Work has been suspended on the UK’s biggest wind farm project as the developer blames inflation for spiralling costs.
Swedish utility firm Vattenfall warned that the country’s net-zero targets are at risk if the government does not improve incentives.
The Norfolk Boreas project would be capable of providing 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 Anna Borg said.
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.
Ms Borg warned that warned that without improved incentives Britain could struggle to meet its wind targets.
The 1.4 gigawatt 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 gigawatt by 2030 from about 14 gigawatt now.
Ms Borg said overall costs have increased by about 40 per cent and that the development of Norfolk Boreas in its current form would be halted.
Vattenfall will review two other projects in the area, 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,” Ms Borg said.
“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 £415 million ($537 million), Vattenfall said as it released its second-quarter financial results.
It has become more expensive to borrow money to build the wind turbines and supply chains are also struggling, the business said.
“We have attractive wind power projects in the pipeline, and investment decisions will always be based on profitability,” it added.
“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.
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. If prices rise above that level then they have to pay back their additional gains.
There is no financial penalty for Vattenfall for exiting its contract for difference but it will be banned from putting the same project forward for a new contract in next year's government auction.
