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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.
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Did a battery plant disaster in California spark a PR crisis on the East Coast?
Battery fire fears are fomenting a storage backlash in New York City – and it risks turning into fresh PR hell for the industry.
Aggrieved neighbors, anti-BESS activists, and Republican politicians are galvanizing more opposition to battery storage in pockets of the five boroughs where development is actually happening, capturing rapt attention from other residents as well as members of the media. In Staten Island, a petition against a NineDot Energy battery project has received more than 1,300 signatures in a little over two months. Two weeks ago, advocates – backed by representatives of local politicians including Rep. Nicole Mallitokis – swarmed a public meeting on the project, getting a local community board to vote unanimously against the project.
According to Heatmap Pro’s proprietary modeling of local opinion around battery storage, there are likely twice as many strong opponents than strong supporters in the area:
Heatmap Pro
Yesterday, leaders in the Queens community of Hempstead enacted a year-long ban on BESS for at least a year after GOP Rep. Anthony D’Esposito, other local politicians, and a slew of aggrieved residents testified in favor of a moratorium. The day before, officials in the Long Island town of Southampton said at a public meeting they were ready to extend their battery storage ban until they enshrined a more restrictive development code – even as many energy companies testified against doing so, including NineDot and solar plus storage developer Key Capture Energy. Yonkers also recently extended its own battery moratorium.
This flurry of activity follows the Moss Landing battery plant fire in California, a rather exceptional event caused by tech that was extremely old and a battery chemistry that is no longer popular in the sector. But opponents of battery storage don’t care – they’re telling their friends to stop the community from becoming the next Moss Landing. The longer this goes on without a fulsome, strident response from the industry, the more communities may rally against them. Making matters even worse, as I explained in The Fight earlier this year, we’re seeing battery fire concerns impact solar projects too.
“This is a huge problem for solar. If [fires] start regularly happening, communities are going to say hey, you can’t put that there,” Derek Chase, CEO of battery fire smoke detection tech company OnSight Technologies, told me at Intersolar this week. “It’s going to be really detrimental.”
I’ve long worried New York City in particular may be a powder keg for the battery storage sector given its omnipresence as a popular media environment. If it happens in New York, the rest of the world learns about it.
I feel like the power of the New York media environment is not lost on Staten Island borough president Vito Fossella, a de facto leader of the anti-BESS movement in the boroughs. Last fall I interviewed Fossella, whose rhetorical strategy often leans on painting Staten Island as an overburdened community. (At least 13 battery storage projects have been in the works in Staten Island according to recent reporting. Fossella claims that is far more than any amount proposed elsewhere in the city.) He often points to battery blazes that happen elsewhere in the country, as well as fears about lithium-ion scooters that have caught fire. His goal is to enact very large setback distance requirements for battery storage, at a minimum.
“You can still put them throughout the city but you can’t put them next to people’s homes – what happens if one of these goes on fire next to a gas station,” he told me at the time, chalking the wider city government’s reluctance to capitulate on batteries to a “political problem.”
Well, I’m going to hold my breath for the real political problem in waiting – the inevitable backlash that happens when Mallitokis, D’Esposito, and others take this fight to Congress and the national stage. I bet that’s probably why American Clean Power just sent me a notice for a press briefing on battery safety next week …
And more of the week’s top conflicts around renewable energy.
1. Queen Anne’s County, Maryland – They really don’t want you to sign a solar lease out in the rural parts of this otherwise very pro-renewables state.
2. Logan County, Ohio – Staff for the Ohio Power Siting Board have recommended it reject Open Road Renewables’ Grange Solar agrivoltaics project.
3. Bandera County, Texas – On a slightly brighter note for solar, it appears that Pine Gate Renewables’ Rio Lago solar project might just be safe from county restrictions.
Here’s what else we’re watching…
In Illinois, Armoracia Solar is struggling to get necessary permits from Madison County.
In Kentucky, the mayor of Lexington is getting into a public spat with East Kentucky Power Cooperative over solar.
In Michigan, Livingston County is now backing the legal challenge to Michigan’s state permitting primacy law.
On the week’s top news around renewable energy policy.
1. IRA funding freeze update – Money is starting to get out the door, finally: the EPA unfroze most of its climate grant funding it had paused after Trump entered office.
2. Scalpel vs. sledgehammer – House Speaker Mike Johnson signaled Republicans in Congress may take a broader approach to repealing the Inflation Reduction Act than previously expected in tax talks.
3. Endangerment in danger – The EPA is reportedly urging the White House to back reversing its 2009 “endangerment” finding on air pollutants and climate change, a linchpin in the agency’s overall CO2 and climate regulatory scheme.