Orsted Will Switch Part Of Hornsea 3 To Round 6
By Paul Homewood
20.12.2023 14:46:10 CET | Ørsted A/S | Inside information
Ørsted has taken final investment decision (FID) on the world’s single largest offshore wind farm, Hornsea 3, which will have a capacity of 2.9 GW and is expected to be completed around the end of 2027. Hornsea 3 will be Ørsted’s third gigawatt-scale project in the Hornsea zone following Hornsea 1 (1.2 GW) and Hornsea 2 (1.3 GW), which are already being operated out of Ørsted’s operations and maintenance hub in Grimsby.
The UK is a core market for Ørsted and one of the world’s largest markets for offshore wind, building on strong political support and ambitious build-out targets. Ørsted currently operates 12 offshore wind farms in the UK.
In July 2022, Ørsted was awarded a contract for difference (CfD) for Hornsea 3 at an inflation-indexed strike price of GBP 37.35 per MWh in 2012 prices. The CfD framework permits a reduction of the awarded CfD capacity. Ørsted will use this flexibility to submit a share of Hornsea 3’s capacity into the UK’s upcoming allocation round 6.
Based on a well-established supply chain and synergies with Hornsea 1 and 2, Hornsea 3 has a robust risk-reward profile and a value creation around the bottom end of our targeted lifecycle project return range of 150-300 basis points on top of our weighted average cost of capital. This reflects part of the capacity being awarded a CfD in Allocation Round 6. The possible future addition of Hornsea 4 would create an offshore wind cluster in excess of 7 GW and unlock further cluster synergies.
We have all major contracts for Hornsea 3 in place, including an agreement with Siemens Gamesa for SG 14-236 DD offshore wind turbines, which have a capacity of 14 MW excluding power boost. Most of the capital expenditure for Hornsea 3 was contracted ahead of recent inflationary pressures, securing competitive prices from the supply chain and allowing time to work collaboratively on value creation opportunities. The larger wind turbines and the synergies with Hornsea 1 and 2 lead to lower operating costs than we have seen before in our portfolio.
In short, Orsted want to renege on part of their existing contract, in order to switch that capacity to double the prices in Allocation Round 6.
Given that they have already set up contracts for suppliers to Hornsea 3, they would have incurred huge write offs if they had simply cancelled the whole project.
The government needs to grow a backbone, and tell them they are excluded from Allocation Round 6.
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NOT A LOT OF PEOPLE KNOW THAT 
Have your cake and eat it, the government will acquiesce to their demands, after all net zero depends on wind mills.
Just to see it written down clear and simple :-
“net zero depends on wind mills”
That sends shivers down my back, it means we are totally doomed depending on Goldilocks wind: not too much, not too little. What will we do the rest of the time when not only our lights go off but si does our heating and cooking.
(Thank you GeoffB for calling these things by their correct name.)
As I have been saying for a few years. The government put all its eggs in the wind basket so was always going to have to do whatever the wind investors wanted. But of course our brilliant civil servants didn’t see that.
They will do no such thing. What, after receiving that lovely “Christmas Card” from Orsted?
“offshore wind cluster in excess of 7 GW”.
With luck, for about ten minutes once a year, unfortunately when it isn’t needed.
And at what cost to consumers? And to the environment?
Not just absurd.
Evil.
At the same time the “wind is always blowing somewhere” myth gets trotted out regularly, no use when most of the wind farms are in the same place, the windiest place.
Exactly like today high winds causing too much output so ESO has constrained off 60GWh already and fired up the CCGTs at huge expense as they have to play the game to maximise income and then all the windmills get to benefit as well. How on earth have we ended up with such a naff system from reliable CEGB.
“The government needs to grow a backbone, and tell them they are excluded from Allocation Round 6.” Not a hope in hell. They probably don’t understand it.
Given that there were no bids in the last auction from large wind projects no doubt the government will be delighted to switch some of Hornsea to the next auction so they can claim at least one successful bid.
