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A series of canceled offshore wind projects and contracts have threatened the Biden administration’s efforts to expand the new industry and its promise to deliver clean power to coastal states.
The latest setback came Tuesday evening when Danish developer Orsted announced it was abandoning two major projects off the south coast of New Jersey. Ocean Wind 1 and 2 have become too expensive due to rising interest rates and competition for limited supplies and equipment, the company said. The projects had also become a hot political issue, with local grassroots opposition and campaigns tied to fossil fuel interests.
The Biden administration had planned an expansion to generate 30 gigawatts of offshore wind power by the end of the decade – projects that could not be reversed by future administrations, with enough energy to power more than 10 million American homes and save 78 million tons of carbon dioxide emissions. East Coast states viewed its construction as a way to create new, union-friendly manufacturing jobs, increasing its appeal to government policymakers.
But the emerging industry has encountered numerous obstacles this year, and in recent weeks companies have also moved to end contracts to sell electricity to utilities in Massachusetts and Connecticut. These cancellations have helped derail more than half of them Offshore energy is being developed across the country — 18 gigawatts, mostly along the Atlantic coast, according to a tally by Timothy Fox, vice president of research at ClearView Energy Partners. The rising costs and unprofitability of these developments — and muted interest in more of them — could dash President Biden’s hopes for offshore wind, Fox and several industry lobbyists said.
“We’ve already passed that tipping point,” Fox said. “Given the cancellation of three different projects that are very large, that seems unlikely.”
Fox added that the White House goal deserves credit for helping boost the industry development to date. A White House spokesman, Michael Kikukawa, said in an email that the administration’s strategy is producing results, including $7.7 billion in investments from the offshore wind industry since last summer, when the president signed the Inflation Reduction Act signed, which boosted climate spending.
“While macroeconomic headwinds pose challenges for some projects, momentum remains on the side of an expanding U.S. offshore wind industry,” Kikukawa said in a statement.
Kikukawa noted that New York last week announced what he said was the state’s largest investment in offshore wind energy. This announcement — This comes after the state refused to renegotiate existing offshore wind contracts – and is committing hundreds of millions of dollars in new spending to several projects. And the Interior Department issued environmental permits Tuesday for the nation’s largest project, a 2.6-gigawatt Dominion Energy project more than 20 miles off the coast of Virginia Beach.
In its announcement Tuesday, Orsted said it would continue to move forward with its Revolution Wind project, a smaller joint venture to deliver electricity to Rhode Island and Connecticut. The onshore portion of construction was already underway, and unlike other projects, company executives say they can ensure timely access to the huge ships needed to build these offshore sites and let them go assume that Revolution Wind can still make profits.
Other Orsted projects in New York and Maryland are still pending, and discussions with officials in those states are ongoing, the company said in its statement. Orsted said the company remains committed to the industry, but its portfolio is also still under review and further decisions will be made in the coming months.
“Macroeconomic factors have changed dramatically in a short period of time. High inflation, rising interest rates and supply chain bottlenecks are impacting our long-term capital investments,” David Hardy, CEO of Orsted’s Americas division, said in a statement. “We are extremely disappointed to have to make this decision, especially as New Jersey is well on its way to becoming a U.S. and global hub for offshore wind energy.”
Ocean Wind had been split into two development projects, the first of which alone included up to 98 skyscraper-sized wind turbines about 15 miles offshore and enough new electricity to power half a million homes. Ocean Wind 2 would have doubled that capacity, bringing the total to more than 2.2 gigawatts.
New Jersey Democrats had called Ocean Wind critical to achieving the state’s goal of reducing overall greenhouse gas emissions by 80 percent by 2050. State leaders have also sought to make New Jersey an industrial hub, and Gov. Phil Murphy (Democrat) criticized that on Tuesday. Orsted pledged to ensure the company’s payment of $300 million and said it promised to support the offshore wind sector to pay if it exits Ocean Wind.
“Orsted’s decision today to abandon its commitments to New Jersey is outrageous and calls into question the company’s credibility and competence,” Murphy said in a statement. “I remain committed to ensuring New Jersey becomes a global leader in offshore wind – which is critical to our economic, environmental and clean energy future.”
Ocean Wind had faced stiff opposition, particularly from Republicans in coastal Cape May County. That included a lawsuit Protect Our Coast NJ filed in late July against Orsted and the state to block a tax break for the wind farm.
Group executives said Wednesday that there was excitement and relief following Orsted’s decision, but also concern that the project would be revived. They claimed that the development of offshore wind energy could endanger fisheries and marine mammals, claims that contradict the conclusions of leading scientists.
“I’m optimistic, but we’re going to respond in a measured way,” said Barbara McCall, board member of Protect Our Coast, NJ.
Orsted also faced rising costs. Offshore wind projects are investments worth billions that will take decades to fully pay off. As a result, the rate hikes that governments have used to combat inflation have hit capital-intensive businesses like offshore wind particularly hard. That led Orsted to cut the estimated value of its assets by $900 million in the first nine months of 2023, company executives said Wednesday.
And as countries on both sides of the Atlantic Ocean seek to advance offshore wind energy, developers have pursued too many projects for the materials and equipment available to build them. In Orsted’s earnings call on Wednesday, Chief Executive Mads Nipper said the huge ships that build these wind farms were the central problem for Ocean Wind 1. Finding available ships would have meant several years of delays and forced the company to redo many other contracts. Costs would likely rise almost everywhere, he said.
“Because of the uncertainty, this has had a massive impact,” Nipper said.
Company executives said Wednesday that Orsted would take a total writedown of $4 billion for the current year through September, most of which would be on Ocean Wind 1 and 2. The company’s shares plunged 25 percent in trading on Wednesday following the announcement.
In an interview with The Washington Post published Tuesday, recently departed Interior Department No. 2 Tommy Beaudreau said the offshore wind industry has a long history of gradual growth despite significant challenges. He also noted that several other industries are facing similar turmoil as the economy recovers from the pandemic.
“It has already overcome previous challenges, and I have every confidence that it will overcome some of the economic challenges we see today,” Beaudreau told The Climate 202.
Lobbyists and ClearView’s Fox said the Treasury Department was an opportunity the Biden administration could use to improve the industry’s situation. The department is still setting rules for tax breaks that Congress created in last year’s climate spending package, and one of its biggest remaining decisions involves offshore wind energy.
The rules will affect how wind power developers qualify for loans aimed at increasing the amount of steel and other materials used by U.S. manufacturers and how much wind power supply chains will boost job growth. Developers and their advocates in Washington say the proposed rules are too restrictive. Looser rules could bring in hundreds of millions of dollars more for each project and make many more of them viable, they said.
There are “real challenges in creating a new industry,” the American Clean Power Association, a renewable energy trade group, said in a statement Wednesday. “The news is also a reminder that now more than ever we need strong partnerships with government and stakeholders.”