Ørsted has taken a final investment decision (FID) on the 2.9GW Hornsea 3 wind project – billed as the world’s single largest offshore wind farm.
The announcement by the Danish wind developer on Wednesday ends months of speculation around the future of the project as the company wrestles with rising costs and a wave of writedowns across its portfolio.
Located around 75 miles off the Norfolk coast, the site will see up to 231 turbines installed across an area of nearly 700 square kilometres.
Ørsted (CPH:ORSTED) said the project is expected to be completed around the end of 2027.
Hornsea 3 will be its third gigawatt-scale project in the Hornsea zone following Hornsea 1 (1.2 GW) and Hornsea 2 (1.3 GW) – two of the company’s 12 offshore wind farms in the country, and which are already managed via its operations and maintenance hub in Grimsby.
Capacity moved to AR6
Ørsted said earlier this year that the project could be shelved after sharp rises in construction and financing left the development unviable based on terms agreed with the government in summer 2022.
In July of that year, it secured a contract for difference (CfD) for Hornsea 3 at an inflation-indexed strike price of GBP 37.35 per MWh in 2012 prices.
It clarified today that this framework permits a reduction of the awarded CfD capacity, and the company intends to use this flexibility to submit a share of Hornsea 3’s capacity into the UK’s next round, allocation round 6 (AR6), next year – for which the government has set higher strike prices.
However, it noted that “most of the capital expenditure for Hornsea 3 was contracted ahead of recent inflationary pressures,” allowing it to secure “competitive prices” from the supply chain.
The use of larger wind turbines and synergies with Hornsea 1 and 2 are likely lead to lower operating costs than it has seen before, it noted.
It’s also set to benefit from the extension of capital allowances, unveiled in the Autumn Statement.
“Based on a well-established supply chain and synergies with Hornsea 1 and 2, Hornsea 3 has a robust risk-reward profile and a value creation around the bottom end of our targeted lifecycle project return range of 150-300 basis points on top of our weighted average cost of capital. This reflects part of the capacity being awarded a CfD in Allocation Round 6,” the company said in a statement.
The potential addition of a Hornsea 4 site would create an offshore wind cluster “in excess of 7GW” and unlock further cluster synergies, it added.
“All major contracts” are now reportedly in place, including an agreement with Siemens Gamesa for SG 14-236 DD 14MW turbines.
Group President and CEO Mads Nipper said: “By applying our world-leading capabilities within offshore wind innovation, engineering, operations, procurement, and financing, we’ve been able to mature the world’s largest offshore wind project and take final investment decision. Offshore wind is an extremely competitive global market, so we also welcome the attractive policy regime in the UK which has helped secure this investment.
“We look forward to constructing this landmark project, which will deliver massive amounts of green energy to UK households and businesses and will be a significant addition to the world’s largest offshore wind cluster.”
Duncan Clark, Head of Ørsted UK & Ireland, said: “Hornsea 3 will be a cornerstone in achieving the UK government’s climate and clean energy targets while increasing energy independence and creating local jobs.
“Our decision to build Hornsea 3 is a vote of confidence in the UK market for offshore wind, as we continue to invest significantly in UK clean energy infrastructure and in the UK supply chain.”
‘Massive step forward’
Emma Pinchbeck, CEO of Energy UK pointed to the “billions” of investment that would be unlocked by the decision.
“We have said to Government this year that investment is competitive as more of the world moves to clean energy with ambitious policies to deliver it,” she said.
“It’s been welcome seeing announcements at the autumn statement help investment, a better auction round for offshore wind ahead, and a slew of announcements for energy investment coming out this side of Christmas in everything from hydrogen to carbon pricing.
“Clearly there is a more still to do – we will continue to work with Government to build a world class industry to be proud of at home in the UK.”
RenewableUK’s Chief Executive Dan McGrail hailed the project as a “massive step forward” for the sector.
“This landmark decision enabling the biggest phase of the world’s largest consented offshore wind project to go ahead is a huge vote of confidence in Britain’s cutting-edge offshore wind industry.
“Today’s announcement also shows that the Government has been listening to the industry after the disappointment of this summer’s CfD auction which procured no new offshore wind.
“The announcements made by Ministers over the last two months of more sustainable administrative strike prices, permanent full expensing for investors in green technologies and funding to support clean energy manufacturing in the UK are putting us back on track to make Britain one of the most attractive countries for international investors in offshore wind.”
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