President Joe Biden’s ambitious goal of developing 30 gigawatts of offshore wind by 2030 is under threat due to soaring costs, supply chain setbacks, and regulatory hurdles that have stymied developers and forced some to abandon contracts.
Combined, the conditions have created a perfect storm for developers in the United States, forcing a near-term existential crisis for the industry as government officials and industry leaders work to confront a cascading series of challenges, including poorly negotiated power purchase agreements, an underdeveloped offshore supply chain, and high project costs that have ballooned amid rising global demand and unanticipated global crises.
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For outside observers, this is a jarring setback for an administration that has put renewable energy at the center of its agenda.
But those who have spent years in the offshore wind industry have described the developments as a sort of car crash in slow motion, the result of years of underinvestment in offshore wind supply chains and long-delayed efforts to adjust power purchase agreements to account for the costs of the burgeoning industry better.
The 30 GW offshore target “is now, unfortunately, not something that the developers are really aspiring to,” Michael Brown, the North America manager for Ocean Winds, said at an industry event hosted by Reuters in July.
Others have widely echoed this assessment.
“We’re definitely not on the track that we’d hope or we’d think we’d be right now,” Kris Ohleth, executive director of the Special Initiative on Offshore Wind, told the Washington Examiner. Below are some of the reasons why:
Rising costs, limited funding
Developers have pointed to financial constraints, inflation, and supply chain delays as the primary problems facing offshore wind.
Materials costs have soared due to limited supply and higher demand as countries around the world seek to build out their own offshore wind industries.
The investments needed to meet offshore demand are massive.
An August 2023 report from the consultancy Wood Mackenzie estimates that governments around the world (with the exception of China) would each need to invest roughly $100 billion in building out an offshore wind supply chain by 2026 in order to meet their 2030 offshore wind targets — or adding a total combined global capacity of 80 GW per year.
“We don’t think that’s feasible, to be frank,” said Soeren Lassen, the head of offshore wind at Wood Mackenzie.
A push for federal funding
The Biden administration has overseen billions of dollars in federal funding for offshore wind, primarily by way of the Inflation Reduction Act, which allocated a record $369 billion for clean and renewable energy growth.
Still, major developers are arguing it’s not nearly enough cash for the massive build-out, a shortfall they say threatens to crater projects in the near-term unless the government helps foot the bill for the higher costs and eases requirements for companies to qualify for certain tax credits offered under the Inflation Reduction Act.
In September, the governors of New Jersey, New York, Connecticut, Maryland, Massachusetts, and Rhode Island called on the Biden administration to boost federal support for offshore projects.
The leaders asked the administration to “utilize every federal tool available” to help prevent projects from going under, including establishing a pathway for developers to receive the Inflation Reduction Act’s 30% tax credit for offshore projects, as well as a bonus 10% credit available to developers who use U.S.-made materials.
“Without federal action, offshore wind deployment in the U.S. is at serious risk of stalling because states’ ratepayers may be unable to absorb these significant new costs alone,” the governors wrote. “Absent intervention, these near-term projects are increasingly at risk of failing.”
Orsted, a Danish company, warned this month that it could shutter its U.S. projects completely if it does not receive more federal support, including Inflation Reduction Act subsidies. Just weeks prior, the company warned of impairments of up to $2.3 billion on its U.S. projects due to the higher costs.
“We are still upholding a real option to walk away,” Orsted CEO Mads Nippertold Bloomberg in an interview.
Power contract prices
Major developers, including Equinor, BP, and Shell, have scrapped or amended planned U.S. commercial-scale offshore projects in recent months, citing the high costs and their inability to renegotiate planned power purchase agreements to reflect the cost of building accurately.
Since July, project developers have axed a combined 2.4 GW of planned offshore power capacity in the U.S. due to problems with underpriced contracts.
States are under mounting pressure from offshore developers to renegotiate their power purchase agreements to reflect the higher costs, which in turn would push prices onto consumers absent federal intervention.
