New Jersey utility Public Service Enterprise Group says it is exiting direct investment in the 1.1-GW Ocean Wind 1 offshore wind energy project set to be built off the state’s coast, inking a deal to sell its 25% equity stake in the multibillion-dollar project to its partner, Denmark-based developer Orsted and grant it full ownership.
The rumored move follows steps taken in recent weeks by two Massachusetts wind project owners to revise or cancel power supply contracts, claiming unforeseen rapid rises in development costs.
In a statement, PSEG Chief Commercial Officer Lathrop Craig said “a better positioned tax investor [should] join the project so it can proceed with an optimized tax structure.” David Hardy, Americas CEO of Orsted, which also plans a second New Jersey wind project, said Ocean Wind 1 is on track to deliver its first power by the end of 2024
The utility firm said it would invest in land-based infrastructure that would link to the state grid that project and other offshore wind facilities the state has committed to build.
New Jersey has already taken industry-leading steps to boost that infrastructure, including award of a $1-billion project late last year to connect wind projects to an existing power substation that could handle 6.4 GW and use existing rights of way.
In a report issued on Jan. 24, industry consultant Brattle Group says more proactive state and regional regional transmission planning now in northeast coast areas of major offshore wind development could save up to $20 billion in costs and reduce environmental and community impacts by 50%. But it also notes still uncertain rules in how tax credits under the new climate change law would apply in developing so-called offshore "backbone" transmission infrastructure investments.
Meanwhile, one Massachusetts developer, utility firm Avangrid, filed suit Jan. 19 in the state supreme court to appeal state regulators’ Dec. 30 approval of existing power contracts with three state utilities for its 1.2- GW Commonwealth Wind project.
Citing historic inflation, interest rates hikes and supply chain bottlenecks, power offtake contracts “do not allow the company to secure the significant financing needed to construct this critical project,” said an Avangrid spokesperson. It seeks to vacate the contracts and have their capacity included in an upcoming power solicitation by the state. The backers of the 800-MW Mayflower Wind project are asking Massachusetts regulators for more time to assess financial issues of its current power contracts.
In what may be seen as a controversial move, New York and New Jersey are considering inflation adjustment terms in their next offshore wind procurement rounds. The staff of New Jersey’s Board of Public Utilities has proposed a one-time adjustment for developers, to be capped at 15%, but the state ratepayer advocate is concerned about higher power prices as a result.
On a Jan. 20 earnings call, Orsted disclosed to investors and analysts that it is taking a $366-million writedown on its 920-MW Sunrise Wind project off Long Island, N.Y., citing “project-specific [capital expenditure] increases” last year, with the firm noting costs for installation vessels "and associated services." The project, also owned by Massachusetts utility Eversource, is set to begin operation in 2025.
Despite the setback, the firm projects a 7.8% rise in 2022 operating profit. On an earnings call, CEO Mads Nipper cited gains from global offshore wind asset sales and better than expected earnings from onshore wind and solar projects, as well as from work on power plants and gas facilities.
Investment Still 'Robust' in NY
But even with market bumps, offshore wind investments are proceeding are building.