Inflation’s next victim: U.S. offshore wind projects

Rising interest rates, rising commodity prices and inflation are threatening the Biden administration’s ambitions for a hurricane, creating a major challenge for one of the most important issues of the president’s season.

The past few weeks have seen a number of manufacturers raising concerns about rising prices. In New Jersey, a developer warned earlier this month that a planned 98-turbine project off the coast of New Jersey could threaten its finances.

In New England, two producers who hold power contracts in Massachusetts want to renegotiate the deal, only to be shot down by state regulators.

Many developers tried hard in the public markets to win contracts but now they are locked in contracts that did not take into account the rising costs, said Sam Huntington, director of North American power and renewables at S&P Global Commodity Insights.

Financial problems cast doubt on the Biden administration’s goal of installing 30 gigawatts of offshore wind capacity by the end of the decade.

“We don’t see them hitting,” Huntington said. “It’s going to be something to watch. I don’t know if that’s going to be a conversation or a turn off.”

Doubts are shared by other experts. Bloomberg New Energy Finance sees the United States falling 3 to 4 GW short of the 2030 target due to a longer development time and supply chain. The London-based intelligence firm Renewables Consulting Group estimates that the United States will reach 25 GW by 2030.

A devastating picture comes when Avangrid Inc. told Massachusetts regulators on Monday to continue approving energy deals with Bay State companies under strict scrutiny of how the state would deal with unsettled developers.

Earlier this month, the state’s Department of Public Utilities (DPU) rejected the company’s request for a month to implement power purchase agreements, even though Avangrid said its planned wind farm was no longer operational. The management wanted Avangrid to agree to move forward or stop the project (Company opinion EnergywireNov. 7).

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For its part, Avangrid hopes the delay will allow it to renegotiate how it paid for the electricity produced from its offshore wind farm to help it deal with rising costs linked to global inflation, inflation and public health problems.

In a filing Monday night, the company told government officials to continue reviewing existing contracts, but appeared determined to push forward with future negotiations despite the government’s actions.

“We have been transparent and committed, always, to do everything we can to move this project forward, including coming to the table with all parties to find a solution to the financial problems facing this great project,” said Sy Oytan. , Vice President of Offshore Projects at Avangrid, in a statement.

“AVANGRID believes there is a way to move forward with this project, and today wrote to the Department of Public Utility to continue discussions with all parties on these important issues.”

The fight against Commonwealth Wind comes in the middle of politics in Massachusetts. Gov. Charlie Baker, a two-term Republican who promoted offshore wind, is leaving. He will be replaced in January by Attorney General Maura Healey, a Democrat who has also made the construction a priority. In a statement Monday, a spokesman for Healy said the attorney general is continuing to assist Commonwealth Wind.

“We are reviewing project finance and will work together to explore ways to improve project finance for all parties,” said Chloe Gotsis, a spokeswoman for Healey.

‘Impressive numbers’

Offshore wind has become a prominent part of the Biden administration’s climate agenda. These companies have the potential to reduce greenhouse gas emissions in the Northeast, where there is limited space for onshore renewables, and create jobs in ports along the Atlantic coast.

Biden briefly linked the project as part of America’s efforts to curb climate change in an address to the UN climate conference last week, promoting the Inflation Reduction Act’s $369 billion in “everything from … oil.”

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Neither the White House nor the Interior Department commented on the matter at the time of writing. But the administration has shown that it wants to move forward with purpose.

On Monday, the Bureau of Ocean Energy Management released an environmental assessment of the 2,076-megawatt project in New York.see related article). BOEM is moving “at the level necessary to help meet the Biden-Harris administration’s goal of deploying 30 GW of offshore wind capacity by 2030,” the government said.

Installing 30 GW by 2030 is always a challenge. The United States is starting again, with a small wind farm of 42 megawatts installed on the coast. Generating 30 GW would be equivalent to adding the power grid in New England over the next eight years.

Other countries are also expected to see growth in their offshore wind sectors in the coming years, creating a shortage of infrastructure needed to build jobs. Ships capable of lifting these large turbines are rare. One container ship is currently under construction in Texas. S&P Global Commodity Insights. he says the country needs three or four more to achieve the goals of the administration.

“It takes three years to build these ships,” Huntington said. “These are impressive numbers. Even if you do everything as quickly as possible, it is difficult to bring in enough ships as quickly as possible.”

The problems of the United States are not unique. The United Kingdom, Germany and the Netherlands are likely to fail to meet their 2030 wind targets, according to the Renewables Consulting Group. Of the 15 countries with 2030 targets, only three are on track: Poland, with 6 GW; Vietnam, at 5.2 GW; and Denmark, at 12.7 GW.

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Rising interest rates and inflation have only added to the industry’s woes. In a recent interview with economists, the developer of Ocean Wind 1 in New Jersey said that rising costs have jeopardized the future of the project. Some of these costs could be offset by the recent Inflation Reduction Act, which has $369 billion in net tax credits, said CEO of Ørsted A/S Mads Nipper.

However, he admitted that the cost of the project “is not where we want to be.”

“We’re not in a position where we’re saying this is something we don’t believe in anymore,” Nipper said. “We still believe there is a way for this to be profitable.”

The statement was also made by Public Service Enterprise Group, the New Jersey company that is developing Ocean Wind and Ørsted. Ralph LaRossa, the company’s CEO, told investigators the project’s challenges “are no different from other projects you’ve read about.”

One of the silver linings for the industry over the project’s delay is that it buys time to build the US fleet of offshore wind turbines, and a bigger way to meet demand, said Fred Zalcman, director of the New York Offshore Wind Alliance.

Matt Shields, who leads the analysis of offshore technology at the National Renewable Energy Lab, called the 30 GW target “doable” and suggested that the Deficit Reduction Act should also help address the challenges faced by developers.

But the industry needs to put steel in the water to help build commercial vessels and installations today if they are to have any hope of meeting the administration’s goals, he said.

“It’s something that the industry needs to prepare a little bit and understand that it takes time to stop the supply chain, we can’t be confident or confident in this decade,” he said.

This article also appears in the Climatewire.

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