Swedish utility Vattenfall is scrapping a project to explore the possibilities of hydrogen production on offshore wind farms and transportation to shore, nearly two years after it began.?
The HT1 Project was designed around Vattenfall’s European Offshore Wind Development Centre off the coast of Aberdeen, Scotland, and was partly funded by the UK’s Department for Energy Security and Net Zero through the Low Carbon Hydrogen Supply 2 funding program.?
“Having tested the development phase for decentralised offshore hydrogen production, and in light of other industry advances, Vattenfall has now taken the decision to conclude the project,” Vattenfall said on Thursday, adding that it would continue to explore fossil fuel-free hydrogen production.
The HT1 project has helped the creation of a new regulatory and consenting regime by the UK Government for offshore hydrogen transportation and storage, Vattenfall said.
“The technological and environmental progress we have made will also enable further advances by the industry towards the creation of a thriving offshore hydrogen production market,” Lisa Christie, Country Manager for Vattenfall in the UK, said.
In July 2023, Vattenfall canceled a large UK offshore wind project due to surging costs and challenging market conditions pressuring new developments. Vattenfall will not proceed with the development of the 1.4-GW Norfolk Boreas offshore wind project as the industry has seen cost increases by up to 40%, the company said at the time. The soaring costs, coupled with increased cost of capital, put significant pressure on all new offshore wind projects, according to the Swedish firm.
At the end of 2023, Germany’s RWE said it would buy the UK Norfolk Offshore Wind Zone portfolio from Vattenfall. The portfolio includes three offshore wind development projects off the east coast of England – Norfolk Vanguard West, Norfolk Vanguard East, and Norfolk Boreas, whose development Vattenfall had canceled. RWE will resume the development of the Norfolk Boreas project, which was previously halted, the German firm said in December.
Shares of Siemens Energy crashed 37% in Germany. The German company said, “The Executive Board is evaluating various measures to strengthen the balance sheet of Siemens Energy and is in preliminary talks with different stakeholders, including banking partners and the German government.
Marketing fantasies from the Boom Times of Wind. Who were they kidding? | Siemens Gamesa
It’s dire. After suffering a 36% fall in June due to unexpectedly bad maintenance bills, Siemens Energy has lost another 37% on Thursday as it revealed orders and revenue would be even lower than the current subdued expectations. The share that sold for 24 euro in May is now selling for 7.
Things are so bad Olaf Scholz, Chancellor of Germany has even said Siemens Energy is “very important”. Apparently talks are “intensive”, which presumably means the company is on death’s door and the German government is being asked to help save it.
And so we arrive at a point where a company selling products that depend on government subsidies is now asking to be subsidized itself. And the whole green industry depended on government pumped “science” and artificially low interest rates to exist in the first place. Like a pyramid scheme skiing on a two ponzi scams, sooner or later it has to collapse.
Siemens Energy shares in Germany crashed on Thursday after the company warned its wind turbine business is grappling with quality issues and offshore ramp-up challenges. The company said it’s evaluating various measures to strengthen its balance sheet and is discussing state guarantees with the German government. This comes as a financial crisis in offshore wind energy is brewing.
UPDATE: Siemens Energy is a spin off from the larger separate giant Siemens which has a market cap of 100b Euro and 300,000 employees. The smaller energy division has 90,000 employees and a market cap of only 7b Euro now, but it was 30b a few years ago. Siemens still owns 25% of the spin off energy division.
The windmill business has not recovered from the Siemen’s June shock that bigger turbines was not always better, and ominously something was wrong which would cost an obscene amount to fix. It didn’t bode well that the problem was narrowed down to either the rotor, the bearings “or the design”– which covered pretty much everything. By August Siemens Energy announced a jaw dropping annual loss of €4.5 billion.
Confidence is gone. In July the Swedish energy giant Vattenfall stopped work on the offshore wind farm plans off Norfolk. In August the Danish wind firm Ørsted lost 25% after it revealed it may have to write off ” the value of its US portfolio by nearly £2bn.” The share market was so skittish it wiped off nearly £7bn in value that week. Overall the Ørsted share price has dropped by two-thirds from its peak in early 2021.
A week ago Deutsche Bank “slashed its 12-month share price forecast for Danish energy giant Ørsted by 36%, citing supplier delays, lower tax credits and rising rates.” — CNBC
Things haven’t exactly been good for Vestas either:
Despite massive subsidies, bountiful good intentions and Draconian regulations on fossil fuel competitors green energy doesn’t work and Net Zero is pure fantasy.
