The Biden administration is facing increasing pressure to take action to bolster the offshore wind industry after a major project was canceled in New Jersey on Tuesday, although options appear limited to ease financial hurdles facing developers.
So far, the administration is reiterating that the industry will continue to grow and that President Joe Biden’s goals for 30 gigawatts of offshore wind by 2030 will be achieved, even as many states and analysts say otherwise.
“Biden’s offshore wind goals look impossible at this point of time,” said Chelsea Jean-Michel, a wind analyst with BloombergNEF, a research and analysis firm.
Governors and lawmakers are urging the White House to ensure wind companies can take advantage of several tax benefits and to speed up permitting so projects are less at risk from sudden economic blows.
Challenges for offshore wind have been building for months because of inflation and supply chain shortages.
Developers are taking billion-dollar losses due to the industry’s exploding costs and the dropping value of assets. Two companies in Massachusetts walked away from deals that they said did not cover costs. New York regulators rebuffed attempts to renegotiate contracts with wind companies for higher prices, casting uncertainty over the future of several wind farms off the state’s coast. Meanwhile, the supply chain of businesses to support offshore wind construction has expanded too slowly to meet the needs of proposals.
But the starkest sign of a troubled sector came Tuesday, when Ørsted, the largest offshore wind developer in the U.S. market, said it will abandon its Ocean Wind project. The two-phased wind array off the Jersey coast was one of just five major offshore wind projects approved in the U.S. — all by the Biden administration. Along with creating more uncertainty for the industry, the cancellation is raising speculation over whether other projects will follow.
Defending the administration’s record, White House spokesperson Michael Kikukawa said Biden has “used every available tool to advance the growing American offshore wind industry.”
“While macroeconomic headwinds are creating challenges for some projects, momentum remains on the side of an expanding U.S. offshore wind industry — creating good-paying union jobs in manufacturing, shipbuilding, and construction; strengthening the power grid; and providing new clean energy resources for American families and businesses,” Kikukawa said in an email.
The White House and Interior officials did not respond to specific questions about the Ørsted cancellations, offshore wind permitting options or tax credits.
Experts say the headwinds are likely to prevent Biden’s 30-GW goal from being reached, even as they are unlikely to completely derail the budding industry long term.
“The latest cancellations shows that the offshore wind industry is currently in a state of flux,” said John Murray, senior research analyst for S&P Global Commodity Insights. Murray said that is not unusual considering the immaturity of the offshore wind sector. At the same time, analysts are lowering their expectations of how much the industry will grow by the end of the decade.
S&P said it would be downgrading its outlook for 2030 offshore wind capacity from its current 22-GW expectation. The result could end up in line with the 16.4 GW of offshore wind capacity that BNEF anticipates being installed by 2030, a 29 percent drop from what it estimated in June.
Taxes and permits
Ryan Ferguson, a spokesperson for Ørsted, said the administration can bolster projects through tax credit guidance and permitting certainty, noting the “urgency of the moment” to work together on offshore wind.
“These projects continue to face challenging macroeconomic conditions and a highly constrained supply chain,” he said in an email. “They can be supported through actions such as moving forward quickly with [Inflation Reduction Act] guidance that gives the industry the certainty required to keep making investments in American jobs and manufacturing, and ensuring that project permitting timelines remain on schedule to prevent costly delays.”
Jean-Michel with BNEF said Ørsted’s experience underscores that tax credits are making and breaking offshore wind projects, noting that the company has fought “tooth and nail” to secure the highest tax credit percentage it could.
The Inflation Reduction Act expanded existing federal tax credits and created new ones to boost offshore wind, including a 10 percent bonus incentive for placing projects in former fossil energy communities and another 10 percent for sourcing steel and other turbine components domestically.
For early projects in the build-out of offshore wind — which are right now most vulnerable to inflated costs — capturing the tax credit for locating in energy communities has proved difficult, Jean-Michel said.
Since the wind projects are in the ocean, qualifying for locating in an energy community may hinge on the location of where a transmission cable or substation connects to the grid on land, according to IRS guidance. Developers have complained that the location of a power line isn’t the best indicator of when a project is bringing jobs or investments.
Jean-Michel noted that projects being developed today were also designed some time ago, before the location of a grid connection mattered in terms of qualifying for tax benefits.
Offshore wind developers say that additional federal guidance could fix this issue. Several Democratic lawmakers have also flagged these concerns and urged the White House to issue IRS guidance accordingly.
The second credit aims to support sourcing offshore wind materials from inside the United States. The IRS said offshore wind developers initially need 20 percent of manufactured products to be sourced domestically to help them qualify for the 10 percent credit.
