Ørsted’s cancelled offshore wind project puts net zero mission at risk, says Shadow Energy Secretary
There are growing doubts over the government’s ability to meet its net zero targets after the company behind one of Britain’s biggest-ever wind farms abruptly pulled the plug on the project, citing overwhelming cost pressures.
Denmark-based Ørsted, which won the contract to develop the 2.4GW Hornsea 4 offshore windfarm last year, said it took the decision due to “supply chain costs, higher interest rates, and an increase in the risk to construct and operate Hornsea 4 on the planned timeline.”
The move marks the latest blow in a bruising week for the UK’s energy industry following an announcement by power firm Drax that it would pause a major expansion of its Scottish hydro-power plant. Last week, FTSE 100 giant ABF said it would mothball a bioethanol plant in Yorkshire, accusing the government of “undermining” its viability, while on Wednesday oil and gas firm Harbour Energy said it would cut 250 jobs in Aberdeen, slamming “the government’s ongoing punitive fiscal position and a challenging regulatory environment.”
Ørsted’s decision to shelve Hornsea 4 piled further pressure on Energy Secretary Ed Miliband, who is spearheading a target of cleaning up UK power by 2030. But his net zero policies have faced increasing political backlash amid rising household bills and job loss fears.
Shadow Energy Secretary Andrew Bowie said the project’s discontinuation “took the Ed Miliband – already mad – target of getting to clean power 2030, and left it in tatters.
“There is absolutely no way that without Hornsea they can make clean power 2030… Ed Miliband needs to revisit whether or not clean power 2030 is still realistic,” Bowie told City AM.
Bowie said Ørsted’s decision “raised questions” over whether the contracts for difference process, a scheme set up by the previous government to fund renewable energy infrastructure, was “fit for purpose.”
“If Ørsted are able to renege on commitments made in previous auction rounds, it seems to me like they’re trying to game the system,” said Bowie. “All of this will have an impact on bill-payers, because they are paying for these projects. So we need to examine whether or not any monies that have already been parted with need to be recouped.”
A Department for Energy Security and Net Zero (DESNZ) spokesperson said: “We recognise the effect that globally high inflation and supply chain constraints are having on industry across Europe, and we will work with Ørsted to get Hornsea 4 back on track.”
Supply chain hit
Sam Alvis, head of energy security and environment at the Institute for Public Policy Research, said, Ørsted’s issues speak to “massive supply-side constraints,” something which has “hit offshore wind like it has hit many other industries.”
Alvis warns some components necessary for wind turbine production won’t be available until the mid-2030s: “the order books are full, the supply chain components aren’t there.”
The hit to suppliers by the cancellation of Hornsea 4 could exacerbate the industry’s supply-side squeeze, he added.
However, Ørsted’s experience might not be indicative of how other companies perform, as its woes span back some time.
Alvis pointed to “a difficult couple of years” where “they’ve had challenges in the East Coast of America,” including nixing two of their projects there. Their share price dropped by 40 per cent, so “their risk tolerance is in a different place to a lot of other offshore wind developers, which is why you’ve seen them pull this project and not yet any other developers who still have that background level of capital and the risk appetite commensurate with what they bid for.”
Project could still return
DESNZ has insisted that its clean power 2030 mission is safe. The department said in a statement: “We have a strong pipeline of projects to deliver clean power by 2030 and our mission-led approach ensures we can steer our way through global pressures and individual commercial decisions to reach our targets.”
“It’s definitely a setback, but it is not an immeasurable or impossible to fix one,” said Alvis, pointing to the fact that “in the next allocation round, we are looking at procuring upwards of 20 gigawatts.”
Dr Simon Cran-McGreehin, Head of Analysis at the Energy & Climate Intelligence Unit (ECIU) is convinced that the Hornsea 4 project will be revived, not least because of the costs that have been sunk into it. “They haven’t said they’re scrapping. They’re putting on hold. So much work has gone into it, and so much invested in terms of money, but also will and potential, that it’s likely to go ahead … it’s a question of exactly when, and exactly how quickly.”
Cran-McGreehin said problems with the project didn’t yet spell a death knell for the clean power 2030 mission, as there’s enough on the cards to go off: “there is time, and the amount of renewables in the pipeline that are near the end of the process [and] almost ready for construction – once they get a contract in place, there’s substantial amount there.”
Ørsted has been approached for comment.