Sign In or Create an Account.

By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy

Economy

Everyone’s Mad at Offshore Wind Developers

And other takeaways from Orsted’s debacle in New Jersey.

Crossing out wind turbines.
Heatmap Illustration/Getty Images

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:

1. Supply chains are a mess. Still.

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.

2. But tax credits matter a lot too.

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.

3. Offshore wind developers are on thin ice with elected officials …

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.

4. ... but Northeastern states are still marching forward with offshore wind.

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.”

5. The offshore wind vibes are very bad, but this may be the worst of it.

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.

You’re out of free articles.

Subscribe today to experience Heatmap’s expert analysis 
of climate change, clean energy, and sustainability.
To continue reading
Create a free account or sign in to unlock more free articles.
or
Please enter an email address
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Q&A

The Renewable Energy Investor Optimistic About the Future

A conversation with Mary King, a vice president handling venture strategy at Aligned Capital

The Q&A subject.
Heatmap Illustration

Today’s conversation is with Mary King, a vice president handling venture strategy at Aligned Capital, which has invested in developers like Summit Ridge and Brightnight. I reached out to Mary as a part of the broader range of conversations I’ve had with industry professionals since it has become clear Republicans in Congress will be taking a chainsaw to the Inflation Reduction Act. I wanted to ask her about investment philosophies in this trying time and how the landscape for putting capital into renewable energy has shifted. But Mary’s quite open with her view: these technologies aren’t going anywhere.

The following conversation has been lightly edited and abridged for clarity.

Keep reading...Show less
Yellow
Hotspots

Democratic Climate Hawk Fights Battery Storage Project

And more news around renewable energy conflicts.

The United States.
Heatmap Illustration/Getty Images

1. Nantucket County, Massachusetts – The SouthCoast offshore wind project will be forced to abandon its existing power purchase agreements with Massachusetts and Rhode Island if the Trump administration’s wind permitting freeze continues, according to court filings submitted last week.

  • SouthCoast is a crucial example of a systemic dilemma I reported on months back: Wind projects the Biden administration said it fully permitted will likely still be delayed by a blanket permitting freeze because wind energy requires such large infrastructure that projects need regular green lights from the federal government for new activities.
  • In case you missed it, the anti-wind permitting freeze has been a continued issue for SouthCoast and has led to scrapped negotiations on future power deals with Massachusetts.

2. Tippacanoe County, Indiana – This county has now passed a full solar moratorium but is looking at grandfathering one large utility-scale project: RWE and Geenex’s Rainbow Trout solar farm.

Keep reading...Show less
Yellow
Spotlight

The Trump Solar Farm Slowdown

Permitting delays and missed deadlines are bedeviling solar developers and activist groups alike. What’s going on?

Donald Trump and solar panels.
Heatmap Illustration/Getty Images

It’s no longer possible to say the Trump administration is moving solar projects along as one of the nation’s largest solar farms is being quietly delayed and even observers fighting the project aren’t sure why.

Months ago, it looked like Trump was going to start greenlighting large-scale solar with an emphasis out West. Agency spokespeople told me Trump’s 60-day pause on permitting solar projects had been lifted and then the Bureau of Land Management formally approved its first utility-scale project under this administration, Leeward Renewable Energy’s Elisabeth solar project in Arizona, and BLM also unveiled other solar projects it “reasonably” expected would be developed in the area surrounding Elisabeth.

Keep reading...Show less
Yellow