But the incentive may still be out of reach for some companies because of the “intense competition” for the limited domestic supply chain for offshore wind, Jean-Michel said.
“Not every project in the pipeline may be able to get hands on this bonus,” she said.
Another option for Biden is to intervene on federal permitting, according to observers.
New York Gov. Kathy Hochul and New Jersey Gov. Phil Murphy, both Democrats, were among a host of Northeast governors that said speeding permitting could help avert a disaster for offshore wind facing increasing costs.
“Without federal action, offshore wind deployment in the U.S. is at serious risk of stalling,” they wrote in a September letter to the president.
The long period of time it takes to permit offshore wind projects at the federal level leaves a wide window for the broader economy to change, some experts said.
“The permitting process alone in the U.S. can take up to 5 years,” said Murray in a note Wednesday. “As we have seen a lot can happen to costs in the space of 3-5 years and developers are looking to reduce their risk exposure to rising costs by getting their projects online as soon as possible.”
States like New York have pressed Biden for an memorandum of understanding with the Department of Energy’s Loan Programs Office to help large-scale renewables access cheaper financing. They have also asked the administration to split the offshore wind revenues it receives from companies, such as the bonus bids from offshore wind lease auctions, with adjacent states. That money, states say, could be used to subsidize offshore wind power so ratepayers don’t bear the cost.
A growing storm
The Ørsted news came on the heels of several bruising blows to offshore wind companies.
The credit rating bureau Fitch Ratings earlier this week downgraded Eversource Energy and its NSTAR Electric utility subsidiary from stable to negative, partly on the grounds that the company may struggle to unload three offshore wind projects it had wanted to sell.
Anja-Isabel Dotzenrath, BP’s head of gas and low-carbon energy, told attendees at a London conference Wednesday that the U.S. offshore wind sector was “fundamentally broken” and in need of a reset, according to the Financial Times.
BP has taken a pretax impairment charge — a devaluing of an asset — of $540 million due to its New York offshore wind projects. The company and a partner had sought an increase in contracted energy prices with the state of New York to offset inflation but was denied by the New York Public Service Commission.
Norwegian oil and gas giant Equinor said last month it was taking a $300 million impairment in its U.S. offshore wind portfolio. Ørsted could take a $5 billion hit.
Casey Hammond, who served as Interior’s top official overseeing energy on public lands and waters during part of the Trump administration, said these issues show the Biden administration moved too fast to advance offshore wind.
He credited the Trump administration with a slower and more methodical approach. The Trump administration was criticized for slowing down offshore wind for political reasons. Hammond and others have denied that was the case.
“Our approach was to be cautious to understand the environmental impact and economic viability,” Hammond said in an email. “This administration didn’t have time for the details because they had a 30 GW target to hit. I look at how much they approved in the first months of the Biden Administration and don’t know if I should be impressed or shocked.”
The Biden response
Biden administration officials haven’t so far indicated new plans for offshore wind, whether it be on tax credits or other policies. Instead, they’ve stressed repeatedly that their efforts to support the sector have been robust.
Along with approving the first five large-scale offshore wind projects in the U.S., the Bureau of Ocean Energy Management has started environmental reviews of 10 proposed wind arrays, BOEM Director Liz Klein said in a statement shared with E&E News. One of those approved projects was Ocean Wind.
Klein had the same perspective in a recent tense exchange on Capitol Hill over whether the Biden administration was being frank about the state of offshore wind.
“When are you going to end the happy talk and admit 30 GW is not going to be available by 2030?” Senate Energy and Natural Resources ranking member John Barrasso (R-Wyo.) asked Klein in a hearing last month.
“We still think it’s an achievable goal,” she said. “We know the industry is facing a lot of its own headwinds with supply chain issues and increasing costs, but we’re continuing to move forward.”
Amid the news of downgrades and canceled projects, Biden officials earlier this week announced the approval of the largest offshore wind project in the country.
The Dominion Energy offshore wind project could power more than half a million homes when complete in 2026, and the utility has remained confident that the project is on track and on budget. The project budget is much higher than its original price tag by several billion, but the utility said it’s confident prices are mostly now locked in.
Analysts at ClearView Energy Partners said in a note to clients Wednesday that Biden’s 30-GW target was never a must-reach threshold and that the offshore wind industry’s troubles could have a “silver lining” of pressuring the administration to address tax credit uncertainties.
“We would suggest that President Joe Biden may have had another purpose in mind when his administration established that target. The Biden Administration could have been broadly and explicitly declaring its support for the nascent industry and demonstrating an eagerness to complete environmental reviews of proposed projects and issue [records of decision],” they wrote.
“In this context, we would suggest that the Biden Administration has thus far achieved that objective, although perhaps not always as quickly as project developers might like,” they said.