Orsted announced its final investment decision on the Hornsea 3 project off the coast of Britain, signaling the green light for the construction of the world's largest offshore wind farm. The project, with a capacity to supply energy to over 3.3 million UK households, is estimated to cost between 70-75 billion Danish crowns ($10.3-$11.0 billion) and is slated for completion by the end of 2027.
This 2.9-gigawatt venture is considered crucial for the UK's efforts to enhance energy security and increase renewable power output in line with climate targets. The decision to proceed with Hornsea 3 comes against the backdrop of a challenging year for the industry, marked by project cancellations in both Britain and the United States due to escalating costs.
See also: Orsted Achieves Record Earnings with North Sea Wind Asset Sales
Orsted, a global leader in offshore wind development, recently halted two U.S. offshore wind projects, with related impairments exceeding $5 billion. Despite these challenges, Hornsea 3's value creation is expected to align with the lower end of Orsted's targeted return on projects, with Bernstein analysts projecting an internal rate of return between 7-7.5%.
The project's future had been uncertain due to rising upfront costs, attributed to supply chain delays and increased expenses within the industry. Orsted, however, emphasized that a significant portion of the project's capital expenditure was secured at competitive prices ahead of recent inflationary pressures.
Governments, recognizing the importance of offshore wind in reducing emissions and achieving climate targets, have shown a willingness to pay higher prices for such projects. Orsted secured a favorable price of 37.35 pounds ($47) per megawatt hour (MWh) for power production at Hornsea 3 in a 2012 inflation-indexed pricing structure.
See also: Orsted acquires remaining stake in 1,100 MW Ocean Wind 1 project off New Jersey coast
In response to a recent auction that failed to attract offshore bids, the British government announced plans to increase the price offered in the next renewables auction, offering 73 pounds per MWh for offshore wind projects. Orsted has the potential to submit up to 700,000 MW of the project's capacity in future bidding rounds, potentially doubling the offtake price.
