Stalled coastal wind power projects imperil Biden’s climate agenda

A grim financial outlook for the country’s offshore wind power industry is threatening President Joe Biden’s most important energy plans.

The administration is counting on offshore wind farms to produce at least enough power for 10 million American homes by the end of the decade.

Up and down the Northeast — the center of the burgeoning industry — however, energy companies have struggled to finance their projects, going hat in hand to governors and utility regulators asking for more money so they can start building the turbines they have already promised to deliver.

The energy developers’ requests have caused unrest in statehouses and among a public wary of already-rising power bills. But without a dramatic increase in offshore wind capacity, there is no way Biden or two of the nation’s greenest Democratic governors — New York’s Kathy Hochul and New Jersey’s Phil Murphy — can hope to meet their climate change goals.

“This is a pretty fragile time in the offshore wind industry,” said Molly Morris, president of Equinor Wind US, which is developing three projects to serve New York.

Many industry officials and green energy supporters describe 2023 as a crossroads. With the 2024 election bearing down on them, offshore wind advocates are trying to shore up as many projects as they can, in case Republicans hostile to the industry — like Donald Trump — retake Washington.

“We cannot meet our goals without offshore wind advancing,” said Julie Tighe, president of the New York League of Conservation Voters. “Given the length of time it takes to do permitting we certainly cannot step backwards and lose these wind farms.”

Offshore wind takes a combination of state and federal green lights to work, plus an immense amount of capital — billions of dollars. Companies lease swaths of the ocean from the federal government and finance their projects by getting states to agree to buy the power from the projects, which are built in part with generous federal tax subsidies. Federal, state and local permits all have to be secured to make the projects a reality, which gives opponents numerous chances to stall or kill projects.

Democrats, in particular, see a virtuous cycle developing: Clean energy, union jobs and American manufacturing as massive construction projects drum up domestic manufacturing orders.

But to see the virtuous cycle, the industry needs to get the first wave of offshore wind projects over the finish line.

“If you don’t get your first project done, it’s hard to imagine getting your second, third, ninth, 15th project done,” said Tim Sullivan, the CEO of the New Jersey Economic Development Authority.

So far, federal regulators have only approved three utility-scale projects nationwide. Only seven offshore wind turbines are producing power and just two of the larger projects are truly under construction.

Offshore wind companies, state policymakers and boosters herald the start of work on those large-scale projects — South Fork northeast of the tip of Long Island and Vineyard Wind south of Martha’s Vineyard — as a key turning point for the industry.

“There are tangible things happening right now. You see physical steel in the water,” said Damian Bednarz, managing director at Attentive Energy, a subsidiary of French energy giant TotalEnergies, which holds a lease for a tract of the Atlantic Ocean but hasn’t secured a contract to build a project.

Northeast pioneers

States in the Northeast moved early to set clean energy targets. Companies leased swaths of the ocean floor to help meet those goals. New Jersey aims to get 100 percent of its power from clean energy sources by 2035 — the most aggressive goal of any large state.

Murphy recently signed legislation to save what would be New Jersey’s first offshore wind farm from financial uncertainty. The 1.1 gigawatt Ocean Wind 1 project includes 98 offshore wind turbines about 15 miles off the southern coast of New Jersey. The company has committed to invest $695 million in New Jersey as part of the project. The law allows Orsted, the project’s developer, to take advantage of new federal tax incentives.

Without the deal to help Orsted in New Jersey, the company and Murphy administration officials said, the wind farm would not be built and that would kneecap the state’s efforts to jumpstart a major new domestic industry. But the law passed, thanks to an odd coalition that at one point included the leader of the state Senate’s Republicans.

However, a second major project is still facing significant financial uncertainty. The new law doesn’t help Atlantic Shores, which is a joint venture of Shell and French energy company EDF. The company will need to decide next year if it proceeds with the project, but without more money from the state it won’t happen, according to the company’s CEO Joris Veldhoven.

“We simply don't have an investable project,” Veldhoven said in an interview earlier this month.

Atlantic Shores says its costs have gone up 30 percent since the project was approved by the state in 2021. It faces the same rising costs that other offshore wind projects do. Inflation is up — the cost of steel has soared since the pandemic — interest rates are higher and the labor market is tighter. Paradoxically, the war in Ukraine made clear how important domestic energy is while at the same time driving up the costs to produce it.

New Jersey’s projects are not outliers.

