You’re out of free articles.
Log in
To continue reading, log in to your account.
Create a Free Account
To unlock more free articles, please create a free account.
Sign In or Create an Account.
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Welcome to Heatmap
Thank you for registering with Heatmap. Climate change is one of the greatest challenges of our lives, a force reshaping our economy, our politics, and our culture. We hope to be your trusted, friendly, and insightful guide to that transformation. Please enjoy your free articles. You can check your profile here .
subscribe to get Unlimited access
Offer for a Heatmap News Unlimited Access subscription; please note that your subscription will renew automatically unless you cancel prior to renewal. Cancellation takes effect at the end of your current billing period. We will let you know in advance of any price changes. Taxes may apply. Offer terms are subject to change.
Subscribe to get unlimited Access
Hey, you are out of free articles but you are only a few clicks away from full access. Subscribe below and take advantage of our introductory offer.
subscribe to get Unlimited access
Offer for a Heatmap News Unlimited Access subscription; please note that your subscription will renew automatically unless you cancel prior to renewal. Cancellation takes effect at the end of your current billing period. We will let you know in advance of any price changes. Taxes may apply. Offer terms are subject to change.
Create Your Account
Please Enter Your Password
Forgot your password?
Please enter the email address you use for your account so we can send you a link to reset your password:
And other takeaways from Orsted’s debacle in New Jersey.
The Danish energy company Orsted pulled the plug on two big offshore wind projects in New Jersey on Tuesday, taking a $4 billion write-down in the process. Orsted’s decision is just the latest example of the trouble facing the offshore wind industry in the United States, as ambitious goals from both Northeastern states and the Biden administration run into a buzzsaw of rising costs, high interest rates, and construction delays.
The two canceled projects, Ocean Wind 1 and 2, would have generated just over two gigawatts of electricity, or about 6% of the Biden administration’s target of 30 gigawatts by 2030.
“There’s no doubt that the offshore wind industry is finding itself in a perfect storm, where adverse impacts like skyrocketing interest rates are leading to much higher capital costs and supply-chain disruptions,” Orsted’s chief executive Mads Nipper said on an investor call Wednesday.
Here’s what I’ve found most notable about Orsted’s debacle:
In its announcement to the public and communications with shareholders, Orsted repeatedly attributed much of its offshore wind troubles to supply chain issues, as it has for much of the year.
“The current market situation with supply chain challenges, project delays, and rising interest rates has challenged our offshore projects in the U.S., and in particular our offshore project Ocean Wind 1, which has led to significant impairments in Q3 2023,” Nipper said in a statement. The company also cited “vessel delay” — likely the difficulty getting components to construction sites on time — as well.
Of the approximately $4 billion impairment Orsted took in the third quarter, it chalked up about $2.4 billion to supply chain problems, more than any other factor — including higher interest rates or a failure to get sufficient tax credits — combined.
Orsted didn’t just announce that Ocean Wind 1 and 2 were not going forward, it also announced that a project to serve Connecticut and Rhode Island, Revolution Wind, would be going ahead.
One reason why Revolution Wind survived is that it will likely qualify for a more generous tax credit under the Inflation Reduction Act than Ocean Wind did. Orsted believes Revolution will nab an extra “energy community” credit, which will let it deduct 40% of its total investment in the project, rather than the usual 30% established by the IRA. That difference might be worth hundreds of millions of dollars.
The boost is designed to steer projects towards areas that were used for fossil fuel generation and extraction, especially coal, in an effort to help workers manage the energy transition. Orsted is confident that Revolution Wind will qualify, as will its Sunrise Wind project off Long Island, “due to the brownfield status of both sites under the current energy communities guidance.”
The Revolution project’s substation location, a source with knowledge of it told me, is on a former landfill (the tax credits will likely apply to a range of sites), while Sunrise Wind’s site has contamination that could qualify it as an energy community, as well.
For Ocean Wind, however, the company estimated that it was likely stuck with the 30% credit, which made the project unviable.
Northeastern states have very aggressive decarbonization and offshore wind targets — New York wants to get 70% of its electricity from renewables by 2030 and 9 gigawatts of offshore wind by 2035, while New Jersey wants 100% clean energy by 2050 and 11 gigawatts of offshore wind by 2040.
