America’s offshore wind industry has been hammered by inflation and rising interest rates. But some developers are making progress despite the headwinds.
On Thursday, the first foundations for a massive Virginia project were delivered to a port in Norfolk. In New Jersey, a Danish wind developer recently posted a $100 million performance bond that obligates it to build a delayed project there. And in perhaps the most significant development, the first of 62 turbines was erected this week as part of Vineyard Wind in the waters off Massachusetts.
Those events highlight the uneven progress of offshore wind in the United States. They follow a decision by New York regulators last week that jeopardizes the future of four projects in the state, a move that sent tremors through the budding U.S. industry. Other projects also face uncertainty as offshore wind developers cancelled power contracts with officials in Massachusetts and Connecticut.
“In the long run we still see a lot more growth opportunities for the offshore wind industry. It’s just likely to grow on a longer and flatter trajectory than first envisioned by the Biden administration and the states,” said Timothy Fox, an analyst who tracks the industry at ClearView Energy Partners.
Many analysts believe the U.S. will fall short of President Joe Biden’s target of building 30 gigawatts of offshore wind capacity this decade.
BloombergNEF updated its projections to say 16.4 GW of offshore wind capacity will be built before 2030, a 29 percent drop from its June estimate. S&P Global Commodity Insights said half of the offshore wind projects that have been contracted to provide power have been canceled or revised, and more could be at risk.
The dimming outlook comes amid rising costs for labor, raw material and financing, leaving many projects underwater. In New York, Ørsted requested a 27 percent increase in the price it can charge for power from its Sunrise Wind project. Equinor and BP asked for a 54 percent increase on average related to multiple projects the oil giants are planning to build together. For one — Empire Wind 2 near Long Island — the companies sought a 66 percent increase.
A big question facing the industry is whether developers in New York will cancel their current power deals or move forward in a climate of financial uncertainty.
“It means that they really need these price increases to make these projects economically viable,” said John Murray, a senior wind analyst at S&P. “So where they are currently is not really working for them. So I think they were probably leaning towards canceling them.”
The companies’ plans are complicated by the fact that in some cases they have already invested a significant amount of money in their projects. Ørsted, for instance, began manufacturing foundation components and placed a turbine order for Sunrise Wind.
“Several companies have stated that they would walk away if they can’t get the project economics correct, but they don’t want to do that. They’re trying to fight to keep these projects in place,” Murray said.
Tax credits provided under the Inflation Reduction Act are seen as an additional source of potential money, he said. Developers have been lobbying the Biden administration to make it easier to qualify for two 10 percent investment tax credits, which are available to companies that use domestic components and build in communities with a concentration of fossil fuel businesses.
Yet the risks are substantial. General Electric, Siemens Gamesa and Vestas have all announced plans to build factories serving the industry in New York, helping ease a global bottleneck for offshore wind components. But those facilities are unlikely to materialize if more projects are delayed or canceled, BloombergNEF wrote in a note to clients.
Developers could face a two-year delay if they cancel their power contracts and successfully bid on a new electricity deal with New York. A decision to cancel their contracts could leave the state without a pipeline of offshore wind projects, with the exception of a small 12-turbine project currently under construction, BloombergNEF wrote.
“This would effectively revert the progress offshore wind trailblazer New York has made,” the consulting firm wrote.
Still, analysts said they expect offshore wind to eventually overcome its growing pains, even if it takes longer for progress to materialize. New York is currently reviewing bids from a third round of offshore wind projects. And construction of Vineyard Wind, the 62-turbine project off Massachusetts, and South Fork Wind, the 12-turbine project serving New York, also shows that the industry is capable of putting steel in the ocean floor.
“It seems to be more of an industry adjustment than it is an industry in crisis,” Murray said.
Indeed, there are signs of progress along the East Coast. The arrival of eight foundations — or monopiles as they are known — in Norfolk marks a significant development for Dominion Energy’s Coastal Virginia Offshore Wind project (CVOW). At 2.5 GW, it’s the largest offshore wind project in the United States. It’s expected to receive a final federal permit later this month, paving the way for Dominion to start work. The project is scheduled to come online in 2026.
Dominion differs from other offshore wind developers in that it is a regulated monopoly that operates a traditional utility. It will earn a rate of return on the $10 billion project approved by Virginia regulators. That marks a significant difference from other companies, which operate as independent developers and are reliant on signing power contracts with states to build their projects.
Jeremy Slayton, a Dominion spokesperson, said the utility locked in contracts to build the project when it proposed the huge facility to Virginia regulators. Those contracts are fixed, he said, insulating Dominion from the economic headwinds buffeting other projects.
In New Jersey, Ørsted recently posted a $100 million performance security with the state Board of Public Utilities, committing the Danish wind developer to build Ocean Wind 1. The payment softened concerns about the project’s future spurred by Ørsted’s announcement that it would delay construction of the 1.1-GW facility by one year, until 2026.
The bond was a requirement of legislation passed by New Jersey lawmakers this summer enabling Ørsted to recoup federal clean energy tax credits. New Jersey had initially planned to use that money to pay down the costs to consumers but changed course when Ørsted argued the tax credits were needed to make Ocean Wind I financially feasible.
But the biggest development came in Massachusetts, where Avangrid and Copenhagen Infrastructure Partners announced they had installed the first turbine for Vineyard Wind, an 800-MW project located south of Martha’s Vineyard.
The 13-megawatt turbine is one of 62 GE Haliade-X wind turbines planned for the project. Each is capable of producing enough power to supply 6,000 homes. The entire project, which is expected to be operational next year, will generate enough electricity to power 400,000 homes.
“Vineyard Wind is the future of American offshore wind, and it’s a future full of clean, sustainable energy and tremendous potential for job creation and reducing carbon pollution,” said Tim Evans, who heads Copenhagen Infrastructure Partners operations in North America.
Other developers hope he’s right.