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Is the East Coast’s most abundant source of renewable energy too expensive?
You may have heard about the problems offshore wind projects are having with whales — specifically the coalition of coastal homeowners, right-wing advocacy groups, the fishing industry, and Tucker Carlson that’s been promoting speculative claims about turbines killing them. But opposition to renewable energy is nothing new. A much bigger problem for offshore wind is less TV-friendly, but much more serious: It’s more expensive than originally thought.
Up and down the East Coast and even in Britain, offshore wind projects have been delayed or even cancelled thanks to costs rising faster than expected.
Until this summer, offshore wind had seem primed for a big breakout. The Biden White House has set a goal for 30 gigawatts of offshore wind by 2030. Many states, especially in the Northeast, are also relying on offshore wind to do much of the work decarbonizing their electric grids. With ample coastline and relatively little open space compared to the wind corridor of the Great Plains, these states envision large offshore wind sites delivering about a gigawatt of power from massive turbines that are far enough away to be hardly visible from the shore but close enough to major population centers to avoid some of the interconnection and transmission issues that plague renewable development.
Yet instead of a breakout, there’s been a constriction.
Just this week, the utility Rhode Island Energy pulled the plug on its Revolution Wind II project, a planned 884-megawatt wind farm that could have powered 500,000 homes. It only attracted a single bidder, a joint venture between Orsted and Eversource.
In Massachusetts, the companies behind Commonwealth Wind, a planned 1,200 megawatt project, asked in December to get out of a power purchase agreement with state utilities, citing higher costs. This week the companies agreed to pay $48 million in termination penalties.
New Jersey legislators passed a bill earlier this month to direct federal tax credits to Orsted, the developer of its Ocean Wind I project, leading the developer of another wind project to ask for “an industry-wide solution,” saying that “[t]ens of thousands of real, well-paid and unionized jobs are at risk. Hundreds of millions in infrastructure investments will be forgone without a path forward.”
And in New York in June, offshore wind developers, responsible for over 4,000 megawatts worth of planned projects, petitioned the state’s Public Service Commission for more money, citing inflation.
This is a lot of lost capacity. Amazingly, there are still only two operational offshore wind projects in the United States, adding up to just 42 megawatts — about 0.14% of what the Biden administration wants installed by the end of the decade and less than 2% of the offshore wind capacity of Belgium. The American Clean Power Association estimated in May there were 50 gigawatts worth of projects in some stage of development, albeit with a small fraction actually under construction and the majority in “early development.” But now that pipeline has gotten a little longer and a lot more expensive.
“I’m actually pretty concerned over some of the cost dynamics that we’ve seen in terms of longer term impacts in terms of pace and scale we can deploy,” Allegra Dawes, a fellow at the Center for Strategic and International Studies, told me.
Rhode Island Energy said the bid for its Revolution Wind II project would not “reduce energy costs," essentially meaning what the utility would have to charge its customers to pay for the construction wouldn’t ultimately be worth it. Rhode Island Energy specifically cited “[h]igher interest rates, increased costs of capital, and supply chain expenses, as well as the uncertainty of federal tax credits” as “all likely contribut[ing] to higher proposed contract costs. Those costs were ultimately deemed too expensive for customers to bear.”
The surge in costs has put developers into a difficult spot, explained Dawes. “They look at projects and the agreed upon price and are not seeing a path to profitability.”
While Orsted, the project developer for the cancelled Rhode Island project (and several other East Coast wind projects), was optimistic about the deal earlier this year, its executives have been clear-eyed that the industry has seen costs go up.
“We believe that generally we are operating in an industry which is clearly realizing that the conditions have changed both in terms of cost of capital and the Capex inflation,” Orsted’s Chief Executive Mads Nipper said in the company’s May call with analysts. The company's Chief Financial Officer Daniel Lerup further warned, “It is our clear expectation that we will see prices go up in the coming auctions.”
Analysts and the industry have blamed a bevy of factors for costs growing. Higher interest rates drive financing costs up. There’s also the higher costs for materials like steel, which wind developers blamed both on generalized inflation and specifically the Russian invasion of Ukraine, which led to price spikes across all sorts of commodities.
Last year, major wind turbine manufacturers hiked their prices, which Commonwealth Wind blamed in a December filing to get out of an agreement with the Massachusetts utilities that would buy power from its wind project.
“The prolonged war in Ukraine has unsettled markets and increased costs for many products, inflation has been persistent, interest rates have increased in a manner unprecedented in recent times, commodity prices have risen sharply, and supply shortages and supply-chain constraints once thought to be temporary remain pervasive ... Simply put, it is now far more expensive to construct the Project than could have been reasonably foreseen even earlier this year,” Commonwealth Wind said in its December filing.
The cost issues were so dramatic that the companies were willing to pay some $48 million in fees. But that doesn’t mean that ratepayers are out of the woods. The companies are expected to re-bid on the projects at a higher price.
These problems aren’t distinct to the East Coast. The Swedish energy company Vattenfall said Thursday it was cancelling a planned wind project in the North Sea due to 40 percent cost increases. “Higher inflation and capital costs are affecting the entire energy sector, but the geopolitical situation has made offshore wind and its supply chain particularly vulnerable,” its chief executive Anna Borg said in in the company’s interim financial report.
