
Thus far the Government has been coy on what more support it can offer renewable energy producers. In a statement, a spokesperson noted, “The government is encouraging investment in renewable generation including through £30 billion to support the green industrial revolution, and just last year our renewable energy auctions contracted record amounts of clean energy.
“We are working together with the sector on how we can further increase our energy security and independence through greater renewable deployment.”
However, many energy producers have been unhappy with the Government’s actions towards the sector recently. During the Autumn Statement, Chancellor Jeremy Hunt announced a 45% windfall tax on renewable energy producers’ profits from January 2023 until March 2028, which has since faced legal action and the potential reduction on the amount of energy produced by nuclear power plants.
The UK Government is likely to reveal more about its plans towards the sector during the upcoming Spring Budget, which is due to be revealed on March 15, 2023.