Sign In or Create an Account.

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

Economy

Why Offshore Wind Is Suddenly in Trouble

Is the East Coast’s most abundant source of renewable energy too expensive?

Wind turbines in a sea of money.
Heatmap Illustration/Getty Images

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.

Yellow

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
Politics

The Climate Election You Missed Last Night

While you were watching Florida and Wisconsin, voters in Naperville, Illinois were showing up to fight coal.

Climate voting.
Heatmap Illustration/Getty Images

It’s probably fair to say that not that many people paid close attention to last night’s city council election in Naperville, Illinois. A far western suburb of Chicago, the city is known for its good schools, small-town charm, and lovely brick-paved path along the DuPage River. Its residents tend to vote for Democrats. It’s not what you would consider a national bellwether.

Instead, much of the nation’s attention on Tuesday night focused on the outcomes of races in Wisconsin and Florida — considered the first electoral tests of President Donald Trump and Elon Musk’s popularity. Outside of the 80,000 or so voters who cast ballots in Naperville, there weren’t likely many outsiders watching the suburb’s returns.

Keep reading...Show less
Green
Energy

Exclusive: Trump’s Plans to Build AI Data Centers on Federal Land

The Department of Energy has put together a list of sites and is requesting proposals from developers, Heatmap has learned.

A data center and Nevada land.
Heatmap Illustration/Getty Images

The Department of Energy is moving ahead with plans to allow companies to build AI data centers and new power plants on federal land — and it has put together a list of more than a dozen sites nationwide that could receive the industrial-scale facilities, according to an internal memo obtained by Heatmap News.

The memo lists sites in Texas, Illinois, New Jersey, Colorado, and other locations. The government could even allow new power plants — including nuclear reactors and carbon-capture operations — to be built on the same sites to generate enough electricity to power the data centers, the memo says.

Keep reading...Show less
Economy

AM Briefing: Liberation Day

On trade turbulence, special election results, and HHS cuts

Trump’s ‘Liberation Day’ Tariffs Loom
Heatmap Illustration/Getty Images

Current conditions: A rare wildfire alert has been issued for London this week due to strong winds and unseasonably high temperatures • Schools are closed on the Greek islands of Mykonos and Paros after a storm caused intense flooding • Nearly 50 million people in the central U.S. are at risk of tornadoes, hail, and historic levels of rain today as a severe weather system barrels across the country.

THE TOP FIVE

1. Trump to roll out broad new tariffs

President Trump today will outline sweeping new tariffs on foreign imports during a “Liberation Day” speech in the White House Rose Garden scheduled for 4 p.m. EST. Details on the levies remain scarce. Trump has floated the idea that they will be “reciprocal” against countries that impose fees on U.S. goods, though the predominant rumor is that he could impose an across-the-board 20% tariff. The tariffs will be in addition to those already announced on Chinese goods, steel and aluminum, energy imports from Canada, and a 25% fee on imported vehicles, the latter of which comes into effect Thursday. “The tariffs are expected to disrupt the global trade in clean technologies, from electric cars to the materials used to build wind turbines,” explained Josh Gabbatiss at Carbon Brief. “And as clean technology becomes more expensive to manufacture in the U.S., other nations – particularly China – are likely to step up to fill in any gaps.” The trade turbulence will also disrupt the U.S. natural gas market, with domestic supply expected to tighten, and utility prices to rise. This could “accelerate the uptake of coal instead of gas, and result in a swell in U.S. power emissions that could accelerate climate change,” Reutersreported.

Keep reading...Show less
Yellow