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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.
Matthew is a correspondent at Heatmap. Previously he was an economics reporter at Grid, where he covered macroeconomics and energy, and a business reporter at BuzzFeed News, where he covered finance. He has written for The New York Times, the Guardian, Barron's, and New York Magazine. Read More
Read MoreA new report forecasts a future where reefs go over a “tipping point.”
Coral reefs are a thing of wonder, both organism and underwater infrastructure that houses thousands of species of fish. They are also, as you might already know, in grave danger. Climate change is contributing to massive waves of coral bleaching around the world, from the Great Barrier Reef to the ocean off of Florida, where an extreme oceanic heat wave this year turned mile after mile of reef a ghostly white.
We’ve known about coral bleaching for years, but a new report out Wednesday draws fresh attention to corals’ plight, including reefs — along with ice sheets, rainforests, and ocean currents, among others — on a list of imminent climate “tipping points.” And if they go over the brink, the consequences could reach far beyond the ocean floor.
According to the report, about a billion people, or 13% of the world’s population, are estimated to live within 100 kilometers of a coral reef. Together, those reefs provide $9.9 trillion of economic value each year. Reefs are sources of both nutrition and income; in Australia, the Great Barrier Reef is estimated to create 68,000 jobs and 5.7 billion Australian dollars of revenue each year, mostly from tourism. This means the risk to coral is a risk to humans, as well.
There’s still a lot we don’t know — “There are numerous pathways by which coral reef degradation may cascade into social and economic tipping points,” the authors write — starting with how exactly coral loss affects fish. Some studies have found that species like butterfly fish and parrot fish were negatively affected when their local coral bleached; other studies have shown fish communities getting on just fine.
But those bleaching events were limited. The authors of the “Global Tipping Points” report — led by Tim Lenton at the University of Exeter’s Global Systems Institute, in collaboration with a couple hundred researchers from around the world and received funding from the Bezos Earth Fund — suggest that coral could soon suffer something catastrophic and nearly irreversible on a worldwide scale.
“Documented impacts of coral cover declines include a loss of fish species, reductions in overall fish biomass and productivity, and potential destabilization of the food web,” the authors write. “If reefs are forced by climate change into low-productivity states, and if these states in turn force fish communities across a tipping point into a less diverse and less productive state, many coastal human communities will be forced to modify their lifestyles in significant ways.”
It’s yet another example of the sort of compounding disaster that climate change tends to bring, and a reminder of the interconnectedness of the ecosystems we live in and rely on, even if we can’t always see them. As Benji Jones writes in Vox, scientists are doing their best to find ways to save coral reefs; soon, however, their jobs could turn entirely to resurrection.
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