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Climate

Is Offshore Wind Out of the Woods?

2023 was, in a word, bad. But there are reasons to think this year might be better.

A wind turbine.
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Billion-dollar losses, cancelled contracts, accusations of whale murder — 2023 was not a good year for offshore wind. A variety of companies involved in the business, from developers to turbine manufacturers told analysts and investors about how bad it was when it came time to report their full-year earnings. Orsted, the Danish energy company, told investors last week that it would have been $2 billion in the black if it were not for its U.S. business; instead it was $3 billion in the red. The head of General Electric’s renewables business, meanwhile, told analysts that offshore wind was “challenging” in 2023 and reported a $1.1 billion loss. And BP, after one executive called the offshore wind market “fundamentally broken” last fall, said this month that it had written down its offshore wind investments by $1.1 billion and was also getting out of a joint venture with Norwegian wind energy giant Equinor.

But that could very well be the worst of it. “We are bullish [on] Offshore Wind value creation given most 2023 issues were related to new US market and cyclical pressures rather than structural challenges,” Morgan Stanley analysts wrote in a report earlier this month. Or to put it another way, 2023 was a weird — and very expensive — year.

The contracts that fell through in the past year, the analysts said, “relate to a specific vintage of projects, which secured revenues in a lower cost environment in 2018-2021” — that is, they were written for a world without the huge run up in costs due to Covid-era inflation and supply chain issues. “Looking ahead, we believe most of these issues have been addressed,” the Morgan Stanley analysts wrote.

For another thing, offshore wind still plays a key role in several states’ climate policies, particularly in the Northeast. Whatever issues around costs and contracting might still exist, state governments have incentives to work around them. Now, analysts and advocates predict, contracts will be written with today’s cost environment in mind, making it easier to share costs to connect projects to the grid. “A number of states like New York have now adopted mechanisms that help de-risk projects,” Fred Zalcman, director of the New York Offshore Wind Alliance, told me.

If all goes well, New York and other states’ decision not to go forward on some contracts due to cost disagreements with developers will only delay the projects — it was the contracts that were the problem, not the projects themselves. Those same developers can rebid for a new, more comfortable deal.

Later this month, New York is expected to award new contracts as part of a new program to fast track procurement following regulators’ refusal to adjust existing contracts for higher costs; both Orsted and Equinor submitted new bids for their Sunrise and Empire Wind projects. Earlier this year, New Jersey, where Orsted had previously cancelled two projects, awarded contracts for more than 3 gigawatts of new capacity , and Connecticut, Massachusetts, and Rhode Island — all three of which have had offshore wind deals fall through or not go forward because of high costs — decided to coordinate to bid on future offshore wind projects.

Even after the industry’s annus horribilis, utility-scale projects off the coast of New York and Massachusetts are now producing power, expanding the industry past its small-scale existence off Rhode Island and Virginia. 2024 “will be a period for the industry to basically reboot,” Zalcman told me. “We have a number of procurements in process and planned that should hopefully more than compensate for the attrition in the pipeline.”

It is, unfortunately, worth mentioning that even if these projects continue to move forward, neither ambitious states like New York nor the Biden administration — whose 30 GW by 2030 goal analysts have, for months, thought was essentially unattainable — are likely to meet their development timelines.

If 2023 was the year of failure for offshore wind, 2024 might at least be the year of failing better.

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Bruce Westerman, the Capitol, a data center, and power lines.
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After many months of will-they-won’t-they, it seems that the dream (or nightmare, to some) of getting a permitting reform bill through Congress is squarely back on the table.

“Permitting reform” has become a catch-all term for various ways of taking a machete to the thicket of bureaucracy bogging down infrastructure projects. Comprehensive permitting reform has been tried before but never quite succeeded. Now, a bipartisan group of lawmakers in the House are taking another stab at it with the SPEED Act, which passed the House Natural Resources Committee the week before Thanksgiving. The bill attempts to untangle just one portion of the permitting process — the National Environmental Policy Act, or NEPA.

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Hotspots

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And more on the week’s biggest fights around renewable energy.

The United States.
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1. Benton County, Washington – The Horse Heaven wind farm in Washington State could become the next Lava Ridge — if the Federal Aviation Administration wants to take up the cause.

  • On Monday, Dan Newhouse, Republican congressman of Washington, sent a letter to the FAA asking them to review previous approvals for Horse Heaven, claiming that the project’s development would significantly impede upon air traffic into the third largest airport in the state, which he said is located ten miles from the project site. To make this claim Newhouse relied entirely on the height of the turbines. He did not reference any specific study finding issues.
  • There’s a wee bit of irony here: Horse Heaven – a project proposed by Scout Clean Energy – first set up an agreement to avoid air navigation issues under the first Trump administration. Nevertheless, Newhouse asked the agency to revisit the determination. “There remains a great deal of concern about its impact on safe and reliable air operations,” he wrote. “I believe a rigorous re-examination of the prior determination of no hazard is essential to properly and accurately assess this project’s impact on the community.”
  • The “concern” Newhouse is referencing: a letter sent from residents in his district in eastern Washington whose fight against Horse Heaven I previously chronicled a full year ago for The Fight. In a letter to the FAA in September, which Newhouse endorsed, these residents wrote there were flaws under the first agreement for Horse Heaven that failed to take into account the full height of the turbines.
  • I was first to chronicle the risk of the FAA grounding wind project development at the beginning of the Trump administration. If this cause is taken up by the agency I do believe it will send chills down the spines of other project developers because, up until now, the agency has not been weaponized against the wind industry like the Interior Department or other vectors of the Transportation Department (the FAA is under their purview).
  • When asked for comment, FAA spokesman Steven Kulm told me: “We will respond to the Congressman directly.” Kulm did not respond to an additional request for comment on whether the agency agreed with the claims about Horse Heaven impacting air traffic.

2. Dukes County, Massachusetts – The Trump administration signaled this week it will rescind the approvals for the New England 1 offshore wind project.

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Q&A

How Rep. Sean Casten Is Thinking of Permitting Reform

A conversation with the co-chair of the House Sustainable Energy and Environment Coalition

Rep. Sean Casten.
Heatmap Illustration

This week’s conversation is with Rep. Sean Casten, co-chair of the House Sustainable Energy and Environment Coalition – a group of climate hawkish Democratic lawmakers in the U.S. House of Representatives. Casten and another lawmaker, Rep. Mike Levin, recently released the coalition’s priority permitting reform package known as the Cheap Energy Act, which stands in stark contrast to many of the permitting ideas gaining Republican support in Congress today. I reached out to talk about the state of play on permitting, where renewables projects fit on Democrats’ priority list in bipartisan talks, and whether lawmakers will ever address the major barrier we talk about every week here in The Fight: local control. Our chat wound up immensely informative and this is maybe my favorite Q&A I’ve had the liberty to write so far in this newsletter’s history.

The following conversation was lightly edited for clarity.

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