Ørsted Hits Pause on Hornsea 4 Offshore Windfarm

Ørsted has halted construction on its much-anticipated Hornsea 4 offshore wind farm, citing skyrocketing supply chain expenses, rising interest rates, and an escalation in operational risks. The energy giant confirmed that the project will be paused "in its current form" due to a surge in financial pressures, leaving the initiative’s future in limbo.

Originally given the green light by the UK Government in July 2023, Hornsea 4 was set to become the UK’s second-largest offshore wind farm, generating enough renewable energy to power a million homes. With an area spanning 860 km² off the coast of Yorkshire, it was expected to house 180 turbines and deliver a whopping 2.4 gigawatts (GW) of green energy.

Orsted’s group president Rasmus Errboe said: “Our capital allocation is based on a strict and value-focused approach, and after careful consideration, we’ve decided to discontinue the development of the Hornsea 4 project in its current form, well ahead of the planned Final Investment Decision later this year.”

“We’ve been maturing the project over the past nine months and have been working relentlessly with stakeholders and suppliers to manage the different project risks for a project of this scale. Throughout the development phase, we’ve been very diligent in our approach to capital commitment to our suppliers, and our committed capital is well below our threshold. The adverse macroeconomic developments, continued supply chain challenges, and increased execution, market and operational risks have eroded the value creation.”

However, Ørsted’s move to halt the project doesn’t spell its end. The company has opted to retain the rights to the development, hoping to return to the drawing board when the financial conditions are more favourable and offer greater value to shareholders.

The halt comes with a heavy price tag, as Ørsted anticipates a potential loss of DKK 3.5 to 4.5bn (£455m) in breakaway costs by 2025. This marks another setback as Ørsted also scaled back its 2030 investment plan by 25%, reducing its forecasted spending to Dkr 210-230bn, reflecting broader market uncertainties.

In the broader context, the global offshore wind industry continues to surge. There are currently 81 GW of offshore wind capacity installed globally, with over 1,500 projects in the pipeline. The UK remains a major player, boasting a pipeline of 96GW spread across 123 projects.

Looking to the future, the UK government has set ambitious targets. To meet the “Clean Power 2030” mission, a rapid expansion of renewable projects is crucial, with Labour’s manifesto promising to quadruple offshore wind capacity to 60GW. Last month, a significant step forward was taken with a £300m government investment to bolster domestic offshore wind supply chains. This funding will support the development of essential manufacturing components like floating offshore platforms and cables, fueling the country’s offshore wind ambitions.

Commenting on the announcement, RenewableUK’s Deputy Chief Executive Jane Cooper said: ”Although it’s disappointing when a project is put on pause, the UK remains one of the best places in the world to build offshore wind farms, with a significant pipeline, clear ambitions for contracting large volumes through upcoming auctions and supply chain funding. The unique cost pressures faced by Hornsea 4 have led to a rethink on this particular project, and we need to do everything we can to keep a stable market for all other projects going forward.

”The fact that supply chain constraints have been cited as one of the reasons for this decision highlights the importance of investing to support the UK companies across the wind value chain as a central part of the UK’s industrial strategy. We urge the Government to remove uncertainty for investors in this year’s auction for new clean power projects by ensuring auction parameters reflect the cost increases we’re seeing in the supply chain and inflationary pressures. Additionally, Government should rule out the introduction of zonal pricing which would drive the cost of investment up even further”.