Inflation’s next victim: U.S. offshore wind projects

By Benjamin Storrow, Heather Richards | 11/15/2022 07:16 AM EST

Financial difficulties announced by developers in recent weeks call into question the Biden administration’s goal of installing 30 gigawatts of offshore wind power by the end of this decade.

FILE - President Joe Biden shows a wind turbine size comparison chart during a meeting in the Roosevelt Room of the White House in Washington, June 23, 2022, with governors, labor leaders, and private companies launching the Federal-State Offshore Wind Implementation Partnership. The Biden administration says it will hold its first offshore wind auction next month. It's offering nearly 500,000 acres off the coast of New York and New Jersey for wind energy projects that could produce enough electricity to power nearly 2 million homes. (AP Photo/Susan Walsh, File)

President Joe Biden shows a wind turbine size comparison chart during a meeting at the White House in June. AP Photo/Susan Walsh, File

A rising tide of interest rates, supply chain bottlenecks and inflation is threatening the Biden administration’s ambitious offshore wind targets, creating a significant challenge for one of the president’s top climate priorities.

Recent weeks have seen a series of developers raise concerns over rising costs. In New Jersey, a developer warned earlier this month that a planned 98-turbine project off the coast of New Jersey could threaten its finances.

In New England, two developers with contracts to sell power to Massachusetts have sought to renegotiate the deals, only to get shot down by state regulators.


Many developers bid aggressively in state auctions to win those contracts but are now locked into agreements that didn’t account for rising costs, said Sam Huntington, director of North American power and renewables at S&P Global Commodity Insights.

The financial difficulties call into question the Biden administration’s goal of installing 30 gigawatts of offshore wind power by the end of this decade.

“We don’t see them hitting that,” Huntington said. “It is going to be something to watch. I don’t have a good sense of whether these will get renegotiated or canceled.”

The doubts are shared by other analysts. Bloomberg New Energy Finance sees the United States falling 3 to 4 GW short of its 2030 target due to long development timelines and an immature supply chain. The London-based renewables market intelligence firm Renewables Consulting Group estimates the United States will reach just over 25 GW by 2030.

The eroding picture comes as Avangrid Inc. told Massachusetts regulators Monday to continue proceedings to approve power contracts with Bay State utilities in a closely watched back and forth over how states may handle uneasy developers.

Earlier this month, the state’s Department of Public Utilities (DPU) rejected the company’s request for a one-month stay on finalizing the developer’s power purchase contracts, despite Avangrid’s claim that its planned wind farm is no longer viable. Regulators demanded that Avangrid either recommit to moving forward or to canceling the project (Energywire, Nov. 7).

For its part, Avangrid had hoped a delay would allow it to renegotiate how much it’s paid for the electricity produced from its offshore wind farm to help offset rising costs linked to global commodity price spikes, inflation and supply chain constraints.

In a filing Monday night, the company told state regulators to continue with their review of the existing contracts, but appeared determined to push for future negotiations despite the state’s stance.

“We have been transparent and committed, at all times, to doing everything we can to move the project forward, including coming to the table with all parties to find a solution to the unprecedented economic challenges facing this major infrastructure project,” said Sy Oytan, senior vice president of offshore projects for Avangrid, in a statement.

“AVANGRID believes there is a path forward for this project, and today made a filing with Department of Public Utilities so that we can continue to engage in ongoing discussion with all parties on these important issues.”

The fight over Commonwealth Wind comes amid a political transition in Massachusetts. Gov. Charlie Baker, a two-term Republican who has championed offshore wind, is departing. He will be replaced in January by Attorney General Maura Healey, a Democrat has also made the build-out of the industry a priority. In a statement Monday, a Healy spokesperson said the attorney general continues to support Commonwealth Wind.

“We are reviewing project financials and will work collaboratively to explore options to improve project economics for all parties,” said Chloe Gotsis, the Healey spokesperson.

‘Sobering numbers’

Offshore wind has figured prominently in the Biden administration’s climate agenda. The industry has the potential to slash greenhouse gas emissions in the Northeast, where there is limited land to site renewable developments onshore, and create jobs in ports lining the Atlantic Coast.

Biden briefly plugged the industry as part of America’s wider attempts to decarbonize in an address to the U.N. climate summit last week, championing the Inflation Reduction Act’s $369 billion investment in “everything from … offshore wind to distributed solar, zero-emission vehicles and sustainable aviation fuels.”

Neither the White House nor the Interior Department provided comment for this story by press time. But the administration has signaled it plans to forge ahead with the goal.

On Monday, the Bureau of Ocean Energy Management released a draft environmental review of a 2,076-megawatt project off of New York (see related story). The administration, BOEM said, is moving “at the pace and scale required to help achieve the Biden-Harris administration’s goal to deploy 30 GW of offshore wind energy capacity by 2030.”

Installing 30 GW by 2030 was always going to be a challenge. The United States is basically starting from scratch, with a meager 42 megawatts of offshore wind installed off the country’s coast. Building 30 GW would roughly amount to adding New England’s power grid in the next eight years.

Other countries are also projected to see a growth in their offshore wind sectors in the coming years, creating a shortage of materials needed to build projects. Vessels capable of lifting the massive turbines are also in short supply. One installation vessel is under construction currently in Texas. S&P Global Commodity Insights. estimates the country will need at least three or four more to meet the administration’s targets.

“It takes three years to build these ships,” Huntington said. “Those are those sobering numbers. Even if you can do everything as fast as you possibly can, it’s hard to bring on enough ships as fast as possible.”

The United States’ challenges are not unique. The United Kingdom, Germany and the Netherlands are likely to fall short of their 2030 offshore wind targets, according to Renewables Consulting Group projections. Of 15 countries with 2030 goals, just three are on track: Poland, with 6 GW; Vietnam, at 5.2 GW; and Denmark, at 12.7 GW.

Rising interest rates and inflation have only compounded the industry’s challenges. In a recent earnings call with financial analysts, the developer of Ocean Wind 1 off New Jersey said rising costs have complicated the project’s future. Some of those costs could be offset by the recently passed Inflation Reduction Act, which contains $369 billion in clean energy tax credits, said Ørsted A/S CEO Mads Nipper.

Still he conceded the project’s finances are “not where we wanted to be.”

“We are not in a situation where we are saying this is something that we no longer believe in,” Nipper said. “We still believe there is a path for this to be value creating.”

The sentiment was echoed by Public Service Enterprise Group, a New Jersey utility that is developing Ocean Wind with Ørsted. Ralph LaRossa, the company’s CEO, told analysts the project’s challenges “are no different from some of the other projects that you’ve been reading about.”

One potential silver lining for the industry from project delays is that it buys time to build up a U.S. fleet of offshore wind installation vessels, and a larger supply chain to meet demand, said Fred Zalcman, director of the New York Offshore Wind Alliance.

Matt Shields, who leads offshore wind techno-economic analysis at the National Renewable Energy Lab, called the administration’s 30 GW target still “doable” and noted the Inflation Reduction Act should also help counteract cost pressures facing developers.

But the industry needs to put steel in the water to catalyze the building of a supply chain and installation vessels today if it is to have any hope of meeting the administration’s targets, he said.

“That’s something that the industry needs to plan for a little bit and understand that it takes time to stand up a supply chain, we’re not going to be able to be fully resilient or self-sufficient this decade,” he said.

This story also appears in Climatewire.