None of this bodes well for the future of offshore wind. Thanks to larger turbines and stronger winds, offshore windfarms tend to produce more of their potential power than onshore wind or solar, but building them is also more logistically complicated and expensive. They thus require hefty financing — Vineyard Wind, for example, secured a $2.3 billion construction loan in 2021 — and can be quite sensitive to the cost of financing, i.e. interest rates.
If offshore windfarms can't show how they‘ll eventually recuperate these investments, coastal areas around the world may lose a vital source of renewable energy — or their residents will pay the price.
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On the environmental reviews, Microsoft’s emissions, and solar on farmland
Current conditions: Enormous wildfires in Manitoba, Canada, will send smoke into the Midwestern U.S. and Great Plains this weekend • Northwest England is officially experiencing a drought after receiving its third lowest rainfall since 1871 • Thunderstorms are brewing in Washington, D.C., where the Federal Court of Appeals paused an earlier ruling throwing out much of Trump’s tariff agenda.
The Supreme Court ruled Thursday that courts should show more deference to agencies when hearing lawsuits over environmental reviews.
The case concerned a proposed 88-mile train line in Utah that would connect its Uinta Basin (and its oil resources) with the national rail network. Environmental groups and local governments claimed that the environmental impact statement submitted by the federal Surface Transportation Board did not pay enough attention to the effects of increased oil drilling and refining that the rail line could induce. The D.C. Circuit agreed, vacating the EIS; the Supreme Court did not, overturning the D.C. Circuit in an 8-0 decision.
The National Environmental Policy Act, or NEPA, requires the federal government to study the environmental impact of its actions. The D.C. Circuit “failed to afford the Board the substantial judicial deference required in NEPA cases and incorrectly interpreted NEPA to require the Board to consider the environmental effects of upstream and downstream projects that are separate in time or place,” Justice Brett Kavanaugh wrote for the court.
The court’s decision could sharply limit the ability of the judicial branch to question environmental reviews by agencies under NEPA, and could pave the way for more certain and faster approvals for infrastructure projects.
At least, that’s what Kavanaugh hopes. The current NEPA process, he writes, foists “delay upon delay” on developers and agencies, so “fewer projects make it to the finish line. Indeed, fewer projects make it to the starting line.”
Map of the approved railway route.Source: Uinta Basin Railway Final Environmental Impact Statement
The Department of Agriculture is planning to retool a popular financing program, Rural Energy for America, to discourage solar development on agricultural land, Heatmap’s Jael Holzman exclusively reported.
“Farmland should be for agricultural production, not solar production,” a USDA spokesperson told Heatmap. The comments echoed a USDA report released last week criticizing the use of solar on agricultural land. The report said that the USDA will “disincentivize the use of federal funding at USDA for solar panels to be installed on productive farmland through prioritization points and regulatory action.” The USDA will also “call on state and local governments to work alongside USDA on local solutions.”
The daughter of a woman who died during the Pacific Northwest “Heat Dome” in 2021 sued seven oil and companies for wrongful death in Washington state court, The New York Times reported Thursday.
“The suit alleges that they failed to warn the public of the dangers of the planet-warming emissions produced by their products and that they funded decades-long campaigns to obscure the scientific consensus on global warming,” according to Times reporter David Gelles.
Several cities and states have brought suits making similar claims that oil and gas companies misled the public about the threat of climate change. Earlier this week, a German court threw out a suit from a Peruvian farmer against a German utility, which claimed that the utility’s commissions helped put his town at risk from glacial flooding.
The seven companies named in the lawsuit are Exxon Mobil, Chevron, Shell, BP, ConocoPhillips, Phillips 66, and Olympic Pipeline Company, a subsidiary managed by BP. None of them commented on the suit.
Tech giant Microsoft disclosed in its annual sustainability report that its carbon emissions have grown by 23.4% since 2020, even as the company has a goal to become “carbon negative” by 2030. The upside to the figures is that the growth in emissions was due to a much larger increase in energy use and business activity, not from using dirtier energy. In that same time period, Microsoft’s revenue has grown 71%, and its energy use has grown 168%.
“It has become clear that our journey towards being carbon negative is a marathon,” the report read. The company said it had contracted 34 gigawatts of non-emitting power generation and had agreements to procure 30 million metric tons of carbon removal.
The company has set out to reduce its indirect Scope 3 emissions “by more than half” by 2030 from the 11.5 million metric tons it reported in 2020, as its Scope 1 and Scope 2 emissions fall to close to zero. It will become “carbon negative,” it hopes, by purchasing carbon removal.
Microsoft attempts to reduce emissions in its supply chain by procuring low- or no-carbon fuels and construction materials. Last week the tech giant signed a purchasing agreement with Sublime Systems for 600,000 tons of low-carbon cement.
The Nuclear Regulatory Commission announced it had approved a 77-megawatt small modular reactor design. This is the second SMR design approved by the NRC, following approval of a smaller design in 2020. Both are products of the SMR company NuScale, and neither has yet been deployed. A project to build the earlier design in Idaho was abandoned in 2023.
