A surge in supply chain costs has pushed up the price of wind turbines, while increases in global interest rates have substantially increased the cost of refinancing.

It has made several projects uneconomical just a year after they won government subsidy contracts – leading to fears from industry insiders that Britain’s future is in jeopardy as the “Saudi Arabia of wind”.

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NOTE: 

The turnkey capital cost and higher O&M costs in 2022 and later years, and resulting cost of electricity production, c/kWh, have significantly increased, due to: 1) increased inflation rates, 2) increased interest rates, 3) supply chain disruptions, which delay projects and increase costs, 4) increased energy prices, such as of oil, gas, coal, electricity, etc., 5) increased materials prices, such as of tungsten, cobalt, lithium, copper, manganese, etc., 6) increased labor rates.

As a result, the spreadsheets of the US East Coast offshore wind projects (and in the UK), used for negotiating prices, c/kWh, do no longer make sense.

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Inch Cape, a 50:50 joint venture between Ireland’s ESB and China’s Red Rock Power to develop a project located 15km off the east coast of Scotland, is understood to be at risk, with the Irish side refusing to proceed with a so-called final investment decision (FID) after balking at the economics of the project.

One source said: “People won’t invest if it doesn’t give you a decent return on equity. And presently, it’s hard to see how it can.”

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Projects proposed/developed by Danish company Ørsted and Swedish player Vattenfall are understood to be at risk, as the industry seeks increased government subsidies to ensure projects remain viable.

Senior executives have also described Net Zero Secretary Grant Shapps as a “remote” figure who is reluctant to engage with company bosses to provide increased subsidies.

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The struggles faced by some of the biggest offshore wind developers raise fresh questions about whether the Government will achieve its target of 50GW of offshore wind by 2030, from current levels of around 14GW.

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So-called contracts for difference (CfDs) are designed to guarantee companies that operate offshore wind projects fixed prices to sell electricity over a 15-year period.

If the market price falls below the so-called fixed strike price, the Government makes up the difference.

However, if the reverse is true, the companies must pay money back to the Government.

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In 2022, the CfD auction was the biggest to date and secured enough capacity to provide more than 10 million homes with clean power.

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However, it is understood that the £37.35 strike price secured by Inch Cape is currently “below the waterline” for ESB, meaning they are not satisfied with the level of returns on offer.

“the strike price should be nearer £50 to £55,” a source said.

The strike price is a base price set in 2012. It is adjusted for inflation

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The 1200 MW Norfolk Boreas offshore wind farm operated by Vattenfall is understood to be at risk as costs mount.

A spokesman admitted that market conditions were “extremely challenging”, suggesting that a final investment decision, FID, was not forthcoming.

He warned, the Government must respond the realities of the market, suggesting Vattenfall was unwilling to proceed without increased subsidies.

Catrin Jung, the company’s head of offshore wind, said: “Vattenfall has not yet taken FID on the Norfolk Boreas offshore wind farm.

“Market conditions are extremely challenging currently, with rising costs and a supply chain crunch as well as increasing costs of capital.

We are looking at the best way forward for all three projects which make up the 4200 MW Norfolk Offshore Zone and how we can work with the supply chain, including what opportunities there are for UK businesses.”

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Ørsted’s Hornsea 3 in the North Sea is also understood to be at risk, although a spokesman insisted that the company was “increasingly confident that we will be in a position for FID, during 2023”.

The spokesman added: “The offshore wind sector has delivered huge growth in the UK over the last decade, but it has arrived at an inflection point.

“It will require continued focus from stakeholders in Government and across industry to ensure offshore wind delivers on its potential to become the backbone of the UK’s energy system and bring further investment, provide low-cost electricity for consumers and help deliver our net zero ambition.”

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Insiders suggested that Red Rock Power, a subsidiary of China’s state-backed SDIC, is willing to proceed with Inch Cape at a loss in order to avoid the embarrassment of abandoning what would be its biggest investment in offshore wind in Europe.

However, it is understood that any decision to proceed would have to involve a project redesign.

A joint statement issued by ESB and Red Rock Power said, the companies remained “strategically aligned and committed to the delivery of the Inch Cape Offshore Wind Farm project”.

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A Department for Energy Security and Net Zero spokesman insisted that Mr Shapps “regularly engages with the industry”. The spokesman said: “Offshore wind is a vital part of our work to boost energy security and cut emissions.

“Our plans to power up Britain, combined with the annual auction process now in place, gives the industry more confidence to invest.

“We have already attracted £120bn of private investment in renewables since 2010 and expect to attract a further £100 billion of investment which will support up to 480,000 jobs by 2030.

https://www.telegraph.co.uk/business/2023/06/24/net-zero-at-risk-of...

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It has been apparent for a long while that the prices agreed under CfDs by offshore wind farms are in no way viable.

It is worth noting that the £55/MWh figure quoted as a reasonable price is at 2012 prices, and works out at least £67/MWh at inflation-adjusted prices in 2022.

This certainly does not equate to the “cheapest” claims made by the offshore wind lobby.

Furthermore because CfD prices are inflation linked, these prices will likely be over £80/MWh by the time the PROPOSED wind projects come on line.

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With interest rates back to somewhat lower levels, but inflation still at high levels, and supply chain issues still pushing up costs, the economics of offshore wind will continue to be unfavorable.

If most of the investors in these Round 4 auctions (almost 7000 MW of offshore wind was "committed to” on July 7, 2022) are getting cold feet, what chance is there that investors will bother to bid at even lower prices for the next allocation round? These investors can sell on the wholesale market anyway, which is more risky. 

And if these investors pull out to complete offshore projects in the US (which provides much more lucrative subsidies), the UK 2030 wind power target will be a fantasy pie in the sky.

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Meanwhile. the reply by the increasingly absurd DESNZ is the usual stock reply – £100 billion investment, which we will have to repay with interest eventually; and all of those wonderful green jobs, which never actually seem to materialize!

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FOOTNOTE

Yet again we see, this silly comment by the Telegraph about a global race to net zero. 

This is the pathetic nonsense spouted by the increasingly irrelevant Jeremy Warner and Ben Marlow.

Firstly, THERE IS NO GLOBAL RACE

A "race" implies there is some sort of reward for those countries jumping off the cliff first!

On the contrary, most of the rest of the world is quite happy to let THE GOLDEN BILLION (mostly the UK, the EU and the US) continue with their rules-based, expensive, money-losing wind/solar/battery madness, while the rest of the world is growing their economies at MUCH greater percentages, with the help of low-cost, abundantly available, fossil fuels.

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