Sign In or Create an Account.

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

Economy

New York’s Offshore Wind Future Is Being Dragged Down By Its Past

Can the state decarbonize without bailing out its dicey projects?

New York Governor Kathy Hochul.
Heatmap Illustration/Getty Images

This hasn’t been a good month for the offshore wind industry in New York, but the state is pushing ahead to try to reach its aggressive decarbonization goals. Governor Kathy Hochul announced on Tuesday contracts for three big offshore wind projects slated to go into operation in 2030 and bring four gigawatts of renewable energy to the grid.

As evidenced by the attendance of a senior White House official, Ali Zaidi, at the announcement, both the Hochul and Biden administrations are excited about New York’s offshore wind plan — or at least committed to making it work, despite the challenges and setbacks it has faced. And you can see why: Combine the three projects announced Tuesday with the four previously contracted out and the total is over eight gigawatts by 2030, almost the state’s goal of nine gigawatts by 2035.

But plans written down on paper are not steel in the sea and turbines in the air.

Up and down the East Coast, many states’ offshore wind projects are seeing rapidly accelerating costs from higher interest rates and supply chains that are throwing their plans to decarbonize their electricity sectors into doubt. Some projects, like Commonwealth Wind in Massachusetts, were mothballed while others, like Ocean Wind 1 in New Jersey, are eligible for fresh infusion of subsidies thanks to action by the legislature.

New York itself has so far failed to follow New Jersey’s lead. Two weeks ago, the state’s utility regulators denied a request by offshore wind developers to have their existing contracts readjusted for their new reality. An industry group warned the denial would likely lead to canceled projects, imperiling the state’s decarbonization goals.

So I was curious, does Hochul’s plan tackle the cost issue at all? It turns out it does, but not in a way that will rescue already troubled projects.

Before Tuesday’s announcement, she released a “10-point action plan” for renewables that included a provision to “launch an accelerated renewable energy procurement process for both offshore and onshore renewable energy projects, aiming to backfill any contracted projects which are terminated.”

These new contracts would have mechanisms to address rising costs without special payments or cancelling the deals. In short, the state’s strategy to address rising costs largely rests on coming up with new contracts that allow costs to rise (or are just more expensive in the first place), as opposed to going back and adjusting deals it has already struck with developers.

“Whereas in the earlier projects developers bore the risk of cost increases, in this current solicitation prices would be somewhat lower because risk is somewhat shifted to ratepayers,” Fred Zalcman, the director of the New York Offshore Wind Alliance, told me.

Emily Cote, a spokesperson for New York State Energy Research and Development Authority told me that the “strike price” of $145 per megawatt (an estimate of the all-in cost of the project divided by megawatt-hour — basically, it’s what developers are guaranteed to get paid) for the three announced is “approximately 28 percent higher” compared to the four existing projects, but 13 percent less than the what developers were asking for in inflation adjustments.

“This award group will also support a comparable amount of [offshore wind] development (4 gigawatts of new offshore wind projects) at a lower cost to ratepayers than the amount requested by these companies to the [New York state regulators],” Cote said.

Outside analysts think this system will work, at least for the new developers. Tancrede Fulop, an analyst at Morningstar, estimated that one of the three developers selected in this round, Community Ocean Wind (a consortium of the German energy company RWE and the utility National Grid), would ultimately get a strike price of $171 per megawatt after adjustments, compared to the $110 per megawatt that Orsted and Eversource’s Sunrise Wind received.

Community Ocean Wind’s deal, Fulop wrote, “impl[ies] good value accretion.” Morgan Stanley analysts wrote that the deal was “supportive of value creation even at conservative assumptions.”

But whether that approach will work to meet the state’s goals remains to be seen. All four of the existing wind projects may not be viable, their developers warned after the state decided not to adjust their contracts. While it’s possible the projects could end up being cancelled and bid on again under the new, more flexible contract arrangements, that could still add up to serious delays.

“The proponents of earlier projects have made clear that without relief ... the projects were in economic peril,” Zalcman said.

It’s also unclear if New York’s existing offshore wind developers will be around for a re-start.

