Northland Power has warned that it is increasing contingency measures on its advanced offshore wind farms due to cost pressures.
In its 2023 financial guidance, the company noted that inflation, supply chain constraints and rising interest rates are affecting the global renewables sector.
These impacted its most advanced projects, increasing the costs of equipment and material from their original expectations when the company was looking to select suppliers and lock down contracts.
As such, Northland has increased estimates for contingency amounts and schedule buffers on all projects in accordance with recent changes experienced.
On the 1.2GW Baltic Power project, amendments to the 25-year CfD offtake contract, principally the new option to denominate in euros and the advancement of the indexation base year to 2022 (from 2023 previously), have restored original project economics.
Corporate offtake sourcing for the 1.6GW Nordsee Cluster has commenced in 2023 and Northland expects to contract at a higher price than had been assumed prior to the European energy crisis. This benefit, however, may be partially offset by increased capital costs.
On the 1GW Hai Long project, the 744MW 20-year corporate PPA rate helped to partially offset some of the capital costs increases.
The financing of the project is progressing, albeit slower and more challenging than expected due to market specific factors.
Northland added that it continues to look for opportunities to optimise returns and manage risk and despite these higher costs, believes the actions taken in combination with other offsets, including sell-downs, will keep overall average returns for its offshore wind portfolio in the targeted ranges.
“The accelerating energy transition and energy security concerns are creating attractive development and investment opportunities for Northland Power and an improved market environment for our operating facilities,” said Northland’s President and CEO Mike Crawley.
“At the same time, macro-economic and geo-political headwinds of the last year require even more focus on disciplined and prudent project execution. A robust development pipeline not only positions Northland well in several key renewable energy markets but, as importantly, it allows the company to be selective in where it deploys its capital.”