Yesterday’s BBC Look North
“Bridlington lifeboat had huge 8 hour job rescuing man who’d been taken ill on windfarm”
.. they were in extreme winds on the sea
Under AR4 Standard Terms and Conditions there are three routes for reducing contracted capacity.
6.
ADJUSTMENT TO INSTALLED CAPACITY ESTIMATE: PERMITTED REDUCTION
Installed Capacity Estimate (ICE) may be reduced from the original capacity by up to 25% by giving due notice without other preconditions.
5. ADJUSTMENT TO INSTALLED CAPACITY ESTIMATE: RELEVANT CONSTRUCTION EVENT
Installed Capacity Estimate may be reduced from the original capacity due to a Relevant Construction Event.
“Relevant Construction Event” means a Construction Event:
(A)
of which no generator acting in accordance with a Reasonable and Prudent Standard and having made all due and careful enquiries would have been aware, and of which the Generator was not aware, at the FiT CfD Application Date; and
(B)
which renders the development, completion, construction, conversion, installation or commissioning of the Facility to meet the Installed Capacity Estimate uneconomic;
There is no restriction on the size of an RCE, but it must be supported by evidence. Trying to pretend that they were not aware that a bid at £37.35/MWh in 2012 money would be uneconomic will be a bit of a tall order, but you never know what they might get away with, especially since the government thought that they could get away with a £44/MWh in 2012 money ASP for AR5.
There is nothing to preclude both claims being made consecutively, though each can only be made once. If an RCE claim is made, LCCC has just 20 days to
accept or reject it, which is a rather short fuse. If they reject, there is a fallback Dispute Resolution Procedure. There is one sting in the tail:
5.9
No adjustment to the Strike Price shall be made solely as a result of a reduction to the Installed Capacity Estimate pursuant to this Condition 5 (Adjustment to Installed Capacity Estimate: Relevant Construction Event).
So perhaps they wouldn’t get an AR6 price for the capacity. There is also a small risk that they might not get an AR6 award at all if they are undercut by other bidders.
The final mechanism is
7.
FINAL INSTALLED CAPACITY; MAXIMUM CONTRACT CAPACITY
7.1 The Generator shall, following the Start Date, and in any event no later than ten (10) Business Days after the Longstop Date, give a notice to the CfD Counterparty (a “Final Installed Capacity Notice”). A Final Installed Capacity Notice shall:
(A)
specify the Installed Capacity which has been Commissioned as at the date of such notice which shall not, in any event, exceed the Installed Capacity Estimate (the “Final Installed Capacity”); and
(B)
include such Supporting Information, in reasonable detail, as the Generator considers to be relevant to and supportive of its conclusion, including a description of the Facility (as prescribed in Schedule 1, Part A, paragraph (C) as at the date of such notice.
…
7.7 Without prejudice to the CfD Counterparty’s right to terminate the Contract for Difference pursuant to Condition 51.6 on the occurrence of a Termination Event falling within Condition 53.1(D), if the Generator does not give the CfD Counterparty a Final Installed Capacity Notice on or prior to the date which is ten (10) Business Days after the later of:
(A)
the Longstop Date; and
(B)
the date which is ten (10) Business Days after the CfD Counterparty has given notice to the Generator (on or at any time after the date falling ten (10) Business Days prior to the Longstop Date) reminding the Generator of the requirement to give a Final Installed Capacity Notice,
the Final Installed Capacity shall, with effect from the Longstop Date, be deemed to be eighty per cent. (80%) of the Installed Capacity Estimate.
So that would be an automatic further reduction of 20% of the then declared ICE.
This legal eagle information would cost you many hours of fees at £5,000 an hour, I’m sure…
But the government has no ability to hold investors to these agreements AND meet its legal obligations under Net Zero. As investors understood when signing them. And as investors bet, the government will not change Net Zero, so will negotiate on these agreements. That commercial advice from an ex-banker who advised on such things will cost you £1m!
