Orsted Threatens To Abandon U.S. Offshore Wind Projects - OilPrice.com
Orsted Threatens To Abandon U.S. Offshore Wind Projects | OilPrice.com
The world's largest offshore wind farm developer is preparing to walk away from US projects unless the Biden administration guarantees more support, Bloomberg reported.
"We are still upholding a real option to walk away," Orsted CEO Mads Nipper told Bloomberg in an interview in London on Tuesday.
Nipper continued, "But right now, we are still working towards a final investment decision on projects in America."
The Biden administration has touted offshore wind farms as an essential component of decarbonizing America's grid, but soaring inflation costs have undermined the sector's growth and left many projects dead in the water.
Under the Inflation Reduction Act, Orsted receives upwards of 30% tax credits, but more appears to be needed as a financial crisis is unfolding in the offshore wind power industry.
Nipper has asked the Biden administration to guarantee subsidies without the domestic content requirement and requested more time to overcome supply chain snarls in sourcing US-made materials.
"What we proposed was a grace period, say, so give us three to five years," the CEO said, adding, "Right now, it can't deliver."
More from Bloomberg on Nipper, who warned offshore wind farm plays are 'uninvestable':
Orsted's delays were triggered by bureaucratic uncertainties during the previous US administration and were intensified by supply-chain disruptions during the COVID-19 pandemic. Biden's push on clean energy helped accelerate some plans, but high-interest rates and delays in procuring foundations, known as monopiles, for its wind turbines slowed developments even more.
Because final investment decisions weren't made and the projects were being funded by the company's balance sheet, the fact that long-term interest rates in the US soared above 3% means Orsted's cost of capital is higher.
"For a company like ours, where the targeted range of returns is 150 to 300 basis points above our cost of capital, it has essentially made this extremely tough," Nipper said.
Nipper said Orsted couldn't have predicted the industry turmoil, yet an investor selloff saw the company lose $8 billion in value last week after impairments were booked on several US projects. Longer-term plans also are at risk, with developments near New Jersey and Delaware not investible right now, he said.
Last month, Nipper warned investors on a conference call: "The situation in US offshore wind is severe." As we noted, "snarled supply chains, soaring interest rates, and easy money tax credits drying up" is a "warning sign the green energy revolution bubble is in trouble."
Shares in Denmark-listed green energy giant have crashed in recent weeks on the mounting headwinds -- now back to levels last seen in 2018.
The Biden administration's ambitious goal of achieving 30 gigawatts of offshore wind energy capacity by 2030 appears to be in jeopardy. Even though the Inflation Reduction Act was supposed to ease inflation, a green energy crisis has emerged, as Orsted describes, that stems from inflation.
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Related Knowledge Center: Offshore wind energy
Over the next decade, U.S. offshore wind power is expected to grow from a single 30-megawatt wind farm off Rhode Island to more than 2,000 MW of capacity along the Atlantic Seaboard. There are contracts for wind power off the coasts of Massachusetts, Connecticut, New York, Maryland, New Jersey, Rhode Island, and Virginia.
The National Renewable Energy Laboratory has estimated the United States has over 4,000 gigawatts (GW) of offshore wind potential, enough to power the country four times over.
The growth in part being spurred by state solicitations, including in New York, where then-Gov. Andrew Cuomo (D) set a commitment of 9,000 MW of offshore wind by 2035, and in Connecticut, where in June 2021, Gov. Ned Lamont (D) signed legislation authorizing the construction of 2,000 MW of offshore wind by 2030.
The offshore development is also being driven by an investment tax credit set to end in December 2019 and is equal to 12 percent of expenditures. U.S. Sens. Susan Collins (R-Maine) and Tom Carper (D-Del.) have introduced a bill to extend the tax credit for up to eight years.
The Interior Department has held eight competitive lease sales that resulted in 15 offshore wind leases over 1.7 million acres that has the potential for 21 GW of capacity. In February 2022, the Bureau of Ocean Energy Management completed a bidding process that realized $4.37 billion for 488,000 acres across six lease areas in federal waters off New York and New Jersey.
Projects have also been proposed off the Southeast coast, off California and Hawaii, and for the Great Lakes.