Offshore wind initiatives encounter financial challenges and pose a threat to President Biden’s clean energy objectives.
The recent cancellation of two major offshore wind projects in New Jersey is another obstacle for the emerging U.S. offshore wind sector. This puts at risk the Biden administration’s plans to generate electricity for 10 million homes through tall ocean turbines by 2030 and to achieve a carbon-free electric grid by 2025.
Ørsted, a Danish company specializing in wind energy, announced this week that it will be canceling its Ocean Wind I and II projects near the southern coast of New Jersey. This decision is due to issues with supply chains, increased interest rates, and a failure to secure the desired amount of tax credits.
Collectively, the projects were expected to generate more than 2.2 gigawatts of energy.
The news comes after developers in New England canceled power contracts for three projects that would have provided another 3.2 gigawatts of wind power to Massachusetts and Connecticut. They said their projects were no longer financially feasible.
Overall, the cancellations amount to roughly 20% of President Joe Biden’s objective of achieving 30 gigawatts of offshore wind energy by 2030.
Despite facing challenges, the White House reports that the development of offshore wind energy is making progress. This is demonstrated by New York state’s recent investments and the Interior Department’s approval of the largest planned offshore wind farm in Virginia. Additionally, the Bureau of Ocean Energy Management under the Interior Department has announced new offshore wind lease areas in the Gulf of Mexico.
The White House stated on Thursday that despite challenges posed by macroeconomic factors, the U.S. offshore wind industry continues to grow, generating well-paying union jobs in manufacturing, shipbuilding, and construction. This growth also improves the power grid and offers new sources of clean energy for American households and companies.
According to industry professionals, it is unlikely that the United States will reach 30 gigawatts by 2030. However, it is still feasible for the country to achieve a substantial amount of offshore wind power by then, estimated to be around 20 to 22 gigawatts or more. This is a significant increase from the current amount, which consists of only two minor demonstration projects that generate a small portion of one gigawatt of power.
Ocean wind farms play a crucial role in the government’s efforts to transition to renewable energy, especially in densely populated East Coast states where there is limited space for traditional wind turbines or solar panels. Eight states on the East Coast have passed laws or taken executive actions to require the development of offshore wind projects, with a total planned capacity of over 45 gigawatts, according to ClearView Energy Partners, a research company based in Washington.
According to Timothy Fox, a vice president at ClearView, it is unlikely that many would dispute the fact that by 2030, the U.S. will achieve the gigawatts set by the Biden administration. However, Fox believes that ultimately, the U.S. will not only reach but surpass this goal.
The developers of offshore wind have expressed their concern about the worldwide economic challenges they are encountering. Molly Morris, the president of U.S. offshore wind for Equinor, a Norwegian company, stated that the industry is facing an “ideal combination of unfavorable circumstances.”
The increasing rate of inflation, disruptions in the supply chain, and the growing expense of capital and building materials are causing projects to become more costly. This is occurring at a time when developers are striving to launch the first major offshore wind farms in the United States. Ørsted is facing a loss of $4 billion, mainly due to the cancellation of two New Jersey projects.
According to David Hardy, the group’s executive vice president and CEO for the Americas at Ørsted, it is essential to reduce the levelized cost of offshore wind in the US. This will prevent Americans from having to choose between affordable energy and clean energy. Hardy shared this perspective while participating in a panel discussion with Morris at the American Clean Power industry group’s conference on offshore wind in Boston last month.
“We may have been overly ambitious,” he remarked. “We entered with great momentum, thinking we could quickly and affordably execute large projects. However, it seems that we still need to go through a similar learning process as Europe, starting with higher prices and a slightly slower pace.”
According to Walt Musial, the chief engineer for offshore wind at the National Renewable Energy Laboratory, 27 U.S. offshore wind projects had reached agreements with states in May to supply power before facing significant cost increases. However, the time lag between signing purchase agreements and obtaining approval to begin construction resulted in unforeseen cost hikes that made several projects financially unviable.
Musial described Ørsted’s announcement as a setback for the industry, but not a fatal blow.
The Biden administration has approved the largest offshore wind project in the United States, which will be located off the coast of Virginia Beach and have a capacity of 2.6 gigawatts. This will provide enough energy to power 900,000 homes. Despite the cancellation of projects in New Jersey, Ørsted has announced an investment with Eversource to continue construction on Revolution Wind, the first utility-scale offshore wind farm in Rhode Island and Connecticut with a capacity of 704 megawatts.
S&P Global Commodity Insights currently predicts that 22 gigawatts will be reached by 2030, but this forecast may change due to recent announcements in the industry.
Recently, New York state declared the allocation of 4 gigawatts of offshore wind power in its efforts to acquire 70% of its energy from sustainable sources by 2030 and 9 gigawatts of offshore wind by 2035. This announcement followed the denial of a plea for higher payments for four offshore wind ventures, totaling 4.2 gigawatts of electricity, by New York regulators.
Environmental advocates warn that any postponement in the development of offshore wind energy will result in continued dependence on power plants that burn fossil fuels. Conor Bambrick, the policy director for Environmental Advocates NY, emphasizes the importance of expediting the implementation of offshore wind projects in order to improve air quality more rapidly.
The state of New Jersey, led by Governor Phil Murphy of the Democratic party, has set ambitious targets for clean energy, progressing from a goal of 100% clean energy by 2050 to achieving it by 2035. Murphy criticized Ørsted’s choice as “unacceptable” and a disregard for their promises, but he affirmed that New Jersey will continue to pursue offshore wind projects.
Currently, Vineyard Wind and South Fork Wind are being constructed as the first commercial-scale offshore wind farms in the United States, located off the coasts of Massachusetts, Rhode Island, and New York.