This is the rotor of the newest, largest offshore Siemens SG 14MW . Look how big these machines are.
It will theoretically end up propped up on a stalk 140 meters high over the ocean waves, or something like that. The blades are 115m long. Imagine fixing it.
THE myth that our energy bills would come tumbling down thanks to the abundance of cheap offshore wind power has finally been blown to smithereens by the failure of the latest auction for the Contracts for Difference subsidy scheme to attract any bidders. The government’s price cap of £44/MWh at 2012 prices (about £60 at current prices) was simply not economically viable.
For years we have been promised that ultra-cheap wind power was just around the corner. In 2020 Dr Malte Jansen of the Centre for Environmental Policy at Imperial College London claimed: ‘Offshore wind power will soon be so cheap to produce that it will undercut fossil-fuelled power stations and may be the cheapest form of energy for the UK.’ Last year the Guardian bragged that the cost of offshore wind had fallen yet again, to just £37/MWh.
All these claims, of course, derived from the annual auctions for the Contracts for Difference subsidy scheme. What the cheerleaders had not realised was that the wind farms were under no legal obligation to honour these contracts. Instead those companies which bid low are now selling at the much higher market price.
In this latest auction round, however, this loophole was removed, and bidders would have been forced to honour their contracts. As a result, they have pulled out of the auction, and are now demanding much bigger subsidies.
There never was any evidence that the true cost of offshore wind was as low as the auction prices suggested. Independent analysis has long concluded that the real cost is between £80 and £100/MWh, and this does not take account of the wider system costs of integrating intermittent wind power, maybe as much as another £50/MWh. Gas-fired power is currently about £80/MWh.
It is not only the UK where the wind industry is struggling to match expectations. In the US developers such as Shell and Avangrid are pulling out of contracts to build offshore wind farms. The giant Danish wind company Oersted has lost a third of its market value since warning two weeks ago that it may be writing down its assets by up to $2.3billion on its US projects. European turbine makers are also in trouble, appearing to have woefully underestimated the costs and problems of building large turbines for operation offshore, where conditions are much more severe.
In stark contrast to the promises of the renewable lobby, subsidies for offshore wind are expected to add nearly £5billion to our energy bills this year.
In large part, the wind industry has been hoist by its own petard, with the government believing all of its propaganda about falling costs. Now, thanks to the government’s obsession with renewables and its closure of coal power capacity, it may have little choice but to cave into the industry’s demands for greater subsidies.
Meanwhile our energy bills will continue to rocket.
September heatwaves
IT WAS certainly exceptionally hot last week, but even with thermometers next to airport runways, main roads and in the middle of London, the highest temperature the Met Office could come up with was 33.2C (91.8F) at Kew.
It was much hotter in September 1906, when the temperature reached 96F at Bawtry in South Yorkshire, still a UK record for the month. That heatwave lasted five days from August 30 to September 3, and covered the whole country, from Scotland and Ireland to the south of England.
In contrast, temperatures last week did not appear to get above the mid 80s at most for much of the country. The Central England Temperature series, for example, peaked at only 84F.
Monthly Weather Report of the Meteorological Office
Maybe even more remarkable were the three September heatwaves in 1911, which were the culmination of an exceptionally hot summer.
Mean temperatures in July/August were a full 2C higher in 1911 than this year.
I have no doubt that in due course the Met Office will highlight this year’s heatwaves in June and this month, and claim they are evidence of climate change. I doubt that they will mention the summer of 1911, much less explain how it could happen in the absence of climate change.
Another day, another £65billion!
WHEN the Climate Change Act was passed in 2008, and upgraded to ‘Net Zero’ four years ago, there was no attempt to estimate the costs involved, nor any technical plan as to how the targets were going to be achieved.
Even now the government refuses to treat the matter of costs in any serious fashion, instead pretending that the country will end up being better off eventually, thanks to all those lovely green jobs and a booming, world-leading green economy.
What our economy will look like in 30 years is something nobody can know, but it is becoming increasingly apparent that we are all going to be much worse off in the foreseeable future, certainly the next decade or so. And we are finding more problems which were not anticipated at the start.
