Swedish utility Vattenfall (VATN.UL) said on Thursday it would stop development of its British Norfolk Boreas offshore wind project due to rising costs, and warned that Britain could struggle to meet its wind targets without improved incentives.
The 1.4 gigawatt (GW) project, which was scheduled to begin producing electricity in the late 2020s, was part of Britain's plans to grow its offshore wind capacity to 50 GW by 2030 from around 14 GW now, to help meet its climate targets and boost energy security.
It could have provided electricity for around 1.5 million homes.
"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 President and CEO Anna Borg said in a statement.
She said overall costs had increased by around 40% and that development of the project in its current form would be halted.
The project won a contract-for-difference (CfD) in a British auction last year, guaranteeing a minimum price of 37.35 pounds per megawatt hour (MWh) in 2012 prices for the electricity produced, which equates to around 45 pounds/MWh today.
Helene Bistrom, Vattenfall's wind business head, said the incentives offered no longer reflected the current market conditions.
"It simply doesn't make sense to continue with this project," she said during a results presentation.
Since the auction, called round 4, other developers including Orsted have called for targeted help for the sector, though they expect their projects to go ahead.
Vattenfall also said it would examine the best way forward for the entire Norfolk zone which also includes the Vanguard East and West projects.
Combined, the three projects were expected to produce some 4.2 GW of electricity.
Borg said she hoped the other projects might be able to go forward if improved CfDs became available, but warned Britain currently does not have the investment environment needed to meet its offshore wind targets.
"We understand there are supply chain pressures for the sector globally, not just in the UK, and we are listening to companies' concerns," A spokesperson for Britain's Department for Energy Security and Net Zero said.
Vattenfall said the decision to halt Norfolk Boreas would hit earnings by 5.5 billion Swedish crowns ($537 million).
($1 = 10.2438 Swedish crowns)
