Reaching President Joe Biden’s offshore wind goals is getting harder by the day.
The president set a goal of building 30 gigawatts of offshore wind by 2030 as part of a plan to slash planet-warming pollution and create a new generation of blue-collar jobs.
But rising interest rates and supply chain bottlenecks have complicated those efforts, sending the costs of offshore wind projects soaring and making developers scramble to renegotiate or cancel power deals.
Offshore wind companies have canceled four electricity contracts to supply a combined 2.4 GW of power to Massachusetts utilities since July. Another 0.8 GW is on the chopping block in Connecticut after a developer moved to end its contract last week.
Now, in the biggest blow to the industry yet, 4.2 GW of offshore wind power is at serious risk of being terminated in New York after utility regulators Thursday unanimously rejected a petition by developers to amend their contracts to account for inflation.
Those developments mean that roughly a quarter of the power needed to meet Biden’s target will likely be delayed several years or canceled. Either could undercut the president’s climate ambitions and jeopardize future offshore wind developments in the U.S.
“The U.S. targets of 30 GW by 2030 are further from reality,” said Atin Jain, an analyst who tracks the offshore wind industry at BloombergNEF. “I’ve been saying it was a pipe dream at the beginning of the year. My opinion has just become stronger.”
Biden was looking to offshore wind to provide enough power to supply 10 million homes and slash carbon emissions 78 million tons by the end of the decade. New York is central to that plan.
The state sought to build 9 GW of offshore wind by 2035 as part of its goal of generating 70 percent of its power from renewable energy by 2030. About a quarter of New York’s power comes from renewable sources today, the vast majority of which is generated by hydropower. The four offshore wind projects that petitioned the New York Public Service Commission to amend their existing power deals would provide almost 12 percent of the electricity needed to meet that target.
Onshore renewable projects, which would account for an additional 12 percent of clean power, had also asked the commission to allow them to recoup more money.
But building those projects was going to require more money than the state had anticipated, driven by rising interest rates and snarled supply chains. In the case of offshore wind, Equinor ASA and BP PLC, which are jointly developing three projects contracted to the state, had requested a 54 percent increase in the price paid to their developments. Ørsted A/S asked for a 27 percent increase paid to its Sunrise Wind project. The developers had warned that the projects were unlikely to proceed without relief from the state.
Hochul: Consumers over wind companies
Molly Morris, president of Equinor’s renewable division in the U.S., called New York’s decision Thursday disappointing and said the companies were assessing its impact. Ørsted Americas CEO David Hardy said, “Sunrise Wind’s viability and therefore ability to be constructed are extremely challenged without this adjustment.”
The sharpest criticism came from the American Clean Power Association, a trade group.
“With one shortsighted decision, the NYSPSC has thrown New York’s environmental and clean energy future into peril,” it said, referring to the state Public Service Commission. “Absent a robust offshore wind industry, it will not be possible for New York State to achieve its climate or environmental justice goals.”
New York officials said they remain committed to their clean energy and climate goals. In the wake of the Thursday decision, Gov. Kathy Hochul, a Democrat, released a 10-point plan to spur renewable development, saying, “My commitment to building a clean energy economy is strong as ever.”
She directed state agencies to select outstanding bids from a third offshore wind solicitation and launch an accelerated procurement process to buy more power from large-scale renewable projects.
Yet Hochul said approving developers’ request for higher prices was too costly.
“Today’s decision by the Public Service Commission was necessary to maintain affordability in the wake of global economic pressures and to preserve the competitive process that ensures New York consumers are getting the best deal,” Hochul said in a statement.
A White House spokesperson did not return a request for comment.
‘Bit of a mess’
Thursday’s decision differs in important ways from recent setbacks in Massachusetts and Connecticut. The offshore wind contracts canceled in New England were for projects that have yet to be fully permitted and were years away from starting construction. Developers have said they intended to bid for new contracts next year.
By contrast, two offshore wind projects in New York were nearing construction. Empire Wind I, an 816-megawatt project planned by Equinor and BP, has received its final environmental impact statement from federal regulators. Work on a staging port in Brooklyn was set to start, according to an industry source who is familiar with the project.
Ørsted had already started manufacturing components for its Sunrise Wind project and has placed an order for turbines from Siemens Gamesa, according to industry sources. The Danish developer has said it anticipates making a final decision on the project this year. Both projects were supposed to come online in 2026.
“It is a bit of a mess, frankly,” said Samantha Woodworth, an analyst who tracks the industry at Wood Mackenzie, a consulting firm. “These developers have already sunk so much money into these projects already.”
Developers are now faced with an excruciating choice, analysts said. If they move to cancel their contracts, banks are unlikely to lend them the money needed to build the projects. One industry source expressed concern that a canceled contract could also send a project to the back of the federal permitting queue, with regulators prioritizing other developments.
That could be costly. In comments to the PSC, the New York State Energy Research and Development Authority estimated that developers would likely face a 2 ½-year delay if they elected to cancel their contracts and rebid them at a later date.
That could put offshore wind projects in competition for scarce installation vessels, port space and components with other developments planned over the second half of the decade. At the same time, manufacturers are unlikely to make investments in new factories that could ease the supply chain crunch unless projects move forward.
“If it comes to using the same installation vessels or same suppliers, it could become a major choke point later in the decade,” said Jain of BloombergNEF. “Sometimes things have to become worse before they get better. I think that is probably going to happen with offshore as well. … There is more pain ahead for the sector.”
This story also appears in Energywire.