This week the Daily Telegraph reported that it could cost £65billion to decommission Britain’s gas grid, a 176,000-mile network of buried pipes. This is according to a draft National Infrastructure Report. It says that unused pipes must be removed or they risk decay and experts fear the potential collapse of roads. At the moment the network is properly maintained, with the cost included in our gas bills.
Quite who is expected to pay this bill which, knowing what we do about public infrastructure projects, is probably a gross underestimate, is another matter. It works out at £2,300 per household.
Logistically it will be a nightmare too, with districts being turned off one by one. I could mention the traffic chaos as roads are dug up in town after town, but I doubt whether many of us will be able to afford cars by then.
Quite by chance I caught a revealing interview on BBC Radio 4’s PM programme earlier today. I set out a transcript below. Unfortunately the interviewee, Rod Wood, the MD of Community Wind Power, seemed to be on a mobile telephone and I struggled to catch every word clearly.
ED: Now, a green light for an offshore oil and gas development today, but it comes at the time we have another very significant energy story unfolding. Red lights flashing over wind energy projects in the UK. There are now several signs of problems. One, a Swedish developer, Vattenfall, put the breaks on a development in the North Sea in July, saying it was no longer viable. Two, the latest auction for contracts for state support for clean energy flopped. There were no bids from offshore wind developers. And then three, yesterday, one of our biggest onshore wind developers said it’s halting development of Sanquhar II in Dumfries & Galloway. Community Wind Power say the project would have powered 350,000 homes. Rod Wood is the company’s managing director. I asked why he’s now choosing not to invest in onshore wind, which we’re told is the cheapest and easiest form of green electricity.
RW: You’re right, onshore wind has been the cheapest, and I think will continue to be cheap alongside solar in the UK. The difficulty that we all know of late is the last few [two?] years is we have a huge increase in capital costs, we’ve seen inflation, obviously rampant inflation, and we’ve seen with turbines that the costs have increased over 60, 60+%. We’ve also seen a massive increase in financing costs, where mortgage increases, so financing costs for wind farms long-term for infrastructure, fifteen years, has increased from below 2% up to nearly 8%, so a four-fold increase there. We have a weak pound as well. All those things factored in together have signficantly increased our costs and we estimate them now to be around £80, just over £80 per megawatt hour, which is substantially more than they were, and of course the Government, as you’ll be aware, with this windfall tax they’ve introduced has determined somehow that anything over £75 is an extraordinary, er extraordinary price. So we have the sales tax applicable from £75, so actually they’re taxing £5 of cost.
ED: So, just tell me whether the economics of onshore wind, or wind in general, has been fundamentally transformed by the things you’ve described. We’re talking 8 pence per kilowatt hour, in human terms. The price at the moment – I don’t know what I’m paying, probably 30p or something per kilowatt hour? I mean, it should be surely possible to make money where we are.
RW: Well we don’t, unfortunately, sell you the electricity ourselves. We’re a generator, so we sell to the utilities and to corporate PPAs. So that’s where…there’s a differential obviously. There’s a cost in transferring the power from site in to your house, and that’s a big difference, obviously, and different companies evolve [?] that. From our perspective, clearly, Evan, the situation is the costs have increased. All costs…supermarket costs, everything has increased significantly.
ED: I want to just ask you about your view of whether the Government is interested in wind. This is the third blow – pardon the pun – to wind power. We’ve had Vattenfall abandoning one project they were going to invest in; we’ve had an auction for off-shore licences which didn’t get any takers; and I just wonder whether you’re worried that there isn’t the commitment to wind that we have had in the past?
RW: I think I agree with you. Positionally, they’ve already pinpointed renewables, wind and solar particularly. We have the windfall tax. If we were generating electricity from gas or from diesel generators, there’d be no windfall tax. So why are they attacking us when they should be looking at the wider community of generators in the UK? That’s the big issue, and why are they giving us a five year tax, when actually in Ireland or the EU the tax is finishing at the end of this year. Green electricity is the backbone and the foundation for new industries, data centres, AI, blockchain, pharma.
ED: I mean, it is very interesting. This obviously came in, this announcement comes in the week that we have a new licence for offshore drilling for oil and gas.
