By Paul Homewood
The wheels are falling off the offshore wind strip:
A string of offshore wind projects to power Britain is in jeopardy after a global race to net zero has skyrocketed costs, casting doubt on the future of industry as a source of cheap energy.
Rising supply chain costs have pushed up wind turbine prices, while rising global interest rates have dramatically increased refinancing costs.
It has rendered some projects unviable just a year after they won government subsidy contracts – leading to concerns from industry insiders that Britain’s future is in jeopardy like “Saudi Arabia of the wind”.
Inch Cape, a 50:50 joint venture between Ireland’s ESB and China’s Red Rock Power to develop a project 15 kilometers off Scotland’s east coast, is understood to be at risk, with the Irish side refusing proceed to the so-called final. investment decision (FID) after pondering about the economic viability of the project.
One source said: “People won’t invest if it doesn’t give you a return on equity. And right now, it’s hard to see how that could be.”
The plans developed by Danish firm Ørsted and Swedish firm Vattenfall are among other projects deemed risky as the industry seeks more government help to ensure the projects remain viable. .
Senior executives have also described Net Zero Secretary Grant Shapps as a “remote” figure who is reluctant to communicate with corporate bosses.
The difficulties faced by some of the largest offshore wind developers raise new questions about whether the Government can achieve this. target to reach 50GW of offshore wind power by 2030from the current level of around 14GW.
The so-called contract for difference (CfD) is designed to guarantee companies operating offshore wind projects a fixed price to sell electricity over a period of 15 years. If the market price falls below the so-called strike price, the Government will make up the difference.
However, if the opposite is true, the companies must return the money to the Government.
Last year’s CfD auction was the largest to date and secured enough capacity to provide clean electricity to more than 10 million homes.
However, it is conceivable that the £37.35 strike price guaranteed by Inch Cape is currently “under the water” for the ESB, meaning they are not satisfied with the margin on offer.
A source said: ‘It should be closer to £50 to £55.
The Norfolk Boreas offshore wind farm operated by Vattenfall is also understood to be at risk due to rising costs.
A spokesman acknowledged that market conditions were “extremely difficult”, suggesting that a final investment decision would not be made. He warned that the Government must reflect the reality of the market, showing that Vattenfall does not want to proceed without more state support.
Catrin Jung, head of the company’s offshore wind division, said: “Vattenfall has yet to receive the FID for its Norfolk Boreas offshore wind farm.
“Market conditions are extremely difficult right now, with rising costs and supply chain crises as well as increasing capital expenditures. We are looking at the best course of action for all three projects that make up the 4.2 GW Norfolk Offshore Area and how we can work with the supply chain, including opportunities for other UK business.”
Orsted’s Hornsea 3 in the North Sea is also understood to be at risk, although a spokesperson stressed that the company is “increasingly confident that we will be able to make a Final Investment Decision in 2023”.
The spokesperson added: “The offshore wind industry has delivered tremendous growth in the UK over the past decade but it has reached an inflection point.
“It will require continued focus from stakeholders in Government and across the industry to make sure the offshore wind delivers its potential to become the backbone of the UK energy system and drive even more investment, provide affordable electricity to consumers and help deliver on our net zero ambitions.”
Insiders suggest that Red Rock Power, a subsidiary of China’s state-backed SDIC, is willing to continue with Inch Cape at a loss to avoid the embarrassment of giving up its biggest investment in energy. offshore wind volume in Europe.
However, it is understood that any decision to proceed will have to involve a redesign of the project.
A joint statement released by the ESB and Red Rock Power said the companies remained “strategically aligned and committed to the Inch Cape Offshore Wind Farm project”.
A spokesman for the Department of Energy Security and Net Zero emphasized that Mr Shapps is “regularly involved in the industry”. “Offshore wind is an important part of our work to increase energy security and cut emissions,” the spokesperson said.
“Our plans to empower the UK, combined with the ongoing annual tender process, give the industry more confidence to invest.
“We have attracted £120 billion of private investment in renewable energy since 2010 and expect to attract an additional £100 billion of investment to support up to 480,000 jobs by 2030.
It has been clear for a long time that CfD agreed rates of offshore wind farms are not feasible. It’s worth noting that the £55/MWh figure that is considered fair is in 2012 prices and works out to be around £67/MWh at current prices. This certainly doesn’t equate to the “cheapest” claim made by the renewables lobby. Furthermore, since CfD prices are related to inflation, these prices are likely to be higher than £80/MWh by the time the wind farms come online.
With interest rates now back to appropriate levels and supply chain problems driving costs up, the economics of offshore wind look clearly unfavourable. If the investors in these Round 4 auctions are turning cold, despite the fact that they can sell on the free market, is there any chance that investors will bother to bid in the open market? even lower rates for the next allocation round? And if these investors pull out, then the 2030 wind power target will be too far away.
Meanwhile, the increasingly absurd DESNZ’s answer was the common stock answer – an investment of £100 billion, on which we would eventually have to pay interest; and all that amazing green work, which never really seemed to come to fruition!
But perhaps the silliest comment of all is this:
“Senior executives have also described Net Zero Secretary Grant Shapps as a “remote” figure who is reluctant to communicate with corporate bosses.
Well, I’m so sorry, but when you sign the contract, you have to get it done! You won’t come back whining a year or two later saying “I’m sorry, but I miscalculated, can I have some more money?
NOTE
Yet again we see this silly Telegraph comment about a global race to net zero. This is pathetic nonsense uttered by increasingly unrelated Jeremy Warner and Ben Marlow.
Of course there is no such race, which implies that there is some kind of reward for the countries that jump off the top of the cliff first! In contrast, much of the world is quite content to let the UK, EU and US continue with their madness, while they make themselves richer with the help of fossil fuels.
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