To do this, they need developers — companies like Eversource, Ortsed, BP and Equinor — to actually turn these projects into reality (with generous subsidies). When they’re unable to do so, or ask for more money than in their existing contracts, the elected officials get mad.
New Jersey Governor Phil Murphy, who had pushed through a bill directing more tax credits towards the Ocean Wind project, is very mad.
“Today’s decision by Orsted to abandon its commitments to New Jersey is outrageous and calls into question the company’s credibility and competence,” Murphy said in a statement and claimed that New Jersey is owed $300 million by Orsted. Earlier this month, the company put up $100 million guarantee with the state in case the project wasn’t done by the end of 2025.
Orsted was one of a group of developers that asked for their existing contracts with New York to be adjusted to account for higher costs, a request that was unanimously rejected last month by the state’s public utilities board, who expressed shades of outrage that they were asked to violate the sanctity of the state procurement process. When three other offshore wind projects went out to bid, New York state’s existing developers, including Orsted, did not win any of them.
When Governor Murphy wasn’t ripping Orsted, he indicated that New Jersey’s enthusiasm for offshore wind had hardly slackened.
“The future of offshore wind in New Jersey remains strong. In recent weeks we’ve seen a historically high number of bids into New Jersey’s ongoing third offshore wind solicitation, and the Board of Public Utilities will shortly announce two additional solicitations related to our first-in-the-nation State Agreement Approach to build an offshore wind transmission infrastructure,” Murphy said in his statement. “I remain committed to ensuring that New Jersey becomes a global leader in offshore wind — which is critical to our economic, environmental, and clean energy future.”
New York’s Governor Kathy Hochul made similar statements when state regulators rejected Orsted and other developers’ request for adjusted contracts and followed it up by bidding out three more wind projects and developing a process for accelerating bids in the future.
And Orsted may be a beneficiary of that new process. The company said today in its letter to investors that Sunrise Wind, a planned offshore wind project off the end of Long Island that may not be viable under its current contract, could be rebid under New York’s new framework operating on an accelerated timeframe.
“It is encouraging to see the state advance a potential rapid process,” the company said in a statement Tuesday. “This is especially important because keeping early projects like Sunrise Wind on current timelines is linked to the success of subsequent projects that will rely on infrastructure, manufacturing, and trained workers enabled by these projects.”
A senior executive at another major offshore wind developer, the oil company BP, said that the U.S. offshore wind market was “fundamentally broken.” The executive, Isabel Dotzenrath, said at a conference that “there’s a fundamental reset needed,” according to Bloomberg.
It’s becoming clear that much of the initial wave of offshore wind projects were contracted out at prices that were too low to be viable given the shocks that have hit the industry — higher interest rates, material spikes, tax credit uncertainty, and supply chain issues.
While it’s fair to argue that much of this can be chalked up to fundamental errors made by the developers, whose job it is to manage these projects so that they’re profitable under the contract they have, it’s clear that if the U.S. will get anywhere close to hitting its goals, it will require an expensive reset, with more money coming either from the federal government, states, or electricity bills.
Log in
To continue reading, log in to your account.
Create a Free Account
To unlock more free articles, please create a free account.
And more of the week’s top news about renewable energy conflicts.
1. Nassau County, New York – Opponents of Equinor’s offshore Empire Wind project are now suing to stop construction after the Trump administration quietly lifted its stop-work order.
2. Somerset County, Maryland – A referendum campaign in rural Maryland seeks to restrict solar development on farmland.
3. Tazewell County, Virginia – An Energix solar project is still in the works in this rural county bordering West Virginia, despite a restrictive ordinance.
4. Allan County, Indiana – This county, which includes portions of Fort Wayne, will be holding a hearing next week on changing its current solar zoning rules.
5. Madison County, Indiana – Elsewhere in Indiana, Invenergy has abandoned the Lone Oak solar project amidst fervent opposition and mounting legal hurdles.
6. Adair County, Missouri – This county may soon be home to the largest solar farm in Missouri and is in talks for another project, despite having a high opposition intensity index in the Heatmap Pro database.
