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Ørsted raises concerns for Hornsea 3's future amongst rising costs

By: Tom Russell 03/03/2023 Ørsted

General Windfarms

Ørsted has called on the UK government to increase its support for offshore wind farm development having revealed its concerns over costs following "increased interest rates and supply chain prices". The offshore wind giant claims capital allowances would maintain the UK's attractiveness for investors and alleviate risks associated with the large upfront investments of establishing offshore wind projects.

Duncan Clark, Head of Ørsted UK & Ireland stated: “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."
With a capacity of 2,852 MW, Hornsea 3 is expected to produce enough electricity to power 3.2 million UK homes. It is to be located 160km from the Yorkshire coast. In July 2022 it was awarded a CfD at an inflation-indexed strike price of €37.35/MWh in 2012 prices.

Clark added: “Hornsea 3 would become the world’s largest offshore wind farm and represents an £8bn investment with thousands of jobs created in the UK during construction and billions more spent in the UK supply chain. It is a project that has been under development for more than a decade and part of an auction round (AR4) that is worth an estimated £20+bn inward investment for the UK.

“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. However, since the auction there has been an extraordinary combination of increased interest rates and supply chain prices. 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, with repercussions that could impact across the economy as reserved capacity with supply chain businesses goes unfulfilled.

“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 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.

“Medium term, it is the rapid build-out of renewable energy that will enable us to become independent of gas and other fossil fuels and to ensure security of supply for the UK. The offshore wind sector has delivered huge growth in the UK over the last decade. We are now at an inflection point and Government intervention will be crucial to enabling projects that are key to the UK’s energy security and that will bring billions of pounds of investment into the UK, provide low-cost electricity for consumers and help deliver our net zero target.”

Ørsted’s Hornsea zone – comprising of the operational Hornsea 1, 2 and Hornsea 3 project which recently announced a number of significant contracts – will have a total capacity of in excess of 5 GW once Hornsea 3 is operational. The 1.2 GW Hornsea 1 and 1.4 GW Hornsea 2 projects were commissioned in 2019 and 2022 respectively.

The Hornsea Zone will also include Ørsted’s Hornsea 4 project, which could have a capacity of approx. 2.6 GW. Hornsea 4 is currently going through the planning process with a decision expected in 2023.

For more information on offshore wind farms worldwide, click here.

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Ørsted raises concerns for Hornsea 3's future amongst rising costs

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