© Supplied by Orsted The UK will still be able to meet its clean power 2030 targets despite the fall of the Hornsea 4 offshore wind farm – but on a tighter margin.
The new analysis from LCP Delta explored the effects that Ørsted’s decision to discontinue its major 2.4GW Hornsea 4 project will have on the UK’s renewable industry.
What made the move significant was that the wind farm off the Yorkshire coast had already secured a Contract for Difference (CfD) in last year’s Allocation Round 6 (AR6).
While Ørsted left the possibility of resurrecting Hornsea 4 in a different form open, its discontinuation took a bite out of the UK’s procured clean energy capacity, at a stroke almost removing the entirety of AR6’s offshore wind additions.
According to LCP Delta’s analysis, the project would have generated 12.8TWh of clean power in 2030, over 4% of the total renewable generation volume for that year.
Removing it would mean that the UK would generate 95.3% of its power from clean energy, down from 95.6% with Hornsea 4, in 2030.
This would keep it above the targeted 95% level.
“Hornsea 4 is not essential to reach Clean Power target. However, we must understand if it is the start of shaky investor confidence or if the termination was due to project-specific issues from Ørsted – as clean power targets cannot take much more,” LCP Delta’s report noted.
Hornsea 4 – Why did it happen?
At the time, the Danish developer said that “several adverse developments” had emerged in the months since it received its CfD, including higher supply chain costs and interest rates, as well as more risk in constructing and operating the project on its planned timeline.
While LCP Delta noted that other these challenges confronted other companies, Ørsted’s financial model increased its exposure.
According to the group’s analysts, Ørsted’s strategy was focused on growing quickly in an environment with stable costs. However, this left little room for error.
When the issues Orsted cited hit, the company was left relying on fixed revenues from similar deals to a CfD, while also dealing with high debt.
By comparison, other developers had more modest growth plans and broader business models, helping them absorb rising costs.
Clean power 2030 – what now?
The UK government recently revealed potential changes to how it will procure offshore wind in this year’s AR7, which will need to fill the Hornsea 4 shaped hole in the country’s capacity.
Analysts had previously warned that the UK uses a more developer-friendly system in its CfDs compared to other countries, imposing minimal penalties for failing to deliver projects.
This gives developers little incentive to stick with a contract if they believe prices could rise or that costs could fall in the future.
With the UK’s first four Allocation Rounds taking place in a more stable economy, the last two have occurred against a more turbulent background.
LCP Delta warned this could see additional developers terminating their agreements in future as they seek more favourable terms.
In order to avoid this, while still attracting bids for projects, the group noted that UK could incorporate some expected non-delivery into its procurement targets, introduce termination fees, or move some projects outside the CfD mechanism to a separate support scheme.
However, this could push up prices for offshore wind power.
