Sweden’s Vattenfall said it had decided to stop the development of the Norfolk Boreas windfarm in a move that blew a 5.5 billion krona (£4.1bn) hole in its bottom line.
With Vattenfall putting the blame on surging cost increases, the news was greeted with howls of alarm from renewables specialists in Scotland who expressed concern about the implications for the industry in the country.
Norfolk Boreas, which won official approval in 2021, was hailed as a key project in the push to secure a massive increase in offshore wind power in the UK.
Project director Rob Anderson said the Norfolk Offshore Wind Zone it formed part of was crucial to deliver the UK’s climate targets and fossil-free living within a generation and held out the prospect it would generate significant economic benefits.
In November 2021 Vattenfall unveiled plans to invest more than £15 million in community projects across Norfolk through its offshore wind farms. It said the 25-year fund would be the biggest by an offshore wind developer in the county.
READ MORE: Scottish Government dithers as investors cash in on renewables boom
In November last year the Norfolk Offshore Wind Zone won the National Infrastructure Planning Association’s Best Project award.
Vattenfall said judges had praised the persistence shown by the project team and effort in learning from early challenges; the wide scale of stakeholder engagement and commitment shown to local communities and the attention paid to environmental considerations.
The zone was expected to produce renewable energy equivalent to the needs for over four million households and save about six million tons of carbon dioxide.
However, in Vattenfall’s report on first half trading, chief executive Anna Borg said the group would rethink plans for the zone, which also includes the Vanguard East and West projects.
“Vattenfall has decided to stop the current development track of the offshore wind power project Norfolk Boreas in the UK due to challenging market conditions,” said the company.
“The offshore wind industry has seen cost increases up to 40 per cent which in combination with increased cost of capital puts significant pressure on all new offshore wind projects. So far, financial frameworks have not adapted to reflect the current market conditions.”
The comments provide further evidence that the transition from fossil fuels to a lower carbon energy system may prove to be more complicated than some greens suggest.
READ MORE: 100 million barrel oil and gas find to stoke interest in North Sea
In January last year the Scottish Government hailed the results of the ScotWind leasing round after it generated strong interest among international giants that appeared keen to develop windfarm developments off Scotland.
Then First Minister Nicola Sturgeon said: “ScotWind puts Scotland at the forefront of the global development of offshore wind, represents a massive step forward in our transition to net zero, and will help deliver the supply chain investments and high quality jobs that will make the climate transition a fair one.”
Oil and gas giant Shell submitted a winning bid for ScotWind acreage with Scottish Power, with which it said it planned to build and operate two of the world’s first large-scale floating offshore windfarms.
“Floating wind plays to our strengths in deeper offshore projects, and we are well placed to help advance the wider take-up of this important clean energy source. Renewable electricity will play an increasingly important role in our customer-focused strategy,” said Shell at the time.
But in a press briefing following Shell’s interim results announcement last week chief executive Wael Sawan sounded much less bullish.
READ MORE: Oil firm mired in Rosebank field controversy sees growth potential in UK
“It’s been a difficult time of course for the offshore wind business just given the escalationary pressures that we are seeing,” he told journalists.
Mr Sawan noted: “In floating wind we clearly have some opportunities to be able to leverage capabilities like for example from our deepwater business but the broader context is can we make the economics work?”
Shell will continue to work with partners on how it could make Scotwind and similar projects off other countries “investable” said Mr Sawan.
By contrast, chief financial officer Sinead Gorman said Shell’s North Sea oil and gas business has been making good progress.
The production vessel for the Penguins field north east of Shetland is undergoing final technical works in Norway. Shell hopes to start production from it next year.
“We are excited this year to have welcomed production from Pierce, that’s an important addition, and we are of course investing at the moment in Jackdaw another important gas project in the UK so there’s quite a bit of activity in the North Sea for us at the moment,” said Ms Gorman.
READ MORE: $500m revenue boost shows value of North Sea gas reserves amid green job fears
Industry body Scottish Renewables was clearly alarmed by the update from Vattenfall.
“If projects in England are pausing development because they are not commercially viable then the projects that we have here in Scotland, which are more expensive to operate than those elsewhere in the country, are under threat and are clearly even more vulnerable,” said chief executive Claire Mack.
“The UK Government needs to urgently review its investment framework for offshore wind and recognise the heavier costs on projects here in Scotland.”
Following news the Scottish Government had given Drax planning permission to expand the Cruachan ‘hollow mountain’ renewable energy storage facility, Scottish Renewables also said UK ministers must ensure the economics of that project are attractive enough.
Policy director Morag Watson said there was an urgent need for the UK Government to clarify its support for pumped storage hydro projects and deliver the investment framework needed.
Taxpayers may be alarmed by the implications of such comments. They seem to put the onus on the UK Government to ensure that private sector firms can generate the returns they target from renewables assets whatever happens.
Would this mean an increase in the subsidies provided for an industry which already enjoys valuable support through mechanisms such as the Contracts for Difference programme?
Perhaps Vattenfall was too optimistic in its forecasting.
The Westminster Government is set to provide millions of pounds support for a North Sea carbon capture and storage project in which Shell has a stake.
READ MORE: Aberdeen oil services firm to create 50 jobs after winning carbon capture work
Energy firms enjoyed a bonanza after gas prices surged amid Russia’s war on Ukraine. The windfall tax introduced last year will not stop firms making huge amounts of money as consumers grapple with stinging increases in energy bills.
Scottish Gas owner Centrica last week said it generated £1.4bn cash in the first half of this year, against £0.6bn last time. Centrica received a £500m boost after the regulator allowed firms to recover more costs from consumers under the price cap scheme.
In a trading update issued this month, Scottish energy giant SSE indicated it expects to report bumper profits for the current year.
However, while finance director Gregor Alexander said SSE was making good progress with big renewables developments, he underlined the challenges posed by the vagaries of the weather.
Mr Alexander lamented: “Renewables performance in Q1 was lower than planned, reflecting dry and still weather patterns well below the long-term average.”