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America’s offshore wind ambitions are coming with bigger price tags
Wall Street Journal|David Uberti|Oct 31, 2023
Soaring costs are pushing up the price of big wind-power projects, challenging the country’s shift to renewable energy and potentially leading to larger-than-expected bills for residents. New York state officials in recent days unveiled a slate of wind-farm proposals that would result in higher electricity rates for residents than previously approved plans. That has firms behind older bids rushing to see if they can resubmit their plans at or near the new rate.
Soaring costs are pushing up the price of big wind-power projects, challenging the country’s shift to renewable energy and potentially leading to larger-than-expected bills for residents. New York state officials in recent days unveiled a slate of wind-farm proposals that would result in higher electricity rates for residents than previously approved plans. That has firms behind older bids rushing to see if they can resubmit their plans at or near the new rate.
Higher rates expected in New York after industry slammed by rising costs
Soaring costs are pushing up the price of big wind-power projects, challenging the country’s shift to renewable energy and potentially leading to larger-than-expected bills for residents.
New York state officials in recent days unveiled a slate of wind-farm proposals that would result in higher electricity rates for residents than previously approved plans. That has firms behind older bids rushing to see if they can resubmit their plans at or near the new rate.
The projects are among the country’s biggest and are being closely watched because they show how a nascent industry that is key to the U.S. energy transition will work through the upheaval of escalating …
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Higher rates expected in New York after industry slammed by rising costs
Soaring costs are pushing up the price of big wind-power projects, challenging the country’s shift to renewable energy and potentially leading to larger-than-expected bills for residents.
New York state officials in recent days unveiled a slate of wind-farm proposals that would result in higher electricity rates for residents than previously approved plans. That has firms behind older bids rushing to see if they can resubmit their plans at or near the new rate.
The projects are among the country’s biggest and are being closely watched because they show how a nascent industry that is key to the U.S. energy transition will work through the upheaval of escalating costs. The struggles are threatening delays in the current pipeline of projects, which analysts say could hamper the Biden administration’s offshore wind ambitions.
“It’s going to be a tricky 12 to 18 months for the sector,” said Harry Boyle, a portfolio manager at Impax Asset Management, which invests in companies including clean-energy firms.
Some firms have already eaten multimillion-dollar termination fees to pull out of East Coast projects or written down investments because of rising costs, battering clean-energy stocks. Analysts say New York’s attempt to find new price points acceptable to developers, regulators and investors suggests the broader market’s adjustment won’t be easy.
“Does the market have the courage to kind of pay these higher prices for clean energy?” David Hardy, chief executive of energy firm Ørsted Americas, said at a conference in New York last month.
He added that ratepayers would ultimately be the ones ponying up. “But the question is, like: What’s the alternative?” he said.
In New York, which has pledged to obtain 70% of its power from renewable sources by 2030, negotiations in Albany will dictate how quickly developers put steel in the water off Long Island or elsewhere, and signal how expensive future offshore development might be.
Earlier this month, state regulators nixed requests by developers including the Danish firm Ørsted and Norwegian energy giant
Equinor to renegotiate contracts from as early as 2019, before their supply chains snarled and financing costs jumped. Separately, officials last week greenlighted new planned wind farms that would sell electricity at a higher price than their older counterparts.
The new group of projects comes with a projected strike price—a cost index that helps decide residents’ bills—of $145.07 per megawatt hour of electricity over their yet-to-be-finalized 25-year contracts. According to the state, that is about 28% higher than the older proposals’ average but 13% less than the rate developers collectively requested from regulators.
A spokeswoman for the New York State Energy Research and Development Authority said the strike prices could change based on federal support or additional costs, such as connections to the power grid.
New York’s new proposals will boost ratepayers’ bills by about 2.7%, or more than $35 a year, for the lifespan of the projects, according to state projections. The expected sum is four times more than what officials estimated when the first round of contracts was struck in 2019.
Some analysts and advocates warn that bigger bills could hurt low-income people who have faced higher energy costs from gasoline to heating fuel in recent years, dinging public support for offshore projects.
Ørsted and Equinor officials say they are weighing options ranging from starting construction at their initially agreed-upon rates to walking away.
A New York official said that neither developer has terminated their contracts yet. Last week, the state requested information about launching an expedited bidding process as early as late November to backfill potentially canceled deals.
Firms such as Equinor and Ørsted would have to pull out of existing deals to participate in any new bidding process, the state official said.
“Those developers have a pretty fundamental decision to make: Do we abandon ship here?” said Eamon Nolan, a partner at the law firm Vinson & Elkins, who has worked on financing offshore wind projects.
Equinor last week told investors it wrote down about $300 million from its New York project, or roughly half of its value. Shares in Ørsted, which has projects off the East Coast, Europe and Taiwan, have plunged nearly 80% since early 2021.
Siemens Energy , a key producer of turbines and other equipment, crashed to record lows last week after the company said it was in talks with the German government and banks about guarantees to back long-term projects.
General Electric, meanwhile, said in its earnings results last week that it expects to book about $1 billion in losses from its offshore operations this year and next.
“We know the industry is ready for a reset,” said Chief Executive H. Lawrence Culp Jr.