Last week, Orsted announced its decision to cancel plans for the Hornsea 4 offshore windfarm, sparking debate on the viability of renewable energy projects due to financial challenges such as supply chain costs, higher interest rates and rising construction costs.
With Aberdeen preparing to host renewable energy events including the Energy Exports Conference and Offshore Europe 2025, Grant Morrison, partner in Aberdeen and Head of Oil and Gas at RSM UK, looks at the investment challenges Aberdeen’s energy sector is facing.
Grant Morrison comments: “The cancellation of Hornsea 4 has presented yet another setback for the UK in achieving net zero. We are increasingly seeing very tangible evidence of the impact of current economic policy on the UK energy sector. On the same day Hornsea 4 was cancelled, Harbour Energy, the UK’s largest North Sea oil and gas producer, announced plans to cut up to 250 jobs in Aberdeen, citing the UK’s windfall tax on oil and gas profits as the main factor in making operations financially unviable.
“Although clean energy has been identified as a growth-driving industry, the latest loss of investment reinforces what the sector has been unanimously saying for some time; there’s a balancing act to be achieved between transitioning to renewable energy and maintaining economic stability in traditional energy sectors. We’ve recently seen engineering firm Belmar fall foul to the pressures of increased international competition and falling orders, highlighting the cascade effect on businesses in the energy supply chain.
“We’ve therefore seen businesses managing down their exposure to the North Sea for some time, with many Aberdeen-based businesses now having only a small proportion of their operations in the UK, which leaves them with almost no feasible growth options in the UK and less ties to Aberdeen. As a result, businesses are increasingly considering relocating outside of the UK, whether this is their management team, headquarters or entire operations. Locations such as the UAE, which is perceived as pro-business with more tax advantages and incentives to attract foreign investment, provide attractive alternatives. The energy transition challenge is further evidenced amongst larger players such as BP, which has suffered from falling profits and investor confidence after reversing its commitment to cut oil production and focus on renewable energy investments. This has left BP in a vulnerable position, fuelling speculation that it could be a takeover target for Shell or another energy major.”
He added: “These recent setbacks for both the renewable and oil and gas energy sectors demonstrates the need for government intervention, and the Industrial Strategy can’t come soon enough. Orsted’s cancellation of the Hornsea 4 project in the same week Scottish Power began construction of its 1.4 gigawatt East Anglia THREE windfarm seems incongruous. Consistent feedback from across the energy sector continues to fall on deaf ears. Implementing a genuine transition strategy which consists of upskilling programmes, sustainable investment, cross-industry collaboration and competitive tax policies would help to future-proof the sector and enable Aberdeen to play a key role in the UK’s transition to net zero.”