RW: Yeah, reading the press release, it’s quite interesting that they now talk about Net Zero and taking, looking at it in a pragmatic and proportionate, realistic response. I’m not quite sure what that means exactly. But I don’t think the climate will be looking at the UK in the future in that way, as sea levels rise and London, you know, and other coastal cities start to submerge. This is going to be the fourth, or was going to be the fourth largest wind farm in the UK, with 380 Megawatts in addition to the 30 that’s already there. We can’t make it work, so how can others?
ED: Have you actually, perchance, had conversations with the Opposition, the Labour Party, about whether they would be inclined to make the environment more friendly to your investments?
RW: We haven’t as yet, no. We’d certainly like to. We’d like to engage with them and other parties and explore, and explain how actually this industry can support all these other industries going forward. There’s massive opportunity there. John Coldwell … on the programme the other day, you know, let’s encourage green new companies, investments, coming in to this country and we can be great again, you know, with lower corporation tax rates as in Ireland, and actually drive the growth of the economy forward. But we need modern thinking, as they’re doing in the US and the EU and other places, and hopefully Labour will be considering that.
ED: Rod Wood there, who’s the Managing Director of Community Wind Power, pulling back on a scheme in the south of Scotland.
Conclusion
It was interesting to hear Evan Davis describe onshore wind only as the cheapest form of green electricity, and Mr Wood, after agreeing that it had been, going on to say (if I heard him correctly) that he thinks onshore wind will continue to be cheap (but he seemed to drop the claim going forward that it will be the cheapest). Indeed, it would be difficult for him to maintain the claim, given that he then launched into a long spiel about all the costs now hitting onshore wind energy.
He spent a long time bemoaning the windfall tax – on anything above £75 per megawatt hour. He seemed particularly aggrieved about this, despite the fact that this is at a level significantly higher than the price of recent CfD rounds (admittedly those contracts haven’t been taken up) that was used in some quarters to claim that wind energy was “nine times cheaper” than fossil fuels. He also suggested that if his company generated electricity using diesel or gas, then no windfall tax would apply. I would suggest that either he or the BBC is mistaken, for less than two months ago the BBC’s website featured an article about the windfall tax, more properly called the energy profits levy (or EPL) with the heading “What is the windfall tax on oil and gas companies and how much do they pay?” It stated that:
In the first six months of 2023, BP paid $970m (£755m) of tax in the UK – with about $460m (£358m) due to the EPL.
Shell initially said it did not expect to pay any windfall tax for 2022, as its North Sea investments meant it was not considered to have made any UK profits.
But on 2 February it announced that it would pay $134m (£108m) for 2022, and expected to pay more than $500m (£400m) for 2023.
Centrica said it was paying about £1bn in tax from its £3.3bn 2022 profits, which includes about £54m under the levy.
Much of the rest of the interview seemed to bemoan the return of long-term interest rates to what are historically normal levels, and that in turn carries the suggestion that renewable energy has only made the headway that it has thanks to unsustainably low interest rates over a remarkably long period of time.
The interview wound up with a reference to alarmism (apparently London and other UK coastal cities will be underwater if windfarm projects don’t proceed) and an implicit plea for subsidies (euphemistically described as “modern thinking, as they’re doing in the US and the EU and other places”) and preferential tax treatment (“let’s encourage green new companies, investments, coming in to this country and we can be great again, you know, with lower corporation tax rates as in Ireland”).
It all rang rather hollow, and one sentence (“We can’t make it work, so how can others?”) for me blew out of the water the claims that are constantly being made on behalf of wind energy. It looks as though Net Zero could be unravelling before our eyes.
I was going to wait till the actual results tomorrow, but I’ll be in the middle of Rutland on my bike!
No new offshore wind farms are expected to have been bid for in a government auction this week, in a significant blow to the government’s clean energy ambitions.
Ministers are scheduled to announce tomorrow the winners in their annual auction of financial support contracts for renewable energy projects.
A number of sources have told The Times they understood the auction had failed to procure any big new offshore wind farms, after the government ignored repeated industry warnings that support on offer was too low to reflect soaring inflation.
Such an outcome would jeopardise the government’s ambitious target of more than tripling offshore wind capacity to 50 gigawatts by 2030 — more than enough to power every home, and up from less than 14 gigawatts today.
Five offshore wind projects with about 5 gigawatts combined capacity are believed to have been eligible for this year’s auction — enough to power more than 5 million homes. However, their developers — Vattenfall, ScottishPower and SSE — have all sounded the alarm over cost inflation. Full story
A few first thoughts:
1) The inflation argument is a bit of a bogus one, because the strike prices are index linked anyway.
