Rising costs force Ørsted to abandon Hornsea 4 wind project

Ørsted has decided not to proceed with the Hornsea 4 offshore wind project in the UK in its current form, citing increased costs, higher interest rates and development risks, a decision that will lead to termination costs of up to DKK4.5bn (€603m).

The listed energy firm said the 2.4GW North Sea project, which secured a contract for difference (CfD) six months prior, has been impacted by rising supply chain costs, higher interest rates and increased construction and operational risks for a project of its size and timeline.

“In combination, these developments have increased the execution risk and deteriorated the value creation of the project,” Ørsted said.

As a result, Ørsted said it has decided to stop further spending on the project at this time and terminate the project’s supply-chain contracts, meaning that Ørsted will not deliver Hornsea 4 under the CfD awarded in AR6. 

Ørsted said it will evaluate options for future development of the Hornsea 4 project given the continuing seabed rights, grid connection agreement and Development Consent Order.

In August 2015, Ørsted acquired the rights to develop the Hornsea zone from SMart Wind, a consortium that was originally awarded the zone in The Crown Estate Round 3 bid process. So far, Hornsea 1 and Hornsea 2 are in operation, with Hornsea 3 currently in construction.

Ørsted has a history of bringing in partners like Brookfield, AXA IM Alts and Crédit Agricole as co-owners in its existing Hornsea offshore wind-farm projects.  

The Hornsea 4 project, approximately 69km off the Yorkshire Coast, was granted consent by the Secretary of State for the Department of Energy Security and Net Zero in July 2023. Prior to the discontinuation of the Hornsea 4 project, Ørsted had been focused on reaching a final investment decision.

Ørsted said it expects to incur break-away costs of DKK3.5 to DKK4.5bn.

Rasmus Errboe, group president and CEO of Ørsted, said: “We remain fully committed to being an important partner to the UK government to help them achieve their ambitious target for offshore wind build-out and appreciate the work they’ve done to deliver a clear framework to support offshore wind.

“However, 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.”

Errboe added that Ørsted will keep the project rights for the Hornsea 4 project in its development portfolio, and “we’ll seek to develop the project later in a way that is more value-creating for us and our shareholders”. 

Ørsted’s decision to halt Hornsea 4 highlights the growing economic challenges for offshore wind development, a trend evident in other recent setbacks. In late 2023, rising costs and interest rates significantly impacted the sector. Siemens faced financial instability, BP recorded substantial write-downs on US projects and Ørsted’s own US offshore wind projects, Ocean Wind I and II, were terminated.

As reported by IPE Real Assets, these difficulties are often rooted in the fact that many projects were underpinned by subsidy agreements established when costs were considerably lower, as seen when Sweden’s Vattenfall scrapped its Norfolk wind farm and the UK’s September 2023 auction received zero bids.

Vattenfall subsequently sold the Norfolk zone to RWE for £963m and also paused its Swedish Kriegers Flak project due to unfavourable economic conditions in Sweden, it said.

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