Dear Vattenfall: Congratulations

The world at large is rightly looking to the private sector to lead the way in delivering a just and minimum cost energy transition, supported by appropriate and disciplined public policy. While committing capital to these projects, especially mega projects such as Norfolk Boreas, is a key way of us rising to the challenge, nobody would be well served from capital blindly delivering these projects at a level of return that does not compensate for the risk that capital takes. Vattenfall is a very large organisation that thankfully can afford to write off costs spent to date and while that may be slightly painful for your shareholders (less so admittedly than if you proceeded to ultimately build the site at a too low IRR) there is a bigger message at play here: the energy transition has to be done in an economically sustainable way and not through acts of great corporate ‘philanthropy’.

My high praise would not be forthcoming if I thought Vattenfall had or could have anticipated the changing environment when submitting a CfD bid for your projects. In fact I would be highly frustrated to say the least. But I have no doubt you put forward a very thorough and well intended bid that would lead to a high chance of your projects being delivered. While any credible firm bidding into an auction will factor in viable downside scenarios, nobody – not even governments – forecast such an abrupt reversal of the favourable industry and economic conditions, although perhaps some did see parts of the supply chain crunch coming.

The economic and industrial situation is  regrettable not least as it is temporarily slowing down the energy transition (and temporarily putting some upward pressure on costs), but we can’t blame anyone for most of the current predicament and parties must come together to explore all ways to deliver these projects at viable cost levels. Ultimately that is the questions governments need to answer in deciding whether to come back to the table for projects such as yourselves; could the winners have reasonably forecast these changes? Assuming the answer is no, the governments then need to decide if the additional costs can reasonably be socialised. I will say this: at least your chances are higher than if you were discussing with a corporate offtaker, to which Mr Nipper and others will clearly attest.

You are focused on a number of European markets but you will probably be aware the issue is global. We see these headwinds playing out across the world and in some cases are even exacerbated by well meant but poorly placed policy. They are nevertheless temporary and we expect momentum in the medium term to remain firmly with the deployment of renewables, especially under revenue schemes like the two-sided CFD which is surely the best way of ensuring these projects are built in a financially efficient way (albeit with as short a time as possible between auction award and financial close).

So if nobody is to blame for tenders that played out shortly before the change in macro-economic environment, what of parties winning tenders today? Well that is different and if those projects are not realised for the very headwinds we are facing right now, then there is in my opinion a level of accountability to those involved. Securing sites must not be seen as securing an option. The world cannot afford it.

Thank you again and I hope – together with industry and government – that you find an economically robust way of delivering Norfolk Boreas. If not the task of the worldwide energy transition is even bigger than we thought.

Yours sincerely,

Matthew Taylor

Green Giraffe Advisory