Offshore Sector Gathers Second Wind After Several Setbacks

April 10, 2024
“There’s a lot going on at state levels. They have their own climate mandates and they want to realize those,” says one analyst.

Let’s call it a reset in real time.

Players in and observers of U.S. offshore wind energy say the sector is showing encouraging signs of recovery and progress after in the past year producing a series of headlines about investment write-downs, project exits and attempts to secure higher future prices.

Among the recent happenings:

  • Four development teams, including Avangrid Inc. and Ørsted A/S, responded to a solicitation from New England states with proposals to build up to 5.5 gigawatts of capacity
  • The Federal Energy Regulatory Commission approved a large generator interconnection agreement between Equinor’s Empire Wind 1 project, New York ISO and Consolidated Edison, the first time the agency gave the nod for an offshore wind project to connect directly into New York City’s transmission system
  • National Grid Ventures and a Con Ed subsidiary submitted a proposal to build transmission infrastructure to carry offshore wind power to New Jersey’s electric grid

Lots of work remains to be done to complete those plans but it appears unlikely they’ll face the same buffeting that projects started a few years ago have had to endure. Those developments—which include the Empire Wind 2 plan, whose contract Equinor and bp canceled early this year—faced something of a perfect storm: After developers penciled out business models and secured power purchase contracts before the arrival of COVID-19, supply-chain snarls caused by the pandemic jacked up prices for the materials and equipment they needed and the Federal Reserve’s interest-rate hikes added immensely to their financing costs.

On top of that, Enverus Vice President of Commercial Product Sarp Ozkan said, the costs of interconnection infrastructure also have climbed, putting more pressure on wind farms’ financial models. In all, S&P Global analysts recently projected that project costs have risen nearly 50% from their pre-pandemic starting points. That’s more than enough for some serious soul-searching and spreadsheet revamps.

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