Orsted halts another offshore wind farm project; it is no longer viable

Danish energy company Orsted is withdrawing from the development of another offshore wind farm, this time in UK waters. The company secured support for its planned wind farm only last autumn. Hornsea 4 is not the first offshore wind farm that Orsted will not build; the company halted other projects in the US in 2023. The negative trends of recent years have also hit the company's share price, which has fallen 80% from its peak.

The offshore wind sector has faced adverse conditions in recent years, partly due to rising costs. Developers have cancelled several offshore wind farm projects, and the list grew by one more this week. The latest project to be cancelled is the planned Hornsea 4 wind farm, which was to be built in UK waters. With a planned installed capacity of 2.4 GW, it would have ranked among the world's largest offshore wind farms.

Orsted, the project's developer, secured support in an auction only last September. However, due to rising costs and interest rates, as well as project risks, it no longer intends to proceed with the wind farm's development. The company will now terminate all contracts across the supply chain.

The project cancellation will not come without a cost: it will cost Orsted 3.5 to 4.5 billion Danish kroner this year. In addition to contract termination fees, the company's financial results will also be affected by the write-off of assets associated with power transmission from the site.

"Over the past nine months, we have been preparing the project and working tirelessly with stakeholders and suppliers to manage the various risks involved in a project of this scale. Throughout the development phase, we have been very cautious in our capital commitments to suppliers, and our committed capital is well below our threshold. Adverse macroeconomic developments, persistent supply chain challenges, and increased execution, market and operational risks have reduced the value created," said Rasmus Errboe, president and chief executive of the Orsted Group.

Yet another offshore wind farm project scrapped

Hornsea 4 is not the first offshore wind farm whose development Orsted has halted. In autumn 2023, the company halted two projects off the US coast. Offshore wind farm projects are being cancelled not only in the US; projects in Europe have also been halted. In the case of the project at Stora Middelgrund, the Swedish government intervened, citing nature conservation. Meanwhile, the planned Norfolk Boreas offshore wind farm in UK waters was halted by Vattenfall itself due to rising costs, which made the project unprofitable.

The difficult situation is also affecting developers' share prices. In Orsted's case alone, the share price has fallen over the past four years from around 1,300 Danish kroner to 260 kroner, a drop of roughly 80%.