The UK Department for Business, Energy and Industrial Strategy (BEIS) has awarded the offshore wind farm developer Ørsted a contract for difference for its Hornsea 3 offshore wind farm. The wind farm has been described as the world's single biggest offshore wind farm.
The Contracts for Difference scheme is the UK’s main policy mechanism for supporting low-carbon electricity generation, providing successful CfD bidders with a contract for a 15-year fixed revenue stream.
Ørsted said its project was awarded at an inflation-indexed strike price of GBP 37.35 per MWh in 2012 prices.
"With a capacity of 2,852 MW, Hornsea 3 will produce enough low-cost, clean, renewable electricity to power 3.2 million UK homes, making a significant contribution to the UK Government’s ambition of having 50 GW offshore wind in operation by 2030 as part of the British Energy Security Strategy," Ørsted said.
Hornsea 3 will be located 160 km from the Yorkshire coast, and Ørsted expects to commission the wind farm in 2027. When Hornsea 3 comes online, Ørsted’s Hornsea zone – comprising Hornsea 1, 2, and 3 – will have a total capacity of in excess of 5 GW, making it the world’s largest offshore wind zone covering the power consumption of around 5 million UK households.
Ørsted expects to take a final investment decision on Hornsea 3 within 18 months and potentially as soon as by end of 2022. The two-way contract for difference (CfD) for Hornsea 3 runs for up to 15 years starting after the commissioning of the wind farm, which is planned for 2027. The strike price is inflation-indexed up to and throughout the CfD period.
The nominal starting price per MWh will be determined based on the strike price plus accumulated inflation from 2012 until the CfD starts. After the CfD ends, Hornsea 3 will receive the market price for electricity or enter new power purchase agreements. The information provided in this announcement does not change Ørsted’s financial outlook for the 2022 financial year or the expected investment level announced for 2022.
Martin Neubert, Deputy Group CEO and Chief Commercial Officer at Ørsted, says: “Offshore wind once again proves itself as a homegrown source of clean energy at a large scale that will help the UK achieve its climate targets and increase energy independence while creating local jobs and industrial development.
“We remain fully committed to financial discipline. The strike price is inflation-indexed and the contract comes with a level of merchant flexibility. We have already secured capacity with key suppliers for around two-thirds of Hornsea 3’s CAPEX. Also, we can unlock significant synergies by taking a global portfolio view in procurement and by utilizing Hornsea 3’s size and location adjacent to our existing UK East coast wind farms with close to 4 GW in operation.”
According to Ørsted, Hornsea 3 will support up to 5,000 jobs during its construction phase with up to a further 1,200 permanent jobs both directly and in the supply chain for the long operational phase.
Hornsea 3 will be operated from Ørsted’s operations and maintenance hub in Grimsby. The Hornsea Zone will also include Ørsted’s Hornsea 4 project, which could have a capacity of approximately 2.6 GW.
Hornsea 4 is currently going through the planning process with a decision expected in early 2023.