Offshore wind sector rocked by shelving of huge government-backed project as costs rise

Danish energy giant Ørsted has shelved plans to develop one of the largest offshore wind farms in the world, a 2.4 gigawatt project proposed for waters off the coast of Yorkshire, just months after winning UK government support for the huge project.

Ørsted said on Wednesday that a series of adverse market developments meant it no longer made economic sense to develop the Hornsea 4 offshore wind farm, despite the project having development approvals and being awarded a contract for difference (CfD) of £58.87 per MWh (2012 prices) in the latest UK government auction.

The company says the decision means it will stop any further spend on the project and terminate the project’s supply chain contracts – and will not deliver Hornsea 4 under the CfD awarded in AR6. The move will also incur “break-away costs” of 3.5 to 4.5 billion Danish Kroner in 2025.

“After careful consideration, we’ve decided to discontinue the development of our Hornsea 4 project in its current form, well ahead of the planned FID later this year,” Ørsted CEO Rasmus Errboe said in a statement released alongside the company’s interim results for the first quarter of 2025.

“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,” Errobe said.

“The adverse macroeconomic developments, continued supply chain challenges, and increased execution, market and operational risks have eroded the value creation.”

Hornsea 4 was proposed as part of a series of record-breaking offshore wind farms Ørsted is operating, constructing and developing off in the North Sea, described by the company as a new generation of projects that are “further from the coastline than ever before, and at a scale which is a step-change in size.”

The 1.2 GW Hornsea 1 wind farm became commercially operational and in 2020, making it the largest operational offshore wind farm in the world at that time. That title then went to the 1.3 GW Hornsea 2 when it switched on in August 2022 – a project that was built – Ørsted says – at the lowest ever contract price for offshore wind in the UK.

Hornsea 3, which will be bigger again with a capacity of 2,955 MW and up to 231 turbines, was awarded CfD in the same auction as Hornsea 4, but for a 1,080 MW share of the project at inflation-indexed strike price of £54.23 per MWh. Hornsea 3 is still going ahead.

Errobe says Ørsted “continues to firmly believe in the long-term fundamentals of and value perspectives for offshore wind in the UK,” and will keep the project rights for the Hornsea 4 project in its development portfolio and seek to develop it later “in a way that is more value-creating for us and our shareholders.”

“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,” Errobe said.

For the UK government, however, the cancellation of Hornsea 4 is fresh blow to its plans to double the country’s onshore wind, triple its solar power and quadruple its offshore wind power capacity by the end of the decade, as it works to cut emissions by 81 per cent by 2035.

A spokesperson for the Department of Energy Security and Net Zero (DESNZ) said it recognised “the effect that globally high inflation and supply chain constraints are having on industry across Europe.”

Others have not been so understanding. Jérôme à Paris, a European energy pundit who describes himself as an offshore wind specialist, says Ørsted should be punished beyond the usual penalty of not being allowed to bid in the next two UK government auction rounds.

“The fact that Ørsted is again abandonding a project in 2025 after having bid for a CfD less than a year earlier shows that they have learnt nothing, and are still taking the government (and ratepayers who support their projects) for fools,” he writes here.

“They should be forced to build the project or stripped of their licence on the zone and forced to pay a penalty equal to a substantial fraction of that investment cost. That amount could be used to incentivise replacement bidders. I’d even go as far as banning failing developers from getting any offshore licence for multiple years.

“At the very least, governments need to impose very high bid bonds on any price auction, to ensure that these bids are realistic and projects get built at the offered price.

“The bonds would be drawn only if projects are not built within a reasonable, pre-set timeframe, with limited allowances for extensions for factors genuinely beyond the developers’ control (a delay in the grid, or something like a critical vessel sinking, say).”

Dhara Vyas, the chief executive of Energy UK, said the loss would “raise the stakes” on the the next auction round, due in the second half of the year, and it was “vital that the government doubles down to ensure [it] is a success.”