7. Newtown County, Arkansas – A fifth county in Arkansas has now banned wind projects.
8. Oklahoma County, Oklahoma – A data center fight is gaining steam as activists on the ground push to block the center on grounds it would result in new renewable energy projects.
9. Bell County, Texas – Fox News is back in our newsletter, this time for platforming the campaign against solar on land suitable for agriculture.
10. Monterey County, California – The Moss Landing battery fire story continues to develop, as PG&E struggles to restart the remaining battery storage facility remaining on site.
A conversation with Biao Gong of Morningstar
This week’s conversation is with Biao Gong, an analyst with Morningstar who this week published an analysis looking at the credit risks associated with offshore wind projects. Obviously I wanted to talk to him about the situation in the U.S., whether it’s still a place investors consider open for business, and if our country’s actions impact the behavior of others.
The following conversation has been lightly edited for clarity.
What led you to write this analysis?
What prompted me was our experience in assigning [private] ratings to offshore wind projects in Europe and wanted to figure out what was different [for rating] with onshore and offshore wind. It was the result of our recent work, which is private, but we’ve seen the trend – a lot of the big players in the offshore wind space are kind of trying to partner up with private equity firms to sell their interests, their operating offshore wind assets. But to raise that they’ll need credit ratings and we’ve seen those transactions. This is a growing area in Europe, because Europe has to rely on offshore wind to achieve its climate goals and secure their energy independence.
The report goes through risks in many ways, including challenging conditions for construction. Tell me about the challenges that offshore wind faces specifically as an investment risk.
The principle behind offshore wind is so different than onshore wind. You’re converting wind energy to electricity but obviously there are a bunch of areas where we believe it is riskier. That doesn’t mean you can’t fund those projects but you need additional mitigants.
This includes construction risk. It can take three to five years to complete an offshore wind project. The marine condition, the climate condition, you can’t do that [work] throughout the year and you need specialized vehicles, helicopters, crews that are so labor intensive. That’s versus onshore, which is pre-fabricated where you have a foundation and assemble it. Once you have an idea of the geotechnical conditions, the risk is just less.
There’s also the permitting process, which can be very challenging. How do you not interrupt the marine ecosystem? That’s something the regulators pay attention to. It’s definitely more than an onshore project, which means you need other mitigants for the lender to feel comfortable.
With respect to the permitting risk, how much of that is the risk of opposition from vacation towns, environmentalists, fisheries?
To be honest, we usually come in after all the critical permitting is in place, before money is given by a lender, but I also think that on the government’s side, in Europe at least, they probably have to encourage the development. And to put out an auction for an area you can build an offshore wind project, they must’ve gone through their own assessment, right? They can’t put out something that they also think may hurt an ecosystem, but that’s my speculation.
A country that did examine the impacts and offer lots of ocean floor for offshore is the U.S. What’s your take on offshore wind development in our country?
Once again, because we’re a rating agency, we don’t have much insight into early stage projects. But with that, our view is pretty gloomy. It’s like, if you haven’t started a project in the U.S., no one is going to buy it. There’s a bunch of projects already under construction, and there was the Empire Wind stop order that was lifted. I think that’s positive, but only to a degree, right? It just means this project under construction can probably go ahead. Those things will go ahead and have really strong developers with strong balance sheets. But they’re going to face additional headwinds, too, because of tariffs – that’s a different story.
We don’t see anything else going ahead.
Does the U.S. behaving this way impact the view you have for offshore wind in other countries, or is this an isolated thing?
It’s very isolated. Europe is just going full-steam ahead because the advantage here is you can build a wind farm that provides 2 or 3 gigawatts – that’s just massive. China, too. The U.S. is very different – and not just offshore. The entire renewables sector. We could revisit the U.S. four or five years from today, but [the U.S.] is going to be pretty difficult for the renewables sector.
What I’m hearing from developers and CEOs about the renewable energy industry after the Inflation Reduction Act
As the Senate deliberates gutting the Inflation Reduction Act’s clean electricity tax credits, renewable energy developers and industry insiders are split about how bad things might get for the sector. But the consensus is that things will undoubtedly get worse.
