Danish energy developer Orsted has canceled its plans to build a pair of wind projects off the New Jersey coast, it announced Oct. 31. Company leaders expect it will write off billions of dollars as a result of the move, saying a changed economic situation and supplier delays prompted the cancellation.
Market analysts are reducing sector growth outlooks, but New Jersey officials remain committed to offshore wind—as projects in other states move forward and participants remain bullish to build on what’s been accomplished so far—and fix what’s broken.
The Ocean Wind 1 and 2 projects would have had a total capacity of 2,248-MW located 15 miles off from Cape May County. Offshore construction of Ocean Wind 1 had been planned to start in early 2024 after New Jersey utility officials had cleared onshore connections for Ocean Wind 1 last year and the federal Bureau of Ocean Energy Management OK’d it in September.
State lawmakers passed legislation sought by the company this year that would have allowed it to keep millions of dollars in federal tax credits for the development.
Even with the financial support, David Hardy, CEO of Orsted’s Americas business, said in a statement that “macroeconomic factors have changed dramatically over a short period of time.” He pointed to the combination of high inflation, rising interest rates and supply-chain bottlenecks.
“We are extremely disappointed to have to take this decision, particularly because New Jersey is poised to be a U.S. and global hub for offshore wind energy,” Hardy said.
Orsted leaders said in an interim financial report the same day that they expect to write off $2.8 billion from the value of Ocean Wind 1 plus as much as $1.6 billion in cancellation fees. Mads Nipper, Orsted group president and CEO, said in a statement that the company had already faced “significant impairments” among its U.S. offshore projects in the past quarter as a result of the current market situation.
New Jersey officials have set an 11,000-MW offshore wind goal by 2040 as part of its effort to fully power the state with clean energy by 2050.
In a statement, Gov. Phil Murphy (D) called Orsted’s decision to scrap the projects “outrageous.” He added that his administration would “take all necessary steps to ensure that Orsted fully and immediately honors its obligations,” including $300 million due to the state for its offshore wind sector if Orsted’s projects were canceled.
The project’s viability had appeared to waver before the cancellation. Earlier this year, New Jersey utility Public Service Enterprise Group sold its stake in the project to Orsted, and over the summer Hardy spoke to investors about escalated capital costs. Orsted is also not the only offshore developer to seek new financial terms for U.S. East Coast offshore projects in recent months. Last month, officials from Massachusetts, Rhode Island and Connecticut said they would coordinate on offshore procurement in order to better take advantage of economies of scale.
Executives at energy giant BP also said Oct. 31 they expect to write off $540 million—and its partner Equinor just days earlier recorded a $300 million writedown—from their 3.3-GW Empire and Beacon offshore wind projects in New York. They cited inflation, permitting delays and state regulators rejecting their requests—as they did one from Orsted on its 880-MW Sunrise Wind project—to add up to 65% to contracted power prices to balance rising construction costs.
"Orsted’s recent decision demonstrates that developers may walk away from their investments if we fail to provide the expedited financial clarity they need to proceed," says Billy Haugland II, CEO of Melville, N.Y. contractor Haugland Group, which has been a key transmission contractor on its New York projects. "Real jobs are at risk now with shovel-active projects."
The developers are assessing the potential to rebid projects in an upcoming state auction. Also being weighed now is the future of Orsted's 120-MW Skipjack project in Maryland—which CEO Nipper said “needs significant improvement or [we] will walk away from that.”
In Oct. 30 analyst comments, BP CFO Kate Thompson said “we will need to see how circumstances evolve … and work with our partners closely on the way forward.”
Says Haugland: "A delay in projects of this size and scale which are under construction will only drive capital costs up and push replacement projects further back in the supply chain."
Despite the biumps, developers are still continuing with projects they consider viable. Orsted announced it will move ahead with its 704-MW Revolution Wind project in partnership with Eversource off the coast of Connecticut and Rhode Island. Onshore construction is underway and offshore work is scheduled to start next year, the company said. It is now building South Fork Wind, a 130-MW project off Long Island, N.Y., which is set to finish later this year or in early 2024.
