Wind project cancelled in N.J. after costs rise
Orsted, a leading offshore wind farm developer, said Wednesday that it would scrap plans to build two wind farms off the coast of New Jersey, a substantial blow to the state’s efforts to cut greenhouse gas emissions.
The move, which will force Orsted, a Danish company, to write off as much as $5.6 billion, was further evidence that offshore wind projects in the United States are going through a major shakeout and will crimp the Biden administration’s plans to make the wind industry a critical component of plans to reduce greenhouse gas emissions. High inflation and soaring interest rates are making planned projects that looked like winners several years ago no longer profitable.
“The world has in many ways, from a macroeconomic and industry point of view, turned upside down,” Mads Nipper, Orsted’s CEO, said on a call with reporters Wednesday.
The two projects, known as Ocean Wind 1 and 2, were destined to provide green energy to New Jersey. They were strongly backed by New Jersey Governor Phil Murphy, a Democrat with national ambitions who stresses his environmental credentials but who has lately drawn scorn for falling short in combating climate change. On Wednesday, he suggested that Orsted was a dishonest broker and insisted that the “future of offshore wind” along the state’s 130-mile coastline remained strong.
Nipper said Orsted thought that losses on the New Jersey projects would rise over time, so “the only sensible thing is to draw a line in the sand.”
Overall, the Biden administration wants to install 30 gigawatts of wind power in the United States by 2030, and officials in New Jersey had been aiming to produce 11 gigawatts by 2040.
Offshore wind and other parts of the renewable industry have hit some snags in Europe, especially in Britain. But Nipper said the problems were more acute in the United States because early contracts lacked protection from inflation and developers incurred high costs because of delays in approvals during the Trump administration.
Orsted’s stock price fell more than 26 percent Wednesday after the company reported a loss of about $3.2 billion for the third quarter and warned that the write-downs — essentially a reduction in the value of the company’s investments — would affect Orsted’s finances.
Orsted is writing off about $4 billion now. The company estimates that it may take another charge of up to 11 billion krone later in the year.
Orsted is not alone in encountering hazards in the fledgling offshore market in the United States.
On Tuesday, BP, the Londonbased energy giant, said it would write down $540 million on three planned wind projects off New York after state authorities declined to renegotiate their terms. BP says it is assessing future plans for the projects in light of the decision.
In its announcement, Orsted said it would move forward with a $4 billion project called Revolution Wind intended to supply power to consumers in Rhode Island. And other developers have projects under construction, such as Vineyard Wind, which will eventually have 62 turbines in the waters off Martha’s Vineyard in Massachusetts.
Offshore wind is not dead, but the industry and its backers are certainly learning some harsh lessons. The ambitions of the Biden administration and states along the East Coast such as New York, New Jersey, and Massachusetts to install large amounts of clean electric power generation through offshore wind in the coming decades are likely to be set back.
The industry is dealing with equipment shortages as result of pandemic-era supply chain issues and trying to manage a growing number of orders for wind turbines as governments seek to meet green energy goals. And escalating interest rates, as central banks around the world try to curb inflation, have caused financing costs to soar.
Consumers will also probably pay more in their electric bills for power generated from offshore wind, as developers demand higher prices and protection from inflation.
Nipper said rekindling interest in developing offshore wind off the East Coast depended on “a reset of what offshore power needs to cost.”
New York state declined in October to renegotiate existing offshore wind power contracts, but a subsequent auction awarded deals to supply power at significantly higher prices and with various provisions to protect the developers from inflation.
Still, there is little question that the confluence of challenges Nipper characterized as a “perfect storm” is weighing down an industry that governments are counting on to produce large volumes of clean and relatively cheap electricity to tackle climate change.
Orsted’s problems are not occurring in a vacuum. Siemens Energy, a large German maker of electric power equipment, recently said it was seeking government help to finance guarantees for orders and forecast large losses because of problems in its wind turbine unit, Siemens Gamesa.
In the case of Orsted, the write-downs are largely a result of the company’s decision to cancel a large project off New Jersey that was well underway, Ocean Wind 1, and a sister project, Ocean Wind 2.
The write-offs will include investments the company has already made in building the project, payments to suppliers for goods already ordered or delivered, and penalties for walking away from contracts.
The projects had become politically charged in New Jersey, opposed by many residents of the Jersey Shore concerned about tourism revenue and marred ocean vistas, and fishermen worried about the effect on their livelihoods. When Orsted broke ground in September in Ocean City, N.J., workers were greeted by roughly 60 protesters, including six who were arrested after refusing police orders to move back.