The govt’s price cap is £44/MWh at 2012 prices, something like £55/MWh at current prices, and £65/MWh by the time they start generating.
2) The wind industry has been hoisted on its own petard, consistently low balling the true costs in order to influence govts.
This also applies to the turbine manufacturers, who appear to have woefully underestimated the costs and problems of building large turbines for operation offshore.
3) According to Sky, a recent auction in Ireland set a price of Eu 150/MWh, about £125/MWh.
4) WSJ report that:
According to George Bilicic, global head of power, energy and infrastructure at Lazard, building a U.S. offshore wind farm can cost $4,000
That’s £3000, and compares with the BEIS levelised cost estimates, which are based on £1500 (at 2018 prices)
BEIS figures came out at £54/MWh
At £3000, we are looking at something like £100/MWh.
I’ll do a fuller analysis once the full auction results are announced.
Sadiq Khan’s controversial Ultra-Low Emissions Zone scheme for London was supposed to put the rocket-boosters under electric car demand.
With the Mayor pressing ahead with a highly-contentious scheme that forces non-compliant petrol and diesel car drivers to pay an eye-watering £12.50 a day to drive into the capital, the expectation was that hundreds of thousands of motorists would rush out to their nearest forecourt and snap up an electric version, triggering an explosion in sales of Nissan Leafs, Teslas and other battery-powered models.
True, sales are steadily increasing but not in the vast numbers that proponents of electrification anticipated or would like to see.
Proportion of cars on UK roads
In fact, it is becoming increasingly apparent that the car industry has misjudged the scale of demand quite badly. Vertu, which is one of Britain’s biggest car dealerships, has become the latest big name to admit that the sector is already suffering from a dramatic oversupply of battery-powered vehicles.
Indeed supply is outstripping demand to such an extent, that prices are tumbling rapidly.
The warning follows the extraordinary decision of German car titan Volkswagen in July to halt electric vehicle production at its sprawling Emden factory in north-west Germany and lay off a fifth of its 1,500 employees after sales of electric models fell 30pc short of forecasts.
Unwanted electric cars are piling up on American forecourts too leaving some dealers to refuse further deliveries until the backlog has eased.
One hopes politicians the world over are paying attention because what we are witnessing is another example of how the top-down economics of net zero increasingly don’t stack up: with the introduction of an entirely arbitrary 2030 ban on petrol and diesel cars, the Government is forcing manufacturers to churn out millions of vehicles, regardless of whether the market actually exists or not.
The deadline should be scrapped without further ado. This “cart before the horse” approach of trying to stimulate demand by creating supply is the wrong way round and almost never works in business.
Start-up Britishvolt tried something similar, promising to build a giant battery factory in Blythe, on the Northumbrian coast that would churn out enough batteries every year to power 300,000 cars.
Yet there was an even bigger flaw at the heart of its plans: it had failed to secure a single order – a situation that hadn’t changed by the time it ran out of money at the start of the year.
It’s hard to fault the intentions of the great net-zero crusade – a greener planet is something everyone should want to see. But far too much of it is built on hope rather than reality.
The Government’s policy on wind energy has proved to be similarly divorced from fact. The Contracts for Difference scheme, which guarantees a fixed price for the electricity that is produced for 15 years, is an effective incentive during more benign times but when overheads are surging, as they are now, it quickly becomes an impediment to progress.
With ministers showing little willingness to bend on prices in the face of rampant cost increases, major projects are being ruthlessly abandoned.
The biggest setback has come off the Norfolk coast after Vattenfall announced it would shut down construction of its Boreas wind farm. The 1.4 gigawatt development was set to power around 1.5m homes but the Swedish energy outfit insists a 40pc surge in costs, driven by inflation, supply issues and rising wages means it is no longer viable.
Without more generous state subsidies others will surely follow suit, shattering Britain’s stated ambitions to nearly quadruple offshore wind capacity from 14GW currently to 50GW by the end of the decade.
Yet perhaps nothing underlines the Alice in Wonderland disconnection of ministers more than the campaign to force the population to green their homes with heat pumps.
Even a ban on the sale of new oil boilers from 2026 has failed to convince people to make the shift largely because the cost of converting your home can be huge, so too the disruption and upheaval from having one installed, while much of the technology suffers from several major flaws.