Haugland says the the firm's work on South Fork, completed on time and budget, "served as a proof of concept to make offshore wind a reality, and Sunrise Wind is our collective opportunity to produce jobs and wind energy at scale."
The latest cancellations “shows the offshore wind industry in a state of flux,” said John Murray, senior research analyst at S&P Global, an not surprising situation in an emerging sector, he said, but the combined canceled and revised capacity of U.S. projects now totals 7.5 GW, “half of what has been solicited so far.” Energy sector analyst BloombergNEF said its outlook for U.S. offshore wind capacity to be installed by 2030 dropped by 29% since June, to 16.4 GW.
A White House spokesman said President Joe Biden has “used every available tool to advance the growing American offshore wind industry.” He acknowledged “macroeconomic headwinds” but said “momentum remains” for an “expanding” sector.
Even so, state officials and industry leaders want the White House to ensure projects can have quick access to tax benefits and have expedited permitting to cut risk from sudden economic changes.
“The main issue is the length of the permitting process that could take a decade. No other country has the process where an agency sells a lease to the ocean floor and a developer has to spend a decade before being able to build a project,” says pioneering floating offshore wind developer Alla Weinstein, CEO of Trident Winds. “The overall process … was mimicked from oil and gas leasing without considering basic [market] differences.”
Haugland compares the obstacles to those faced by developers of the Niagara Hydro Project in New York 70 years ago. But today, "it is among the least expensive, cleanest power produced in the entire U.S.," he says. "We must have a similar long-term vision and courage to make inflation-proof energy, such as wind, a reality."
Virginia Megaproject on Pace
Administration officials point to U.S. approval last month of what is set to be the largest U.S. effort—Dominion Energy’s 2.6-GW Coastal Virginia Offshore Wind project, which Chairman and CEO Bob Blue told analysts Nov. 3 is on time and on budget to come online in 2026. A new state law allows it to have a “noncontrolling equity financing partner” to share the $9.8 billion project tab, with a decision by early 2024.
Blue noted considerable deal interest by potential "high-quality" partners, driven by Dominion's priority supply-chain position and reduced risk in Dominion’s setup as a regulated utility with guaranteed return on investment and experience gained from building an offshore pilot project that has operated since 2020.
The first of the project’s eight giant monopiles arrived in Virginia in late October. Onshore construction began in early November, with offshore monopile foundation work set to start in May, said a project spokesman.
Blue said the project’s expected levelized cost of electricity is about $77 per MWh, down from a range of $80 to $90. “The decrease reflects updated and refined estimates around production tax credits, cost of capital and renewable energy certificate values,” he said.
But Blue acknowledged that its much-anticipated Jones Act-compliant installation vessel being built in Brownsville, Texas is not set to be delivered until late 2024 or early 2025, “but still supportive of our construction timeline.”
Its cost now is estimated at $625 million, up from an announced $500 million in 2020, but the Dominion spokesman says the increase is related to finance cost issues, not construction.
But Orsted's Nipper cited "significant delays on vessel availability" that could trigger "multi-year delay" in the Ocean Wind 1 project as a key factor in the decision to cancel it.
“Orsted delivered a one-two punch to New Jersey and several other projects have been canceled over the last few months, but the U.S. offshore wind industry is far from out,” said Greg Matzat, COWI vice president and offshore renewables market director, in an online post.
Noting more than 4.2 GW of offshore wind operating or under construction by 2024, "and more on the way," he says, “that’s a 100x growth since a year ago. It’s hard to complain about 100x growth.”
Pointing to significant development of Atlantic coast transmission and port infrastructure, Sunny Gupta, director of offshore wind at Clearway Energy Group and a former Orsted executive, also posted that "If someone said four years ago that all of this would get done through the economic and supply chain whiplash from the pandemic and war, who would believe them?"