U.S. News: Costs Impede Offshore-Wind Buildout

"Offshore wind developers are facing financial challenges that threaten to derail several East Coast projects critical to reaching the Biden administration's near-term clean-energy targets.

Supply-chain snarls, rising interest rates and inflationary pressures are making projects far more expensive to build. Now, some developers are looking to renegotiate financing agreements to keep their projects under way.

The Biden administration has set a target for the U.S. to develop 30 gigawatts of offshore wind power by 2030 -- enough to supply electricity to roughly 10 million homes. Analysts say that target will be difficult, if not impossible, to achieve if cost and supply issues persist.

"We're seeing unexpected and unprecedented macroeconomic challenges," said David Hardy, chief executive of the Americas for Danish power company Orsted A/S, which is developing about 5 gigawatts of offshore wind projects off the coast between Rhode Island and Maryland.

Avangrid, a subsidiary of Spanish power company Iberdrola SA, is developing a 1.2-gigawatt project called Commonwealth Wind off the coast of Massachusetts. The company in December asked the Massachusetts Department of Public Utilities to terminate its review of contracts the company negotiated with utilities serving the state. The company said it now intends to scrap the contracts and rebid the project this year to account for higher costs.

Mayflower Wind Energy LLC, a joint venture between Shell New Energies US LLC and Ocean Winds, is developing another Massachusetts project. It said in regulatory filings that its contracts have been similarly affected and that it plans to produce third-party analysis showing the challenges of financing.

Orsted told analysts in November that its anticipated return on U.S. projects, including Ocean Wind 1 off New Jersey, is "not where we want it to be." New Jersey utility company Public Service Enterprise Group Inc., which has a 25% interest in Ocean Winds, told analysts in October that it was reviewing its options and project costs before making a final investment decision.

The U.S. offshore wind industry has long faced delays related to federal permitting, a process the Biden administration has pushed to accelerate. Vineyard Wind LLC, a joint venture between Avangrid and Copenhagen Infrastructure Partners, is now building the nation's first large-scale project off the coast of Massachusetts and expects it to begin producing power late this year.

Global market dynamics have compounded the hurdles. The U.S. is building its first wave of offshore wind farms at the same time European countries try to accelerate their own projects to secure electricity supplies following the recent sanctions on Russia. That has strained the supply chain, as well as the availability of specialized installation vessels needed to transport and hoist massive turbines.

Dominion Energy Inc., a Richmond, Va.-based utility company, is building the only offshore-wind installation vessel under construction in the U.S. Josh Bennett, Dominion's vice president of offshore wind, said the vessel is more than 60% complete. The company's $9.8 billion offshore wind farm remains on schedule and on budget, he said, largely because the company signed its supply contracts before the constraints emerged.

Wind-turbine manufacturers have also been struggling with supply-chain snarls and rising materials costs. Vestas Wind Systems A/S, one of the world's largest turbine makers, reported lower revenue in the third quarter.

Josh Irwin, Vestas North America's senior vice president of offshore sales, said the amount of time it takes for developers to complete the necessary permitting steps remains a challenge for planning. "The longer the interval, the greater the opportunity for supply-chain costs to get out of step with a project's original expectations for the price of electricity," he said." [1]

1. U.S. News: Costs Impede Offshore-Wind Buildout
Blunt, Katherine; Hiller, Jennifer.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 03 Jan 2023: A.3.