The government should tell them that no project should get a return above the cost of capital.
Then the industry will tell the government they’re not building anything here. Already, the failure to procure dispatchable capacity to replace closing coal and nuclear is going to cause major problems. Add in the complete hiatus in procuring wind and there is trouble ahead. The consolation perhaps is that it is likely to be Ed Miliband who faces the music and dance. However the likelihood is he will do something really stupid. He has plenty of track record for that already.
Yes, sadly successive govts have backed themselves into a corner by shutting down coal, and failing to pursue dispatchable alternatives.
Now they have to dance to the tune of the renewable industry
Christmas usually involves encounters with in-laws, one of whom deployed the “cats kill more birds than wind turbines” argument. I was a bit slow that day, and failed to deploy the riposte: “cats don’t kill seabirds”.
The other riposte that I need to polish against closed minds is for the boast: “our electricity supplier gives us 100% renewable electricity”.
I personally am quite happy to see a reduction in the number of cats given their destructiveness. Not sure why you can’t stop one thing that kills birds until you stop the other thing though? Are we not going to arrest burglars until we can arrest all burglars?
Worked for me, but might not for you . . . .
Neighbor had sign in yard bragging about his renewable electricity. I asked, “Did they come out and rewire your incoming power? Or do you still get it from the same substation I do?”
Sign gone next day.
Following up on the AR4 terms analysis, it will be interesting to see if they argue for an RCE which could theoretically apply to the whole wind farm, and whether they would stack the permitted reduction with the final reduction. Since the latter wouldn’t apply until after commissioning, and too late to be added to AR6 capacity, it would be an option to bypass 20% of the remaining AR4 CFD in favour of market prices.
An RCE option would be not to build additional transmission capacity to shore, and to rely on spare capacity at Hornsea 1 and 2 on less windy days (“synergy”) plus curtailment at Hornsea 3 on windy days which might have little revenue cost given the CFD pays no compensation any time prices are negative. They might then apply for a mega subsidy for offshore electrolysis of the surplus, PosHYdon style. That project has just announced an under the table state bailout of undisclosed size via an investment stake amid further delays to commissioning as a gift from the Rutte government on their way out.
https://poshydon.com/en/dutch-state-joins-offshore-green-hydrogen-pilot-poshydon-via-ebn/
This is all rather strange in view of Vattenfall ‘s cancellation of the Norfolk Boreas project. They have just (15th December 2023) been given consent to increase the capacity of cables to shore while reducing the number of turbines n the project – following their application to do so made in April 2022. It rather suggests there are under the table negotiations in progress, otherwise why bother?
https://www.gov.uk/government/publications/norfolk-boreas-offshore-wind-farm-2021
And now we have Vattenfall selling all its Norfolk area interests to RWE….
https://www.msn.com/en-gb/money/other/three-offshore-wind-farms-sold-in-1bn-deal/ar-AA1lRwfD
The Mail covers this today. We have the usual meaningless capacity statement on powering homes – that precise measurement. A telling comment from Orsted boss Mads Nipper ‘Offshore wind is an extremely competitive global market. so we also welcome the attractive policy regime in the UK which has helped secure this investment’. Which translates as ‘we can mug the UK taxpayer for more cash as your government are gullible morons’.
Putin: nice network of interconnectors you’ve left lying around on the sea bed there. Shame if something happened to them.
UK; blackouts….
Come come everybody! This is trivial! At Dubai we promised to triple renewables. My MP Flick Drummond is all for it. As we have 25GW today we need another 50GW. 7GW doesn’t even scratch the surface. I’m educating Mrs Drummond about such things as grid inertia and wind intermittency but as a typical Tory MP I don’t think it’s registering. Sad.
Politicians have chosen to put expensive national essential infrastructure in the wild windy ocean.
What could possibly go wrong!