Ship shortage dealt death blow to Orsted's NJ offshore wind hopes - Yahoo Finance
Ship shortage dealt death blow to Orsted's NJ offshore wind hopes
By Scott DiSavino
(Reuters) - Danish energy firm Orsted's shock decision to cancel two offshore wind farms off New Jersey this week was based in large part on big delays securing the ship it needed to build the project, company officials said.
The world's biggest offshore wind farm company on Tuesday said it would cease all development on the Ocean Wind projects even as it moves forward with developments off neighboring New York, triggering an angry response from New Jersey Governor Phil Murphy.
The decision came as a surprise in part because New Jersey had passed a law letting offshore wind developers like Orsted keep federal tax credits that were previously destined for ratepayers to offset their power costs, a concession intended to keep the projects alive.
"People did not anticipate (Orsted) backing out of Ocean Wind," said Timothy Fox, VP at research firm ClearView Energy Partners.
Orsted CEO Mads Nipper, on a call with analyst the day after announcing the cancellation said: "Significant delays on vessel availability ... in the entire market has now meant that it would implicate a multi-year delay of the entire project."
He said those delays would put Orsted in "a situation where we would need to go out and recontract all or very large scopes of the project at expectedly higher prices."
MOVING AHEAD IN NEW YORK
In New York, Orsted is moving forward with construction of its 704-megawatt (MW) Revolution project and is taking "a cautionary approach" to its 924-MW Sunrise project.
Nipper told analysts that unlike Ocean Wind, Orsted is still pursuing Sunrise for several reasons, including the fact that the company has already lined up a vessel to build it.
He added that Orsted believes it can secure a 10% bonus federal tax credit for Sunrise – reserved for projects that use a certain amount of domestically-produced content - and more money for its power by rebidding the project in an expected expedited solicitation in New York.
Under the most accelerated proposal, the New York State Energy Research & Development Authority said it could release the next offshore wind request for proposals in late November or early December. Bidders would have four weeks to prepare proposals and awards could be made as early as late January.
Analysts had expected Orsted and a joint venture between European energy firms Equinor and BP, which has developed three other offshore wind projects, to cancel their contracts to sell offshore wind power in New York after state regulators earlier this month refused to renegotiate those agreements.
Instead the companies announced writeoffs of up to $5.6 billion for Orsted, $540 million for BP and $300 million for Equinor.
The Ocean Wind cancellation was the latest setback for the nascent U.S. offshore wind industry in recent months, which U.S. President Joe Biden and several states have counted on to fight global warming.
Other energy firms have canceled contracts to sell power from offshore wind in Massachusetts and Connecticut because those deals, agreed upon before inflation and interest rates soared, were out of the money due to rising equipment, labor and financing costs as well as supply chain bottlenecks.
Governor Murphy said New Jersey should receive $300 million if Orsted's projects fail to proceed and directed his administration to "review all legal rights and remedies and to take all necessary steps to ensure that Orsted fully and immediately honors its obligations."
(Reporting by Scott DiSavino and Jarrett Renshaw in New York and Nichola Groom in Culver City, California; Editing by Bill Berkrot)
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.