Ørsted has decided to enter part of its Hornsea 3 wind farm, which already has a Contract for Difference (CfD), in the next CfD allocation round.
The news came as the company announced that it had made a Final Investment Decision for Hornsea 3, which at 2.9GW would currently be the world’s single largest offshore wind farm.
Ørsted was awarded a 15-year contract for difference (CfD) for Hornsea 3 at an inflation-indexed strike price of £37.35 per MWh in 2012 prices in July 2022. But the CfD framework permits a reduction of the awarded CfD capacity and Ørsted said it will use this flexibility to submit a share of Hornsea 3’s capacity into the UK’s upcoming allocation round 6, which has been capped at £73/MWh in 2012 prices. The Financial Times said up to 700MW could enter Round 6.
The company said that with part of the capacity in Round 6 “Hornsea 3 has a robust risk-reward profile and a value creation around the bottom end of our targeted lifecycle project return range of 150-300 basis points on top of our weighted average cost of capital”. This reflects part of the capacity being awarded a CfD in Allocation Round 6. If Hornsea 4 went ahead, it “would create an offshore wind cluster in excess of 7 GW and unlock further cluster synergies”.
Ørsted said, “We have all major contracts for Hornsea 3 in place,” adding, “Most of the capital expenditure for Hornsea 3 was contracted ahead of recent inflationary pressures”. Larger Siemens Gamesa 14MW wind turbines and synergies with Hornsea 1 and 2 “lead to lower operating costs than we have seen before in our portfolio”.
Significant supplier contracts include an agreement for Hornsea 3 to be the first and lead customer at SeAH Wind’s monopile factory in Teesside.
Hornsea 4 project, which could have a capacity of up to 2.6 GW, received development consent in 2023 and is now eligible for forthcoming CfD allocation rounds.
The CfD for Hornsea 3 runs for up to 15 years starting after commissioning of the wind farm, which is expected around the end of 2027. The strike price is inflation-indexed up to and throughout the CfD period.