Work on huge new windfarm off East Anglian coast halted over soaring costs
Vattenfall will also review two other projects off the coast of Norfolk and Suffolk
Work has stopped on one of the UK's largest offshore wind farms, off the coast of East Anglia, after its developer said that the cost of the project had soared by so much it no longer made financial sense to push forward.
Swedish energy giant Vattenfall, one of Europe's biggest wind producers, said that the market conditions had deteriorated since it signed a contract that fixes the price of the electricity it sells for 15 years.
It will shut down work on the development of the Norfolk Boreas site, Vattenfall said, and will review two other projects in the area, known as Vanguard East and Vanguard West.
"Offshore wind is essential for affordable, secure and clean electricity, and it is a key element of Vattenfall's strategy for fossil-free living," said Vattenfall chief executive Anna Borg.
"But conditions are extremely challenging across the whole industry right now, with a supply chain squeeze, increasing prices and cost of capital, and fiscal frameworks not reflecting current market realities.
"Vattenfall believes in the strong fundamentals and rationale for the Norfolk projects.
"However, considering market conditions today, we are stopping the current development track for Norfolk Boreas and evaluating the best way forward for all three projects in the Norfolk Zone."
The move will cost Vattenfall 5.5 billion Swedish krona (£415 million) on its earnings, Vattenfall said as it released its second-quarter financial results on Thursday.
It said that the market conditions were challenging, as costs for the offshore wind industry had risen 40%.
It has become more expensive to borrow money to build the wind turbines, and supply chains are also struggling, the business said.
"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," it said.
It added: "We have attractive wind power projects in the pipeline, and investment decisions will always be based on profitability.
"We are convinced that offshore wind power is crucial for energy security and meeting the climate goals in Europe."
Jess Ralston, head of energy at the Energy and Climate Intelligence Unit, said that the Government needs to take into account rising costs for wind farm companies when it awards contracts.
For much of the past decade, offshore wind farms have been promised a fixed price for the electricity they produce through a so-called contract for difference (CfD).
This means that if electricity prices are below the promised price - known in industry jargon as the strike price - then companies get a subsidy to make up the difference.
Equally, if prices rise above that level then they have to pay back their additional gains.
Last year Vattenfall won one of these contracts to build the Norfolk Boreas wind farm at a joint record-low strike price of £37.35 per megawatt hour.
But since winning the auction, Vattenfall and others have warned that costs have increased far too fast for these projects to be economical anymore.
In March, Denmark's Orsted warned that it might pause the Hornsea 3 project in the UK - expected to be the world's largest wind farm when it opens - unless it gets help with surging costs. Hornsea 3 has the same £37.35 per MWh strike price as Norfolk Boreas.
"Costs of wind farms have been driven up by ongoing high gas prices causing supply chain inflation, just like for other industries," Ms Ralston said on Thursday.
"If the Government gets the policy wrong on the current round of renewables auctions and doesn't keep pace with increasing costs, the UK could end up even more reliant on foreign gas, leaving households on the hook with higher bills.
"Doubling down on renewables, which remain much cheaper than gas, means in future price spikes we'll be less exposed."
There is no financial penalty for Vattenfall for exiting its contract for difference.
But the business will be banned from putting the same project forward for a new contract in next year's Government auction. It can submit the project for consideration again in 2025.