The development of a massive offshore wind farm in the North Sea has been abruptly halted by its developer, Ørsted, dealing a significant blow to the UK’s ambitious net zero targets. The Hornsea 4 project, which was intended to power 2.6 million British homes, has been put on hold due to escalating costs and interest rates.

In a statement, Ørsted cited the rising costs of the project, as well as increased execution risk, as the main reasons for discontinuing the development of Hornsea 4. The Danish company admitted that it had underestimated the difficulty of installing the planned 180 giant turbines offshore.

The decision to halt the project comes as a setback for Energy Secretary Ed Miliband, who had approved the project last autumn as a key step towards decarbonizing Britain’s electricity grid by 2030. Analysts have warned that this move highlights the challenges faced by the government in meeting its renewable energy targets.

One of the main factors contributing to the project’s cancellation is the soaring supply chain costs, which have significantly increased the price of wind turbines. Additionally, global interest rates have risen, leading to higher refinancing costs that have made government subsidy contracts, known as Contracts for Difference, financially unviable.

Dan Slater, an analyst at Zeus Capital, noted that the cost increases in the offshore wind industry are a direct consequence of the challenges faced by the sector. He warned that the UK may need to pay higher guaranteed electricity prices to continue increasing the volume of new renewables in its energy mix.

Despite the setback, Ørsted has left the door open for future development of the Hornsea 4 project if conditions change. The company indicated that it would evaluate options for the project based on factors such as seabed rights, grid connection agreements, and development consent orders.

Industry experts have suggested that Ørsted’s decision to halt the project could be tactical, potentially allowing the company to bid in the next round of contracts with more favorable terms. This strategic move could lead to greater profits for Ørsted by shifting to a new subsidy regime.

The government has acknowledged the challenges faced by the industry due to supply chain constraints and inflation. A spokesperson for the Department of Energy Security and Net Zero stated that they would work with Ørsted to get the Hornsea 4 project back on track. The government remains committed to delivering clean power by 2030 and ensuring energy security as part of its Plan for Change.

The cancellation of the Hornsea 4 project has sparked debate about the true costs of achieving net zero targets and the sustainability of the government’s approach. Critics have called for a reevaluation of the costs and risks associated with the transition to clean energy, while advocates emphasize the importance of investing in domestic wind manufacturing to support the transition to renewable energy sources.