It might explain why, in spite of a Government scheme that pays bungs of between £5,000 and £6,000 per household, less than 14,000 vouchers have been claimed since it was launched in May last year.
Naive politicians aren’t the only ones. Virtuous investors have wasted huge sums on other ‘green’ innovations such as fake meat that have turned out to be busts.
Perhaps the venture capital industry has got better at picking winners, though that seems doubtful. At one stage it could hardly have been worse.
A study by the American academic Ben Gaddy in 2016 found that of the $25bn ploughed into so-called “clean-tech” ventures, 90pc were abject failures, and close to all of them could be considered poor investments.
Here in the UK, the problem is compounded by our willingness to remain silent as more productive hi-tech industries that Britain should be building its future on are auctioned off to the highest bidders.
The takeovers in quick succession of Cambridge-based biotech firm Abcam by an American rival and of Staffordshire drug IT specialist Instem by French private equity make a mockery of our ambition to be a life-sciences powerhouse. This country’s help-yourself attitude to opportunistic foreign raiders has to end.
Equally, perhaps the time has come to accept that the economics of net zero are more fantasy than reality.
The horrific term “cost crisis” is not from me. It comes down from on high, in this case the mega-conference: US Offshore Wind 2023. Specifically the “DEVELOPER LEADERS KEYNOTE PANEL” which features this chilling title: “Tackling The Cost Crisis Through Assessing Investment Risks”. See https://events.reutersevents.com/renewable-energy/offshore-wind-usa/agenda
Mind you I could not attend, given the tickets cost $4,000 with schmoozing or a mere $3,000 without. This just shows how gold plated the offshore boom has become.
But now they have a cost crisis. Could the bust be at hand? The evidence is piling up.
Here in America one major developer has agreed to pay $48 million to get out of their power purchase agreement (PPA) because it no longer would pay for the project. That project is now dead in the water because no one will finance a billion dollar project with no PPA.
Conversely, another project is dead for now because the candidate electric utility rejected the newly proposed (and very costly) PPA. In some cases the existing PPA is with the local State, not a utility. These are obviously subject to political risks as well. Other developers have petitioned their host State for MORE MONEY.
Moreover, many of the projects in the Bidenesque 30,000 MW offshore wind queue have no PPA at this point. They are at deep risk for sure.
The cost crisis is global and here is a telling example that just happened. The giant developer Vattenfall just halted a huge project in the UK. Here is the headline from the offshore wind loving newsletter
“BREAKING: Vattenfall Stops Developing Major Wind Farm Offshore UK, Will Review Entire 4.2 GW Zone” (Maybe the industry is breaking, as well as the story.)
That is 4,200 MW of projects, about $16 billion worth before the cost crisis, now on ice. Vattenfall is clear about its reasons, albeit with some artful jargon. They say this:
“Higher inflation and capital costs are affecting the entire energy sector, but the geopolitical situation has made offshore wind and its supply chain particularly vulnerable. Overall, we see cost increases up to 40%.”
So there are three converging factors. Higher material and equipment costs, higher interest rates and political resistance. For example it has not gone unnoticed that the House Republicans are trying to roll back the lush subsidies granted under the amusingly named Inflation Reduction Act.
Local resistance is growing as well. The biggest developer offshore America is Ørsted and they are now suing New Jersey’s Cape May County and Atlantic City for withholding local permits needed to bring a big project’s power ashore. Anti-offshore wind demonstrations are becoming a common occurrence in coastal towns.
Of particular interest is the Dominion Energy project off Virginia. This is a huge 5,200 MW, 300 square mile, proposal just 15 miles off the world’s biggest naval base at Norfolk. Unlike the other projects this one is being built by the regulated utility itself, so there is no PPA. Instead the books are open to a degree. This includes some required cost estimates.
Dominion’s pre-crisis cost estimates for the first 2,600 MW were about $10 billion for construction and a bit over $20 billion including financing. The latter is called the “revenue requirement” which means this is the bill their customers will have to pay.
Presumably Dominion will now be required to do new, crisis-laden estimates. If these come in at, say, $14 billion and $28 billion the political reaction could be quite strong. And this assumes things will get no worse, which they easily could. We await with great interest.
Offshore wind has been booming so is this the bust? Time will tell so stay tuned to CFACT as this story unfolds.
