Wind down
The business news that matters
Hello and welcome to the latest Off to Lunch…
One of the biggest offshore wind projects in the UK has been stopped due to rising costs. This is a setback for the UK’s energy strategy and its drive to cut carbon emissions.
Vattenfall, the Swedish energy company, has announced today that it has halted development of the Norfolk Boreas project. This project is off the coast of East Anglia and is due to deliver 1.4 gigawatts of energy, enough to power 1.5 million homes.
Vattenfall, which is state-owned, has also said it is considering the “best way forward” for two other projects off the coast of Norfolk - Norfolk Vanguard East and West. These projects are also due to provide 1.4 gigawatts of energy each.
The cost of building the Norfolk wind farm has been estimated at more than £10 billion.
Anna Borg, the president and chief executive of Vattenfall, said that the cost of the company’s wind projects has risen by 40 per cent due to inflation and supply chain disruption. She said in a statement:
“This development affects future profitability and means that Vattenfall makes an impairment for wind power in Norfolk, UK, with a total impact on earnings of SEK 5.5 billion. We have decided to stop the development of Norfolk Boreas in its current form and not take an investment decision now due to mentioned factors, which triggers the impairment.
“We will examine the best way forward for the entire Norfolk Zone, which in addition to Boreas also includes the Vanguard East and West projects. Over the past decade, Vattenfall has built up its wind operations which today is a valuable and profitable business generating an underlying profit of more than SEK 16 billion last year.
“We have attractive wind power projects in the pipeline, and investment decisions will always be based on profitability. We are convinced that offshore wind power is crucial for energy security and meeting the climate goals in Europe.”
The UK government wants offshore wind to deliver 50 gigawatts of power by 2030, up from about 14 gigawatts at present. This move by Vattenfall, which operates 10 wind farms across the UK, is a setback not only because it raises questions about the future of the Norfolk project but because it raises questions about the economics of wind farms in general.
You can find Vattenfall’s announcement, which is part of the company’s half-year results, here. The image below is from the company’s presentation to investors and provides some basic details about the Norfolk project…
A row over how much the government and taxpayers should subsidise renewable energy projects is now looming. As the Financial Times reports:
The British government last year awarded the Norfolk Boreas project a contract guaranteeing a fixed price of £37.35 per megawatt-hour for its electricity for the first 15 years, in 2012 prices and linked to inflation. Ministers celebrated a sum that was well below the ones agreed in previous years.
However, developers have argued that surging costs linked to supply chain problems in the wake of Russia’s full-scale invasion of Ukraine mean the projects may no longer be economically viable under these terms.
You can find that story here and more reaction below…
A scheduling note: Off to Lunch is having a day off tomorrow and there will be no newsletter. I will be back on Sunday with our press review for paying subscribers.
Podcast…
I am delighted to say that a new season of our Business Studies podcast will start next week. The episode will be sent to Off to Lunch subscribers on Tuesday morning and will be available on all podcast platforms.
Business Studies takes a look a second look at business stories from the past and asks: did these stories happen the way we think they did and what can we learn from them today? We look back at these stories by speaking to someone at the heart of what happened. We have interviewed some of the biggest names in business in the podcast and you can find all our previous episodes here
Other stories that matter…
1. The fall-out from Coutts closing Nigel Farage’s bank account is all over the newspapers this morning. For those who haven’t been following the story, this is what has happened. Coutts, a private bank and wealth manager owned by Natwest, said that it had closed Farage’s account because he had fallen below its financial threshold. However, Farage, the former leader of the UK Independence Party, obtained a 40-page internal document from Coutts that said his views did not “align with our values”. This document alleges that Farage has “xenophobic, chauvinistic and racist views”, that he was “considered by many to be a disingenuous grifter” and highlighted his links to Donald Trump, Novak Djokovic, Russia and his retweeting of a Ricky Gervais joke about trans women. Farage says the allegations are an “appalling slur”. He told BBC Newsnight last night:
“This was a personal hit job. It was like a brief to a barrister before a criminal trial. This bank is behaving like a political campaigning organisation.”
Rishi Sunak has spoken out about the row. The government has said it will now work on proposals that mean banks could lose their licence if they discriminate against customers based on their political beliefs. Banks will also have to give three months notice to customers if they want to close their account and explain the reasons why…
You can find Coutts’ report on Farage here. For further reading, Nils Pratley has written an excellent column in The Guardian about this story here
2. Central banks including the Bank of England are ignoring money supply data which suggests that they risk causing a recession if they carry on increasing interest rates. That is a warning from Lord Mervyn King, the former governor of the Bank of England, in an interview with Bloomberg. You can read his comments here
3. Shares in Netflix are down 7 per cent in pre-market trading in New York after the streaming service posted its latest quarterly results last night. Netflix said that revenue rose 2.7 per cent year-on-year to $8.2 billion in the second quarter of 2023 and forecast that revenue would rise by 7.5 per cent in the third quarter. This was lower than analysts expected. Nonetheless, Netflix added 5.9 million new subscribers in April, May and June as the streaming service cracked down on sharing passwords. The US company now has 238.39 million subscribers. You can find Netflix’s results here. Despite the fall in Netflix shares today, the company has recovered significantly over the last year following a post-Covid drop for its share price…
Meanwhile, shares in Tesla are expected to fall by 3 per cent when trading opens in New York. The electric car maker also published quarterly results last night. Tesla said that revenues rose 47 per cent year-on-year to $24.9 billion in the three months to the end of June while net income rose 20 per cent to $2.7 billion. However, Tesla’s profit gross profit margin shrank by nearly seven percentage points to 18.2 per cent as the company cut prices to sell cars. You can find Tesla’s results here. Elon Musk, Tesla’s chief executive, also told investors on a conference call that the company will spend $1 billion this year on building a supercomputer codenamed Dojo. This supercomputer could develop Tesla’s self-driving technology by being able to process vast quantities of data and video. Story here
4. The British venture capital investor and former journalist Sir Michael Moritz is leaving Sequoia Capital after nearly 38 years with the US firm. Wall Street Journal story here
5. TikTok is the most popular source of news for 12 to 15-year-olds in the UK and nearly two-thirds of young adults use social media to find news on their mobile phone. That is according to Ofcom’s latest annual report on news consumption in the UK. This report is one of the best guides you can find on media habits in the UK. You can read it here
6. The Guardian has published a long read about the struggles of fish and chip shops in the UK, particularly Scotland, amid rising costs. This feature (which is very long) is partly an analysis of the industry, partly a colour piece on the families running fish and chip shops, and partly an ode to this very British industry. You can find the piece here
And finally…
I am ending this week by spending today in Brighton and tomorrow in Manchester, with a brief sojourn in London in-between. Here in Brighton I have just visited Sea Lanes Brighton, a great new regeneration project on the seafront which is well worth your time if you are here. It includes the National Open Water Swimming Centre, a 50-metre heated outdoor pool on the beach, as well as space for independent businesses, bars, restaurants and outdoor seating. You can find more details here.
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Best
Graham