The NRC review was set to be completed in July of this year. Coming in ahead of scheduled demonstrates “the agency’s commitment to safely and efficiently enable new, advanced reactor technology,” the Commission said in a press release.
Congress and the Biden and Trump administrations have pushed the NRC to move faster and to encourage the development of small modular reactors. No SMR has been built in the United States, nor is there any current plan to do so that has been publicly disclosed. NuScale’s chief executive told Bloomberg that he hopes to have a deal signed by the end of the year and an operational plant by the end of the decade.
Tesla veteran Drew Baglino’s Heron Power raised a $38 million round of Series A funding for a new product designed to replace “legacy transformers and power converters by directly connecting rapidly growing megawatt-scale solar, batteries, and AI data centers to medium voltage transmission,” Baglino wrote on X.
A conversation with Mike Hall of Anza.
This week’s conversation is with Mike Hall, CEO of the solar and battery storage data company Anza. I rang him because, in my book, the more insights into the ways renewables companies are responding to the war on the Inflation Reduction Act, the better.
The following chat was lightly edited for clarity. Let’s jump in!
How much do we know about developers’ reactions to the anti-IRA bill that was passed out of the House last week?
So it’s only been a few days. What I can tell you is there’s a lot of surprise about what came out of the House. Industries mobilized in trying to improve the bill from here and I think a lot of the industry is hopeful because, for many reasons, the bill doesn’t seem to make sense for the country. Not just the renewable energy industry. There’s hope that the voices in Congress — House members and senators — who already understand the impact of this on the economy will in the coming weeks understand how bad this is.
I spoke to a tax attorney last week that her clients had been preparing for a worst case scenario like this and preparing contingency plans of some kind. Have you seen anything so far to indicate people have been preparing for a worst case scenario?
Yeah. There’s a subset of the market that has prepared and already executed plans.
In Q4 [of 2024] and Q1 [of this year] with a number of companies to procure material from projects in order to safe harbor those projects. What that means is, typically if you commence construction by a certain date, the date on which you commence construction is the date you lock in tax credit eligibility, and we worked with companies to help them meet that criteria. It hedged them on a number of fronts. I don’t think most of them thought we’d get what came out of the House but there were a lot of concerns about stepdowns for the credit.
After Trump was elected, there were also companies who wanted to hedge against tariffs so they bought equipment ahead of that, too. We were helping companies do deals the night before Liberation Day. There was a lot of activity.
We saw less after April 2nd because the trade landscape has been changing so quickly that it’s been hard for people to act but now we’re seeing people act again to try and hit that commencement milestone.
It’s not lost on me that there’s an irony here – the attempts to erode these credits might lead to a rush of projects moving faster, actually. Is that your sense?
There’s a slug of projects that would get accelerated and in fact just having this bill come out of the House is already going to accelerate a number of projects. But there’s limits to what you can do there. The bill also has a placed-in-service criteria and really problematic language with regard to the “foreign entity of concern” provisions.
Are you seeing any increase in opposition against solar projects? And is that the biggest hurdle you see to meeting that “placed-in-service” requirement?
What I have here is qualitative, not quantitative, but I was in the development business for 20 years, and what I have seen qualitatively is that it is increasingly harder to develop projects. Local opposition is one of the headwinds. Interconnection is another really big one and that’s the biggest concern I have with regards to the “placed-in-service” requirement. Most of these large projects, even if you overcome the NIMBY issues, and you get your permitting, and you do everything else you need to do, you get your permits and construction… In the end if you’re talking about projects at scale, there is a requirement that utilities do work. And there’s no requirement that utilities do that work on time [to meet that deadline]. This is a risk they need to manage.
And more of the week’s top news in renewable energy conflicts.
1. Columbia County, New York – A Hecate Energy solar project in upstate New York blessed by Governor Kathy Hochul is now getting local blowback.
2. Sussex County, Delaware – The battle between a Bethany Beach landowner and a major offshore wind project came to a head earlier this week after Delaware regulators decided to comply with a massive government records request.
3. Fayette County, Pennsylvania – A Bollinger Solar project in rural Pennsylvania that was approved last year now faces fresh local opposition.
4. Cleveland County, North Carolina – Brookcliff Solar has settled with a county that was legally challenging the developer over the validity of its permits, reaching what by all appearances is an amicable resolution.
5. Adams County, Illinois – The solar project in Quincy, Illinois, we told you about last week has been rejected by the city’s planning commission.
6. Pierce County, Wisconsin – AES’ Isabelle Creek solar project is facing new issues as the developer seeks to actually talk more to residents on the ground.
7. Austin County, Texas – We have a couple of fresh battery storage wars to report this week, including a danger alert in this rural Texas county west of Houston.
8. Esmeralda County, Nevada – The Trump administration this week approved the final proposed plan for NV Energy’s Greenlink North, a massive transmission line that will help the state expand its renewable energy capacity.
9. Merced County, California – The Moss Landing battery fire is having aftershocks in Merced County as residents seek to undo progress made on Longroad’s Zeta battery project south of Los Banos.