Vattenfall Pull Boreas Offshore Wind Farm-Not Economically Viable
By Paul Homewood
h/t Ian Cunningham
An energy company has stopped development on a major wind farm off the East coast, blaming rising costs for halting a project which would have powered 1.5 million homes.
The decision, announced in the Swedish firm’s Vattenfall’s quarterly results, comes at a cost of £415m and has prompted questions from unions about the future of similar projects elsewhere in the UK.
Vattenfall said a rise in costs of 40% had made the project unaffordable at the moment.
The 1.4-gigawatt Boreas project was due to be the first of three Vattenfall projects off the Norfolk coast – to be followed by Norfolk Vanguard East and West – whose future is also being considered by the company.
Construction on Boreas had not yet started and the company’s website said that discussions with the supply chain were due to begin in 2023. Onshore infrastructure work for the Vanguard projects would continue, said the firm.
“Offshore wind is essential for affordable, secure and clean electricity, and it is a key element of Vattenfall’s strategy for fossil-free living,” said Vattenfall chief executive Anna Borg.
“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 company added in the report: "Higher inflation and capital costs are affecting the entire energy sector, but the geopolitical situation has made offshore wind and its supply chain particularly vulnerable.”
Vattenfall’s plans had been a major part of the government’s ambition to more than triple offshore wind capacity by 2030 — from about 14GW to 50GW — to help decarbonise the UK’s electricity system.
Why is Vattenfall halting the project?
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 – known in industry jargon as the strike 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.
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.
Unions have called for greater support to be offered by government to prevent other energy firms scrapping major projects.
Sue Ferns, senior deputy general secretary of Prospect, said: "This decision is a serious blow to the UK’s clean energy rollout.
"It must be a wakeup call to government that current mechanisms for supporting renewables projects are not fit for purpose in a world of high interest rates and supply chain pressures.
"As the US and EU become increasingly attractive destinations for green investment, the UK is suffering from a race to the bottom on costs that is now preventing renewables projects being built.
"The government must urgently get a grip on problems in the Contracts for Difference process to put our net zero and energy security goals back on track and give certainty to workers across the sector."
As some of us have been pointing for a long time, these low CfD prices were never economically viable. To put the blame on rising inflation is risible, as that same inflation is pushing up strike prices every year. The £37.35/MWh tendered price is at 2012 prices, and has already risen to £45.37/MWh. By the time the project was due to begin operations in 2028, that price probably would be over £60/MWh.
And, of course, Vattenfall would have had the option of not triggering their contract and selling at market prices instead, which is currently even higher.
The rise in costs of 40% suggests they would now need a price of around £84/MWh in 2028, for the project to be viable, which is more in line with some independent cost estimates. This makes a nonsense of repeated claims of how cheap wind power is; until the recent spike in the price of gas, wholesale power prices have hovered around the £50 mark since 2011:
https://www.ofgem.gov.uk/energy-data-and-research/data-portal/wholesale-market-indicators
Orsted and Vattenfall contracts in Allocation Round 4, at £37.35/MWh, amount to about 4.3 GW, so will take a huge chunk out of the total of 7 GW awarded for offshore wind. The question is whether the government will now blink and offer fresh subsidies?
BTW – I am gobsmacked at the reaction of the Prospect trade union, who have called for “greater support”. Since when did unions side with foreign companies who renege on contracts?
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NOT A LOT OF PEOPLE KNOW THAT 
Time to get Banks to re-open their opencast pits
In a Coventry newspaper there’s a story about a huge solar farm to the west of Kenilworth (the size of 58 football pitches no less!) Being granted a licence to, in the nonsense headline, provide power for 6,000 homes! Except, of course, as it should have said, when the sun don’t shine – which is about 85% if the time. I despair…
The other inconvenient question has/ve to be what was the land formerly used for; if it was for any productive purpose , how will that purpose be replaced and where; if it was for agriculture, how will that production be made up?
Surely, there has to be an audit to highlight the reduction in productive “capacity” if that is the case; available “brownfield” sites etc…
I get that the UK grid may not lend itself to “scattered” solar sites …..as many have highlighted here, it is not built for unreliable energy sources > cart before horse?
Has the time to connect new solar farms / wind farms to the grid been reduced yet? Last heard it was up to 10 years!
I read likewise, very recently, and it was either here or WUWT, I cannot remember – if I was a betting person it would be here!
There is a “slot” in electricity generation for solar power.
There are already local authorities which use solar panels to power road signs. A properly installed solar roof should markedly reduce lighting bills. Possibly also heating bills. To the extent that bright sunlight is not always needed to recharge, the system solar is “reliable” at least to the point where you know when it is at least theoretically (!) going to be available.
Wind, to my mind, has nothing going for it at all. It is space-consuming and unreliable to the extent where reliable generating systems need to be permanently on instant standby.
It is not clean when taking all its costs —from mining for its components right through to site clearance etc. at end of life — into account. Gas (and properly managed coal) and nuclear are all over the lifetime of the generator cleaner.
It is far from environmentally-friendly, effectively sterilising the land it occupies and doing considerable damage to wildlife.
It is a 13th century technology which we happily abandoned as more efficient power sources were discovered. Instead of continuing to make use of 21st century technology and invest in efficient sources of energy — nuclear fission today, nuclear fusion (mebbe!) tomorrow, who knows what the day after — we’ve decided to regress and put out faith in a highly inefficient, out-dated, long since abandoned pre-industrial system.
We’re mad!
The Birmingham area, in which I’d include Coventry, Warwick and Kenilworth are mostly in power deficit, having shut down all the closer large coal stations like Ironbridge, Rugeley and West Burton. Providing some power locally will save on the need to import from further afield, so it will have an easier time getting connected than a new Scottish wind farm.
