Is Hornsea Viable At £37.35/MWh?

By Paul Homewood

I covered this story the other day:




Rising supply chain costs and other financial pressures are threatening the development of what could be the world’s largest offshore wind farm off the coast of Britain.

The Hornsea Three Offshore Wind Farm is expected to have a capacity of almost 3GW and generate enough energy to power three million homes.

Energy giant Orsted, which is behind the construction of the massive wind farm, has said it needs more government support to achieve project progress.

Hornsea has an estimated capital cost of about £8 billion,with planned capacity of 2852MW and a current strike price of £37.35/MWh

Experts who have studied wind farm costings and accounts say such a price is simply not viable.

Probably the best crosscheck we have is Triton Knoll, which lies 28 miles off the coast of Norfolk and was commissioned two years ago. Triton cost £2.1bn, according to their accounts, and has a capacity of 857MW. Its current strike price is £94.81/MWh.

Comparing the two, Triton’s capital cost works out at £2.45 million/MW, and Hornsea’s is £2.81 million/MW. The difference may partly be due to Hornsea’s greater distance from the coast and inflation given that it is being built four years later.

On the face of it therefore, there is no logical reason why Hornsea should be 60% cheaper. The expectation is that as Hornsea is further out at sea its productivity will be a bit higher, but even an increase of 10% would only reduce costs by £9/MWh. Against this must be offset the higher cost of maintenance and the higher cost of turbine blades and other supplies.

Hornsea’s biggest cost headache however is the rise in interest rates over the last year. Bank rate has already risen from 0.75% to 4% in the last 12 months, and further increases seem certain to follow. An extra 4%, for example, would increase finance costs by £320/million a year, based on borrowings of £8 billion. And that equates at an additional cost of £28/MWh.

In my view, Oersted never had the slightest intention of taking up its CfD. But with its costs rising rapidly, they must be having grave doubts whether Hornsea will even be able to make money at current market prices, which are currently around £130/MWh.


March 5, 2023 at 08:11AM

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