Image description: An offshore windfarm with the coastline in the foreground and a sunset sky forming the backdrop.

Strong headwinds facing offshore wind

Danish firm Ørsted has announced it is discontinuing the Hornsea 4 project in the UK in its current form.

The fourth phase of the huge Hornsea windfarm, located off the Yorkshire coast, was expected to use 180 giant turbines to generate enough green electricity to power the equivalent of 1m homes, or 2.4 gigawatts of power capacity.

The combination of higher material costs, inflation, and global financial instability has made large-scale renewable projects increasingly difficult to finance and complete. Ørsted’s chief executive, Rasmus Errboe, said these factors ultimately increased the execution risk and worsened the possible value creation of the giant project, for which it had already won contract for difference (CfD) support in the UK’s AR6 tender.

How does this affect the UK’s targets? 

Ørsted’s decision is a significant setback to the UK’s energy transition goals. The UK currently has around 15 GW of offshore wind, and Hornsea 4’s size would have provided almost 7% of the additional capacity needed for the UK’s 50 GW by 2030 target, according to The Times. Losing this major project off the Yorkshire coast could hamper the UK’s pace of reducing dependency on fossil fuels, especially amid volatile global energy markets. 

Ørsted says it remains committed to its other UK-based projects, including the Hornsea 3 wind farm, which is expected to generate around 2.9 GW once completed at the end of 2027. Despite the challenges, the company emphasized its ongoing commitment to the British renewable market, pointing to the critical need for policy support and economic stability to ensure future developments.

Similarly, the UK government reiterated its commitment to renewable energy, promising to work closely with industry leaders to overcome financial and logistical hurdles. Energy Secretary Ed Miliband told journalists in Norway that the UK is “still committed to working with Orsted to seek to make Hornsea 4 happen by 2030”, asserting that the government continues to receive strong interest for the development of offshore wind energy projects. He said hundreds of bids have been received in the latest government scheme, a “strong signal that industry supports the government’s clean power by 2030 mission.” 

Poor behaviour that should be punished? 

It is the second time a developer has walked away from a major project that already had a CfD in place, following Vattenfall’s exit from the Norfolk Boreas project off the coast of England in 2023. It said costs had risen by 40% due to an increase in global gas prices impacting the cost of manufacturing. Vattenfall sold the Norfolk Boreas to RWE that has continued to develop the project.

It is also not the first time Ørsted has abandoned a project, as in October 2023 Ørsted announced it was to cease development of US offshore projects Ocean Wind 1 and 2. Ørsted said this cancellation was a consequence of supplier delays impacting the project schedule and the business case deteriorating through increases to US interest rates.

Reuters reported that Ørsted’s cancellation of Hornsea 4 would result in a projected loss of up to 5.5 billion Danish crowns ($837.85 million) in breakaway fees and asset write-downs. The company’s market value has reportedly declined by 80% since its peak in 2021.

Ørsted’s decision has sent ripples through the offshore wind industry, demonstrating even flagship renewable projects are vulnerable in the face of economic pressures and global uncertainties, which have been heightened under the Trump administration in the US.

Some analysts have denounced Ørsted’s decision as ‘poor behaviour that should be punished‘. This halt not only endangers renewable targets but could also create uncertainty in the market. However, analysts highlight a “double-edged sword” here. While sanctions might seem appropriate, they could also further strain relations between the government and key players in the industry, which would be particularly concerning for future projects and investments.