Orsted to rebid in latest UK CfD allocation round

Danish renewables giant Orsted has confirmed that it will rebid for a higher tariff for a portion of the output of its Hornsea 3 offshore wind farm in the UK.

Hornsea 3 has a name plate capacity of 2.9GW, the entirety of which is backed by a contract for difference (CfD) tariff awarded in UK government's Allocation Round 4 (AR4).

The tariff was awarded on 7 July 2022 at a strike price of £37.35/MWh.

Orsted, along with other industry peers, has since had to readjust CapEx estimates for offshore wind projects due to several macroeconomic conditions including supply chain constraints which have pushed development costs upwards.

This, in turn, resulted in developers seeking alternative means to increase revenue streams from projects to make the investment commercially viable.

In this spirit, Orsted decided to withdraw up to 25% of Hornsea 3's capacity – the maximum capacity allowed without incurring a penalty from the UK government – and rebid for a tariff under AR6.

Orsted is expected to seek a new tariff for at least 713MW capacity from Hornsea 3.

The offshore wind strike price for AR6 has been set at £73/MWh, a sizable increase from AR5 which failed to attract any offshore wind bids with a proposed strike of £44/MWh.

Out of the five offshore wind projects awarded CfDs under AR4, four (including Orsted) are projected to withdrew part of the capacity:

• ESB JV's 1.1GW Inch Cape phase 1 – secured CfD for all of the capacity in AR4, could withdraw around 270MW
• ScottishPower Renewables' 1.4GW East Anglia 3 phase 1 – secured CfD for all of the capacity in AR4, could withdraw 343MW
• Orsted's 2.9GW Hornsea 3 – secured CfD for all of the capacity in AR4, could withdraw 713MW
• Ocean Winds JV's 882MW Moray West – secured CfD for 294MW, could withdraw 73.5MW

A total of 1.4GW capacity awarded under AR4 could potentially rebid for a tariff under AR6 or be contracted out through corporate power purchase agreements.

The fifth offshore wind project awarded under AR4 – Vattenfall's 1.4GW Norfolk Boreas – has defaulted on its CfD contract after the developer chose to halt works last July [2023].

Vattenfall, later the same year, proceeded to sell the rights to Norfolk Boreas along with its sister projects 1.4GW Norfolk Vanguard West and 1.4GW Norfolk Vanguard East to German developer RWE for a total consideration of €1.1 billion.

The deal is expected to be finalised this quarter [Q1 2024] after which, RWE is expected to restart the development of Norfolk Boreas.

AR6 is scheduled to open for submissions on 27 March [2024].

Orsted has confirmed it intention to bid again while a spokesperson for ESB JV has said that they are "evaluating options".

ScottishPower and Ocean Winds did not comment on AR6 in time for publication.