As Europe adventurously moves to wean itself off fossil fuels, more and more plans are being made to fill the electricity supply gap with wind energy.
But one major UK wind project illustrates how they are economically risky as the economy teeters.
Symbol photo. Image: P. Gosselin
Blackout News here reports that Swedish energy giant Vattenfall “has halted a gigantic offshore wind project, one that would supply electricity to 1.5 million households if built.
Blackout News calls the decision to halt the 1.4 gigawatt capacity Norfolk Boreas “surprising”.
“Vattenfall’s decision to halt work on the wind farm has significant financial consequences,” reports Blackout News. It means a 537 million dollar loss. “Vattenfall’s strategy reorientation threatens UK climate targets.”
According to sources, experts are warning of “sharply increased project costs, inflation and rising interest rates” and the project developers are calling for “targeted support”.
The UK government aims to increase its offshore wind capacity from 14GW to 50 GW, so Vattenfall’s move is a major blow to the UK’s energy future.
German electricity prices to high for industry
Uncertainty has also hit the German automobile sector, in large part due to sky-high energy prices. In another Blackout News report here, VW head Oliver Blume thinks building a large new battery factory in Germany is more difficult because of the high electricity prices, which are far above the 7 cents per kilowatt-hour the VW head says is needed.
“The production of battery cells is energy-intensive, Blume stressed. Price guarantees and the level of electricity prices are therefore very important. Regulatory processing and subsidies also play a role in the choice of location,” writes Blackout News
“I have experienced these aspects very positively in North America,” Blume told the two German newspapers.
Under the bottom line, the German government isn’t really deindustrializing, but rather is forcing German companies to move its industry out of the country using hostile policy.
Germany faces a state of permanent economic recession.
Coastal wind turbines at the oceanic windmill Middelgrunden, situated just outside Copenhagen. These iconic turbines, which can be seen from most places within this capital city, are a symbol of a future with green cities and sustainable energy in Denmark.
In a delightfully illustrative episode of reality biting back, one of the UK’s largest offshore wind farm projects has ground to a halt, not because of a lack of wind, but due to an unabating gust of rising costs. The illustrious Swedish energy group, Vattenfall, has put a stop to work on its 1.4GW Norfolk Boreas site, following a 40% surge in project costs. Clearly, “going green” isn’t as financially breezy as some might have you believe.
Quoting Anna Borg, Vattenfall’s CEO:
“What we see today, it simply doesn’t make sense to continue this project.”
This halt throws a monkey wrench into the UK’s fervent ambition to triple its offshore wind capacity by 2030 in order to decarbonize its electricity system. All this, while the cost efficiency and reliability of these grand projects remain questionable.
The Green Economy’s ‘Inconvenient Truth’ Interestingly, the UK government has been keen on flapping the wings of more wind power projects to meet its net-zero targets. However, with costs spiraling out of control, the move seems more like trying to fly into a headwind.
The fiasco stands as a testament to the impracticality of imprudently rushing towards renewable energy without addressing the inherent challenges and limitations of these technologies. Rising costs for equipment, supply chain disruptions, and the overarching reality of energy economics all play a part in this unfolding drama.
Sustainable or Unsustainable – That’s the Question The defunct Norfolk Boreas was intended to be the kingpin of the country’s major offshore wind projects. Its aim? To power 1.5 million homes with up to 140 turbines. Yet, developers have acknowledged that projects with low locked-in electricity prices have turned uneconomical due to these escalating costs and disruptions.
This puts a spotlight on the term “sustainable.” While it sounds compelling in political speeches and looks impressive in policy documents, one is forced to question if these renewable energy ventures are truly sustainable – economically, that is.
The Green Mirage In February, it was reported that Vattenfall, along with Denmark’s Ørsted and other wind farm developers, were seeking tax breaks or subsidies as a remedy to their fiscal ailments. Perhaps the mirage of “cheap” renewable energy is starting to dissipate, exposing the harsh desert of economic reality beneath.
Despite the British government’s past assurance of inflation-linked prices over a 15-year period, Kathryn Porter from Watt-Logic argues that these contracts ignored the “economic reality” of cost pressures that were already apparent. It seems the notion of ‘green at all costs’ is beginning to wilt under the scorching sun of real-world economics.
The race to net zero is leading us into a financial quicksand, sucking in vast resources for a future that will never materialize as envisaged.
