Lessons from Ørsted’s Hornsea 4 withdrawal: what it means for energy investment and clean power

Ørsted’s decision to withdraw from the Hornsea 4 offshore wind project sent ripples through the energy sector, raising critical questions about the future of offshore wind and the UK’s Clean Power 2030 ambitions. This high-profile cancellation forces a timely reflection on how the industry must evolve to manage risk, deliver value, and secure investment in a more uncertain environment.

What went wrong for Ørsted?

Offshore wind has seen considerable growth over the past two decades, driven by falling costs and supportive government commitments. Ørsted became a global leader by betting on fast growth, coupled with stable costs and smooth delivery – but its high growth strategy left it open to risks.

In recent years, Ørsted has faced substantial losses, amounting to billions of dollars. When inflation, supply chain disruption and rising interest rates hit, Ørsted’s fixed revenues and aggressive bids turned from an asset into a liability. Over the past few weeks, LCP has spoken to several investors about the challenges of investing in offshore wind – which are clear when you consider that these are effectively large infrastructure projects built at sea. Some of these challenges though were unique to Ørsted:

• Aggressive growth commitments from Ørsted senior management placed enormous strain on capital and project delivery.
• Low CfD bids that left no margin for rising costs locked Ørsted into uneconomic contracts when inflation hit.
• Misaligned hedging strategies exposed the business to expensive market purchases when project delays reduced expected output and forced the company to buy power to offset contracts.
• Project execution setbacks deferred revenue and added to financial pressure as delays hit.

These combined issues forced Ørsted to cancel several projects, including Hornsea 4, despite its strategic importance for the UK’s decarbonisation plans.

Key lessons for the industry

While many of the pressures Ørsted faced were external, several risks could likely have been better managed, offering valuable lessons for the wider clean energy sector.

1. Prioritise value over volume
   
   Chasing capacity targets through ultra-competitive pricing proved unsustainable. Future investment decisions will need to strike a more balanced approach between competitiveness and long-term value creation. As markets mature and costs fluctuate, developers must be cautious of overcommitting to low-price contracts that leave no buffer for changing conditions.
2. Strengthen risk management
   
   Complex, capital-intensive infrastructure projects are inherently risky, particularly when exposed to volatile commodity markets and inflation. More sophisticated alignment between hedging strategies and delivery schedules are essential to avoid mismatches. Equally, better contingency planning can help manage unforeseen delays and cost overruns, safeguarding financial resilience.
3. Build financial flexibility
   
   Ørsted’s highly leveraged, capital-intensive model left it vulnerable to market shocks. A more balanced approach to growth, funding and risk exposure is now essential across the sector. Developers should maintain financial headroom to navigate periods of market volatility and avoid over-reliance on debt to meet ambitious targets.
4. Share risk and diversify
   
   Large offshore projects carry significant binary risks – key go/no-go decisions on planning, grid connections, and financing that can derail an entire scheme. Partnering with other investors and diversifying into complementary technologies such as onshore wind, solar and battery storage can smooth returns and reduce exposure to sector-specific risks.

What does this mean for UK Clean Power targets?

The cancellation of Hornsea 4 is a setback for the UK’s Clean Power 2030 ambitions, which aim to deliver 95% of GB’s electricity from low-carbon sources within the decade. The site was expected to contribute over 4% of the UK’s renewable generation by 2030, so its removal tightens the margin for error.

That said, the wider offshore wind pipeline remains healthy, with over 50GW of capacity in various stages of development. Recent initiatives like The Crown Estate’s Capacity Increase Programme should help improve project resilience. However, unless delivery risks are actively managed and commercial frameworks evolve, investor caution could slow progress.

The role of government and policy reform

Navigating the current investment landscape requires not just private sector adaptation but also government intervention. Policy makers will need to:

• Reassess CfD structures, potentially introducing termination fees to reduce the risk of non-delivery, while considering alternative support models for riskier projects.
• Accelerate consenting processes and grid connection agreements to reduce project lead times.
• Support domestic supply chains through incentives like the Clean Industry Bonus, helping to stabilise costs and improve delivery certainty.

Without these changes, or a significant fall in development costs, capital may increasingly flow towards lower-risk technologies like onshore wind and solar, jeopardising offshore wind’s central role in the UK’s clean energy transition.

CP2030 remains achievable, but we’ve lost a bit of headroom

Ørsted’s Hornsea 4 decision marks a pivotal moment for offshore wind investment. It’s a stark reminder that scaling clean power comes with significant financial, operational and strategic risks. The lessons are clear: value must take precedence over volume, risk must be actively managed, and resilience built into both financial models and delivery programmes. If developers, investors and government can respond effectively, Clean Power 2030 remains within reach, but the margin for error is decreasing as the challenge grows and time ebbs away.