Ørsted has shared its intention to call off the Hornsea 4 offshore wind project in the UK. This massive 2.4 gigawatt (GW) “Nysater” initiative was awarded a contract for difference (CfD) in September 2024. It can’t proceed in its current form due to increasing supply chain costs, higher interest rates, and construction contingencies.
The company’s decision is the latest sign of a growing reassessment among companies of capital allocation strategies. Ørsted’s gross investment guidance for 2025 remains intact at between Dkr50 billion and Dkr54 billion, unaffected by the Hornsea 4 project’s cancellation. Due to this shift in decision, the company will need to reserve capitalized construction costs. Their estimate of these costs is between Dkr0.5 billion and Dkr1 billion.
Rasmus Errboe said the company was “continuing to invest in support of the UK government’s ambitions in offshore wind.” He stated,
“We remain fully committed to being an important partner to the UK government to help them achieve their ambitious target for offshore wind build-out and appreciate the work they’ve done to deliver a clear framework to support offshore wind.”
Inspite of this committment, as Errboe recognized, a tough, no-nonsense, values-oriented process for allocating capital was imperative. He elaborated on the decision, saying,
“However, our capital allocation is based on a strict and value-focused approach, and after careful consideration, we’ve decided to discontinue the development of the Hornsea 4 project in its current form, well ahead of the planned final investment decision later this year.”
The cancellation of Hornsea 4 highlights the challenges faced by renewable energy projects in the current economic climate. Escalating supply chain costs and construction risks have posed significant challenges for developers in the offshore wind space. Ørsted’s very cautious rethinking highlights the challenges of delivering national, bioenergy-based onshore wind expansion while re-establishing long-term financial viability.