As always, readers are welcome to share their views.
An energy company has stopped development on a major wind farm off the East coast, blaming rising costs for halting a project which would have powered 1.5 million homes.
The decision, announced in the Swedish firm’s Vattenfall’s quarterly results, comes at a cost of £415m and has prompted questions from unions about the future of similar projects elsewhere in the UK.
Vattenfall said a rise in costs of 40% had made the project unaffordable at the moment.
The 1.4-gigawatt Boreas project was due to be the first of three Vattenfall projects off the Norfolk coast – to be followed by Norfolk Vanguard East and West – whose future is also being considered by the company.
Construction on Boreas had not yet started and the company’s website said that discussions with the supply chain were due to begin in 2023. Onshore infrastructure work for the Vanguard projects would continue, said the firm.
“Offshore wind is essential for affordable, secure and clean electricity, and it is a key element of Vattenfall’s strategy for fossil-free living,” said Vattenfall chief executive Anna Borg.
“But conditions are extremely challenging across the whole industry right now, with a supply chain squeeze, increasing prices and cost of capital, and fiscal frameworks not reflecting current market realities.
“Vattenfall believes in the strong fundamentals and rationale for the Norfolk projects.
“However, considering market conditions today, we are stopping the current development track for Norfolk Boreas and evaluating the best way forward for all three projects in the Norfolk Zone.”
The company added in the report: “Higher inflation and capital costs are affecting the entire energy sector, but the geopolitical situation has made offshore wind and its supply chain particularly vulnerable.”
Vattenfall’s plans had been a major part of the government’s ambition to more than triple offshore wind capacity by 2030 — from about 14GW to 50GW — to help decarbonise the UK’s electricity system.
Why is Vattenfall halting the project?
For much of the past decade, offshore wind farms have been promised a fixed price for the electricity they produce through a so-called contract for difference (CfD).
This means that if electricity prices are below the promised price – known in industry jargon as the strike price – then companies get a subsidy to make up the difference.
Equally, if prices rise above that level then they have to pay back their additional gains.
Last year Vattenfall won one of these contracts to build the Norfolk Boreas wind farm at a joint record-low strike price of £37.35 per megawatt hour.
But since winning the auction, Vattenfall and others have warned that costs have increased far too fast for these projects to be economical anymore.
In March, Denmark’s Orsted warned that it might pause the Hornsea 3 project in the UK – expected to be the world’s largest wind farm when it opens – unless it gets help with surging costs. Hornsea 3 has the same £37.35 per MWh strike price as Norfolk Boreas.
Unions have called for greater support to be offered by government to prevent other energy firms scrapping major projects.
Sue Ferns, senior deputy general secretary of Prospect, said: “This decision is a serious blow to the UK’s clean energy rollout.
“It must be a wakeup call to government that current mechanisms for supporting renewables projects are not fit for purpose in a world of high interest rates and supply chain pressures.
“As the US and EU become increasingly attractive destinations for green investment, the UK is suffering from a race to the bottom on costs that is now preventing renewables projects being built.
“The government must urgently get a grip on problems in the Contracts for Difference process to put our net zero and energy security goals back on track and give certainty to workers across the sector.”
As some of us have been pointing for a long time, these low CfD prices were never economically viable. To put the blame on rising inflation is risible, as that same inflation is pushing up strike prices every year. The £37.35/MWh tendered price is at 2012 prices, and has already risen to £45.37/MWh. By the time the project was due to begin operations in 2028, that price probably would be over £60/MWh.
And, of course, Vattenfall would have had the option of not triggering their contract and selling at market prices instead, which is currently even higher.
The rise in costs of 40% suggests they would now need a price of around £84/MWh in 2028, for the project to be viable, which is more in line with some independent cost estimates. This makes a nonsense of repeated claims of how cheap wind power is; until the recent spike in the price of gas, wholesale power prices have hovered around the £50 mark since 2011:
Orsted and Vattenfall contracts in Allocation Round 4, at £37.35/MWh, amount to about 4.3 GW, so will take a huge chunk out of the total of 7 GW awarded for offshore wind. The question is whether the government will now blink and offer fresh subsidies?
BTW – I am gobsmacked at the reaction of the Prospect trade union, who have called for “greater support”. Since when did unions side with foreign companies who renege on contracts?
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