Having said that I recently drove the M6/A14 and was struck by the sudden forest of wind farms having crossed the M1 into Northamptonshire. Warwickshire is better preserved against wind farm blight.
As National Grid is now saying that unreliables already in the pipeline will have to wait 10 – 15 years to be connected to the grid it’s going to be sometime before that Kenilworth project will start generating!
Some good news at last- no wind farm.
Hope the stupid government sues them for a breach of contract. But more likely they will pay them off;
…and what might have triggered that 40% rise in costs? Surely nothing to do with high energy costs linked to uneconomic renewables?
Or inflation caused by funny-money gushing from all major governments (except Sweden) while doubling down on their mad, world group-think, masturbatory, lockdown dogmas?
All five of Europe’s turbine manufacturers have been operating at a loss for for the last 30 months or so. This might have something to do with them pulling the plug.
Perhaps Vattenfall could come to Australia? We have a Federal Minister for Electricity etc. who would make even your incompetent ones look sane, and a Premier in Victoria who wants to black out most of eastern Australia. Both are keen on offshore wind farms (which we haven’t got so far).
Victoria has recently cancelled the Commonwealth Games on the grounds of cost (the State is nearing bankruptcy but spending is continuing elsewhere).
With a third the population and 30x the land area does Australia need to put windmills offshore?
Put them near the coal mines so renewable energy could to mine the coal sent to China and India to burn.
The major problem is the gullible politicians who think windmills are going to save the planet. The other problem is that coal mines and ports all require lots of reliable and continuous electricity, which renewables cannot supply.
Another problem is that the best sites are close to the wealthy houses (incl. beach ones) so they have to deal with more opposition.
The cancellation of such major projects rides a coach and horses through the Govt energy strategy. The message to the Govt is quite clear…….. i.e we know you have no alternative policy to wind energy so give us more money or else we will pull the plug…..
In effect ‘corporate blackmail’
Has the Govt officially responded to the news yet?
And there I was thinking gas generated electricity was nine times more expensive than wind.
With NBP gas prices having dipped below 2p/kWh or £20/MWh and some CFDs paying £209.32/MWh the position has reversed.
John, was that meant as an ironic comment or a serious one?
Germany is also in trouble as it intends to phase out coal generation – on top of stupidly closing their nuclear plants – but realises that it needs gas generation to coverage the unreliable wind and solar. However, nobody wants to build the gas plants without taxpayers cash but the EU is blocking state intervention. They are also struggling to get takers for more windmill contracts. More and more people are expressing their concerns about the end of Germany’s manufacturing industry due to electricity costs.
Coal supplied electricity went from 24% to 33+% when gas became expensive. And the CCGT plants were all shutdown (or even dismantled and moved to other countries) when the Energiewende got going. Not profitable with on-off running.
BASF which used 4% of gas has decided to move their factories (Ludwigshafen about 8 miles along the Rhine) elsewhere (including China). The other (over 100) companies that use their products for further use may well go too.
AR4 wind farms are entitled to ignore their CFDs in just the same way as some AR3 ones have already done. So the failure to proceed says that Vattenfall think that they would make losses at market prices given the cost increase.
Unspoken may be worries about the performance of the turbines they were planning on using, made by guess who, also recently in the news?
https://www.siemensgamesa.com/en-int/newsroom/2021/11/211108-siemens-gamesa-press-release-vattenfall-norfolk-offshore
A bigger maintenance bill and time lost waiting for the maintenance barge and suitable weather eats heavily into the economics.
Government policy is now in tatters. The back door attempts to hand out more subsidies via “non profit factor” CFDs and via a complete rigging of electricity markets under the consumer reaming REMA reorganisation are still buried deep in policy evaluation, with no competent people doing the work. There is now certain to be a hiatus in capacity building that will leave a greatly increased risk of the need for involuntary power rationing a.k.a. blackouts.
” … that will leave a greatly increased risk of the need for involuntary power rationing a.k.a. blackouts.”
That’ll undoubtedly be blamed on gas-fired generation’s failure to meet demand (that 50GW of renewables capacity couldn’t meet)!
Also there are supply chain problems. A recent press release by Wind Europe noted that “Offshore foundation manufacturers and installation vessels are fully booked for several years” (‘NZIA: act now or Europe’s wind turbines will be made in China’ 14th June 23) https://windeurope.org/newsroom/
Wind Europe also issued a report about looming problems in relation to the ships needed to construct and connect offshore wind in June last year . “World wide shortage of FIVs,WTIVs and CLVs posoes risk for project execution worldwide”
(FIVs – Foundation Installation Vessels: WTIVs – Wind Turbine Installation Vessels: CLVs Cable Laying Vessels)
‘An energy company has stopped development on a major wind farm off the East coast, blaming rising costs for halting a project which would have powered 1.5 million homes’
Will those 1.5 million homes now be without power?
Can they give us the addresses of some of these houses?
A key marker of fascism is excessive cooperation between government and corporations. Crony capitalism isn’t capitalism at all. It’s fascism. It comes from corporations realizing that it is better to cooperate with government than to trying to fight their regulation. By helping government, they craft regulation that is more difficult for their competition to meet. Fascism leads to monopolistic industry.
The renewables industry is clearly in bed with the UK government. The UK government is clearly in bed with renewables.
This is just a little lovers quarrel between UK and Vattenfall.
This plus ULEZ kicked into touch and Labour more interested in having a war with Khan so soon after abandoning their own green plans shows we are now at an inflection point. Renewables can play a part in our energy needs but they are not a substitute time for hybrid solution and my take is the political party that comes clean on that stands best chance at next election.