Almost everyone I talked to insisted that solar and wind projects further along in construction would be insulated from an IRA repeal. Some even argued that spiking energy demand and other macro tailwinds might buffer the wind and solar industries from the demolition of the law.
But between the lines, and beneath the talking points and hopium, executives are fretting that lots of future investments are in jeopardy. And the most pessimistic take: almost all projects will have their balance sheets and time-tables impacted in some way that’ll at minimum increase their budget costs.
“It’s hard to imagine, if the legislation passes in its current form, that it wouldn’t impact all projects,” said Rob Collier, CEO of renewable energy transaction platform LevelTen.
Even industry analysts with the gloomiest views of the repeal say there’s plenty of projects that will keep chugging along and might even become more valuable to investors if they’re close enough to construction or operation. This aligns with recent analysis from BloombergNEF, which found the House bill would diminish our nation’s renewables build-out – but not entirely end its pace.
“The more useful way to break down which project may be hit the hardest is where the projects are going to fall in their development life-cycle,” Collier said. “Projects that have either started construction or have the ability to start construction … are going to very likely rise in terms of their appeal and attractiveness and those projects will be at a premium, if they’re able to skate through the legislative risk and qualify for tax credits.”
There is a more optimistic industry view that believes increased project costs will just be passed along to consumers via higher electricity prices. The American people will in essence have to pick up the tab where the federal tax code left it. Optimists also cite the increased use of power purchase agreements, or PPAs, between renewables developers and entities who need a lot of electricity, like big tech companies. By signing these PPAs, buyers are subsidizing the construction of projects but also insulating themselves from the risk of rising electricity prices.
The most bullish perspective I heard was from Nick Cohen, the CEO of Doral Renewables, who told me deals like these combined with rising premiums for quick energy on the grid may obviate lost credits in a “zero-incentive environment.”
“It’s not the end of the world,” Cohen told me. “If you’re in construction or you’re going to be in construction very soon, you’re fine.”
But Collier called Cohen’s prediction an “experiment” in customers’ willingness to pay for new energy: “If we’re talking about 40%, 50%, 60% of a project’s capital stack now being at risk because of tax credits, those are pretty large price increases.”
I spoke to multiple companies that have been inking massive deals as this legislation has progressed — although many were not nearly as sanguine about the industry’s future prospects as Doral. Like rPlus Energies, which disclosed last week that it closed a commitment for more than $500 million in tax equity investments for a solar and storage project in Utah. rPlus CEO Luigi Resta told me that the legislation “certainly has posed concern from our investors and from the organization” but the project was so far along that the tax equity investment market wasn’t phased by the bill.
“Many people in my company, myself included, have been doing this for more than 20 years. We’ve seen the starts and stops related to ITC and PTC in solar and wind, in multiple cycles, and this feels like another cycle,” Resta told me. “When the IRA passed, everybody was exuberant. And now the runway looks like it may have a cliff. But for us, our mantra since the beginning of the year has been ‘proceed with caution, preserve and protect.’”
However, crucially, it is important to focus on how that caution looks: Resta told me the company has completely paused new contracting while the company is completing the projects it is currently developing.
One government affairs representative for a large and prominent U.S. renewables developer, who spoke on the condition of anonymity to preserve relationships, told me that “whatever rollback occurs will just result in higher electricity prices over time.” In the near term, the only language that would truly gut projects in progress today would be “foreign entity of concern” restrictions that would broadly impact any component even remotely connected to Chinese industries. Similar language all but kneecapped the entire IRA electric vehicle consumer credit.
“It included definitions of what it means to be a foreign company that were really vague,” the government affairs representative said. “Anyone who does any business with China essentially can’t benefit from the credit. That was a really challenging outcome from the House that hopefully the Senate is going to fix.” If this definition became law, this source said, it would be the final straw that “freezes investment” in renewable energy projects.
Ultimately, after speaking to CEO after CEO this week, I’ve been left with an impression that business activity in renewables hasn’t really subsided after the House bill passed, and that it’ll be the Senate bill that undoubtedly defines the future of renewable energy for years to come.
Whether that chamber remains the “cooling saucer” it once was will be the decider.