Companies with contracts to supply Massachusetts are scrapping their plans, paying penalties to terminate agreements that are no longer profitable. Rhode Island’s utility isn’t moving forward with a potential second offshore wind project after costs were higher than expected.

“I feel like we have these moments of near death and resuscitation every week,” said Kris Ohleth, a close industry observer who leads the University of Delaware’s Special Initiative on Offshore Wind.

In New York, Equinor and Orsted petitioned the state for bigger payments for their projects in June. The subsidies will ultimately be paid by ratepayers through their electricity bills once the projects begin producing energy.

Orsted, building in New York with an assist from Eversource, requested an inflation adjustment and other concessions for its project there. Equinor — the Norwegian energy giant — is also seeking a higher price for its three New York projects, which BP is a partner on.

Equinor’s three projects represent more than a third of New York’s 2035 target for 9 gigawatts of offshore wind. If completed by 2030, they’ll provide about 12 percent of the energy needed to achieve New York’s goal of having 70 percent of the state’s electricity come from renewables by that year.

Developers have a lot on the line as they seek to lock in higher payments from states.

Equinor’s Morris said that each of these projects are an investment of $4 billion to $5 billion, and while not all that capital is committed, there is a significant amount that’s already been contracted out to suppliers.

“For the closer projects a lot of that money has been put out already,” Morris said. “The risk is sitting very much with the developers at this point.”

Energy companies that have been awarded contracts by states have significant leverage as they plead for more funding.

But states also recognize they have leverage. Even as some projects stall, there’s still plenty of ocean and appetite for clean energy.

Doreen Harris, the president and CEO of the New York State Energy Research and Development Authority, said the state still has time to pivot to other projects if needed and that some project attrition has been accounted for.

“We have sufficient lease areas available to our state, and we have time to procure alternatives if they would be needed,” Harris said.

The state closed updated bids for its third offshore wind solicitation last month, and that’s linked to millions in funding for supply chain investments. But Harris said the contracted projects are linked to goals beyond New York’s, like Biden’s.

“They represent, I'd say, a critical part of the industry building that we are obviously leading here in the state,” Harris said. “Collectively we as states recognize that we are the major reason that specifically this administration could achieve their goals for 2030.”

NYSERDA is expected to weigh in on the request by companies for higher payments by the comment deadline of Aug. 28.

State competition

Federal help for the struggling offshore wind power industry could be on the horizon.

Biden’s flagship legislative achievement, the Inflation Reduction Act, includes tax credits aimed at boosting clean energy. Those credits are largely aimed at projects with established manufacturing in the U.S. For the offshore wind industry, a domestic pipeline is still in the works.

U.S. Secretary of the Interior Deb Haaland was in Albany earlier this month to highlight Biden’s commitment to offshore wind and the benefits of the Inflation Reduction Act and other federal investments.

“We’re starting this transition. We know it hasn’t always been easy but that doesn’t mean that anyone gives up,” she said. “The Inflation Reduction Act is a downpayment and we know we need to do more to move forward.”

Industry boosters hope offshore wind will spur a nationwide supply chain, though there is still competition for manufacturing sites and port activity. And that competition is perhaps no clearer than in New Jersey and New York, neighbors that say they are working together but are also vying to be the first, fastest and largest.

Part of Equinor’s New York plans include buying towers from what could be the nation’s first offshore wind turbine manufacturing plant at the Port of Albany. But that project faced permitting delays and inflation challenges as well and likely won’t be ready in time to supply the company’s first project and port officials say it faces a $350 million funding shortfall.

But they’re moving ahead preparing the site for construction.

At the site, excavators are leveling out piles of gravel that have sat atop where the tower manufacturing buildings are planned. The stone sat in place for months to prepare the ground for the factories to make the heavy tower pieces. Port of Albany CEO Rich Hendrick said it’s still “very positive” about the project.

"There's bumps in the road,” Hendrick said, “but we have pavement for it, to smooth them out.”

In New Jersey, the state has put $600 million into a port facility in South Jersey meant to help the offshore wind industry. A second facility a county over is also hoping to grow from one where wind turbines are assembled out of foreign steel into ones where they are manufactured using American steel. But, Atlantic Shores argues, for that to happen, there needs to be a stream of projects — including its own — not just one.

“We know some of the other states are moving forward with offshore wind,” Veldhoven said. “We also know that many people in New Jersey want to move forward with offshore wind, but it's a very binary thing in the sense that you have a few large projects in offshore wind, and it matters a lot whether they go ahead or not.”