(This Dec. 20 story has been corrected to read 700 MW, not 700,000 MW, in paragraph 12)
By Jacob Gronholt-Pedersen
COPENHAGEN (Reuters) - Orsted said on Wednesday it had made a final investment decision on the Hornsea 3 project off Britain's coast, indicating it will proceed with what will become the world's largest offshore wind farm.
The project, which will have capacity to power more than 3.3 million UK homes and is expected to cost 70-75 billion Danish crowns ($10.3-$11.0 billion), is targeted for completion by the end of 2027.
The 2.9-gigawatt project is seen as vital for Britain's push to boost energy security and its renewable power output to meet climate targets.
The decision comes after several developers cancelled projects in Britain and the United States this year as soaring costs made them unprofitable.
Orsted, the world's biggest developer of offshore wind, last month halted the development of two U.S. offshore wind projects and said related impairments had surged above $5 billion.
Orsted said Hornsea 3, which is part of a wider array at the Hornsea site off the Yorkshire coast, has a value creation "around the bottom end" of its targeted return on projects. Bernstein analysts projected the internal rate of return at 7-7.5%.
Development of the Hornsea 3 project had been in doubt due to rising upfront costs, as the industry grapples with supply chain delays and higher costs.
Most of the capital expenditure for the project was contracted ahead of recent inflationary pressures, securing competitive prices, Orsted said.
Governments have shown more willingness in recent months to pay higher prices for offshore wind, a renewable energy source that would help them cut emissions and reach climate targets.
Orsted was last year offered a price for power production at Hornsea 3 of 37.35 pounds ($47) per megawatt hour (MWh) in inflation-indexed 2012 prices.
In response to a September auction that failed to attract any offshore bids, the British government announced it will increase the price offered at its next renewables auction, with offshore wind projects to be offered 73 pounds per MWh.
Orsted has permission to submit up to 700 MW of the project's capacity in future bidding rounds, potentially allowing it to double the offtake price.
Shares in Orsted, which have more than halved this year after massive writedowns on U.S. projects, rose as much as 5% on Wednesday.
($1 = 0.7898 pounds)
($1 = 6.7994 Danish crowns)