Two of the groups currently building wind projects in New York — Equinor and BP plus Orsted and Eversource — bid in the latest round, but neither were picked. Both groups had asked for a version of the inflation adjustment present in this round to be retroactively applied to their current projects. Their rejection was an ominous sign for their chances of that happening.

Meanwhile, one of the winning bidders includes Rise Light & Power, which had actually publicly opposed the adjustments when much of the renewable industry was united in requesting them. Observers interpreted the move as Rise making a play for future renewable energy deals with the state.

“We are disappointed that New York did not select Sunrise Wind 2 in its latest offshore wind solicitation. Sunrise Wind 2 prioritized our commitment to financial discipline while delivering new economic activity and local jobs,” an Orsted spokesperson told me, noting it would “continue to evaluate opportunities.”

The spokesperson also reiterated that its South Fork Wind project’s construction is “underway and ongoing” with “turbine installation expected to begin imminently,” and electricity actually expected to flow by the end of the year. But the spokesperson also noted that for Sunrise Wind, a 924 megawatt project, its “viability and therefore ability to be constructed are extremely challenged without this adjustment.”

“We’re optimistic, but if experience tells us anything, these are exceedingly challenging projects that require a number of different elements coming together. It won’t be easy,” Zalcman said.

Blue
Matthew Zeitlin profile image

Matthew Zeitlin

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.

Sparks

The Electrolyzer Tech Business Is Booming

A couple major manufacturers just scored big sources of new capital.

Hysata.
Heatmap Illustration/Screenshot/YouTube

While the latest hydrogen hype cycle may be waning, investment in the fundamental technologies needed to power the green hydrogen economy is holding strong. This past week, two major players in the space secured significant funding: $100 million in credit financing for Massachusetts-based Electric Hydrogen and $111 million for the Australian startup Hysata’s Series B round. Both companies manufacture electrolyzers, the clean energy-powered devices that produce green hydrogen by splitting water molecules apart.

“There is greater clarity in the marketplace now generally about what's required, what it takes to build projects, what it takes to actually get product out there,” Patrick Molloy, a principal at the energy think tank RMI, told me. These investments show that the hydrogen industry is moving beyond the hubris and getting practical about scaling up, he said. “It bodes well for projects coming through the pipeline. It bodes well for the role and the value of this technology stream as we move towards deployment.”

Keep reading...Show less
Green
Electric Vehicles

Car Companies Are Energy Companies Now

The major U.S. automakers are catching up on Tesla’s power game.

A Silverado EV and power lines.
Heatmap Illustration/Getty Images

It was my first truck-powered cocktail party.

General Motors had gathered journalists at a Beverly Hills mansion last week for a vehicle-to-home show and tell. GM’s engineers outfitted the garage with all the components needed for an electric vehicle’s battery to back up the house’s power supply. Then they tripped the circuit breaker to cut off the home from grid power and let the plugged-in Chevy Silverado electric pickup run the home’s lights and other electrical systems for the remainder of the gathering.

Keep reading...Show less
Blue
Climate

AM Briefing: Biden’s Coal Lease Crackdown

On the future of coal mining, critical minerals, and Microsoft’s emissions

What To Know About Biden’s Coal Lease Crackdown
Heatmap Illustration/Getty Images

Current conditions: Rain and cool temperatures are stalling wildfires in an oil-producing region of Canada • A record-setting May heat wave in Florida will linger through the weekend • It is 77 degrees Fahrenheit and sunny in Rome today, where the Vatican climate conference will come to a close.

THE TOP FIVE

1. Severe storms in Houston kill 4

At least four people were killed in Houston last night when severe storms tore through Texas. Wind speeds reached 100 mph, shattering skyscraper windows, destroying trees, and littering downtown Houston with debris. “Downtown is a mess. It’s dangerous,” said Houston Mayor John Whitmire. Outside Houston, winds toppled powerline towers. At one point 1 million customers were without power across the state, and many schools are closed today. The storm front moved into Louisiana this morning, prompting flash flood warnings in New Orleans.

Keep reading...Show less
Yellow