Orsted's $2.3 Billion Hit is Latest Setback for America's Offshore Wind Industry - gCaptain
Orsted's $2.3 Billion Hit is Latest Setback for America's Offshore Wind Industry
(Bloomberg) —
Orsted A/S’s potential $2.3 billion impairment on its US projects is just the latest in a string of recent setbacks for the nascent US offshore wind industry, which is struggling to fulfill ambitious goals set by President Joe Biden.
Supply-chain issues, high interest rates and a so-far-unsuccessful bid for more federal tax credits threaten three planned projects off the US East Coast, Orsted said late Tuesday. The Danish company’s shares plunged 25%, the most on record, after its impairment warning.
Orsted isn’t alone in facing such issues. Developers including Avangrid Inc. and Shell New Energies are delaying projects after rising costs made some plans economically unviable. That’s a blow to Northeast states that are counting on the clean energy as well as Biden’s goal of installing 30 gigawatts of offshore wind capacity by the end of the decade.
“The massive attention for offshore wind, including ambitious state and federal goals, are running into the hard realities of energy infrastructure,” said Benjamin Salisbury, director of research at Height Capital Markets. “I think there’s a tendency for developers to think of themselves as the ‘good guys’ and be surprised when there are hurdles.”
On Tuesday, just two companies showed up for a closely watched auction of wind leases in the Gulf of Mexico, a blow for advocates cheering on renewable-power development in the region. The government ultimately sold just one tract for $5.6 million.
Energy companies may be recalibrating their bidding strategies after years of paying top dollar for prime real estate near large cities in the Northeast. The US government collected a record $4.4 billion in an auction last year for offshore wind leases near New York and New Jersey.
There are only two offshore projects that are under construction in the US — both south of Martha’s Vineyard, Massachusetts. They were able to line up supply deals before inflation drove up costs.
© 2023 Bloomberg L.P.
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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.