As recently as 2021, companies were signing massive power purchase agreement deals in the U.S. based on projected costs of $77 per megawatt-hour, according to a BloombergNEF estimate published earlier this year. Now, it found, estimated costs for subsidized projects in the U.S. stand at roughly $114.20 per megawatt-hour, a whopping 50% increase.
Still, the biggest blow could still be to come. Earlier this month, New York Public Service Commission regulators voted unanimously to reject requests from Equinor and BP to raise project costs by 54%. Gov. Kathy Hochul (D-NY) said the decision was made in the name of consumer affordability and avoiding a massive increase in residents’ monthly utility bills.
The rejection could imperil the state’s planned 4.2 GW of offshore capacity, as well as threatening its long-term target of reaching 70% renewable power generation by 2030.
Orsted’s Nipper told Bloomberg that it’s “inevitable” that existing power purchase agreements, or PPAs, will need to be readjusted with states to reflect the higher costs in order for offshore projects to continue development in the U.S.
“And if they don’t, neither we nor any of our colleagues are going to build more offshore,” Nipper said. “It’s very simple.”
Others cited potential for growth. For a long time, there has been a “race to the bottom on prices for offshore wind,” Ohleth said of the industry’s struggles. “That has put undue pressure on the [original equipment manufacturers] to figure out how they’re going to reduce their prices in a supply chain that’s not yet developed here in the U.S.”
The recent setbacks offer an opportunity for the U.S. to reassess and retool its approach to offshore, she told the Washington Examiner.
“It was going to be coming to a head, I think, whether or not there was this big kind of economic pivot,” she added.
Regional action
As Northeast leaders wait for Washington to act, however, certain states are “getting creative” in their efforts to defray costs of offshore wind projects, Ohleth told the Washington Examiner.
Connecticut, Rhode Island, and Massachusetts announced a first-of-its-kind bulk power purchase agreement for offshore wind projects in September. The joint effort seeks to reduce costs for large-scale wind projects by dividing them across participating states and to ensure price coordination and combined supply chain investments, among other things.
The setbacks have driven a more “regional, more organic approach to supply chain development, which is exactly what is needed to reduce costs,” Ohleth said. “It’s going to require a little more creativity; a more solutions-oriented approach.”
It will also take far longer than the 2030 target envisioned by the Biden administration.
Biden’s 30 GW offshore wind target “was once an ambitious goal,” Timothy Fox, an analyst at ClearView Energy Partners, told Bloomberg. “Now, it’s a not-going-to-happen goal.”
Local opposition
Developers say the setbacks have been primarily due to financial constraints and regulatory hurdles. But they’ve also faced intense local opposition from fishermen, marine life activists, and lawmakers in some of the Northeast states.
Earlier this year, the House voted to approve a bipartisan resolution aimed at stepping up the federal oversight of offshore drilling and its impact on whales.
And last week, the county of Cape May, New Jersey, and a coalition of local interests filed a federal lawsuit seeking to invalidate the state’s first planned offshore wind farm.
In the lawsuit, plaintiffs claim that U.S. agencies violated several federal regulations, including the National Environmental Policy Act and the Clean Water Act, when they approved Orsted’s Ocean Wind 1 offshore wind project, which is slated to become operational in 2025.
The 71-page lawsuit accuses the Interior of failing properly to consider the effect on marine life or the area’s fishing industry or economy when authorizing the project and asks the U.S. District Court to put a hold on permitting for the Ocean 1 project pending determination that the agencies have fixed what plaintiffs assert are “flawed processes” that were “utilized to ignore important environmental, marine species, economic and historic resource protections.”
Cape May relies heavily on tourism and fishing, which generated $7.4 billion and $270 million in profits in 2019, according to the lawsuit.
“Our belief is that they fast-tracked the permitting process contrary to federal statutes and regulations,” Michael Donohue, special counsel for Cape May, told reporters last week.
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In authorizing the Ocean 1 project, Donohue asserted that federal regulators “ignored what they typically do, which would be a very, very deep dive into the environmental impacts on everything from the benthic organisms, which are the little worms and things on the ocean floor, up to the whales,” he said.
Neither the Interior Department nor Orsted responded to the Washington Examiner’s request for comment.
