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The multibillion-dollar clean energy bet gone wrong

Wall Street Journal|David Uberti|January 20, 2024
USAOffshore Wind

Then the problems started mounting. American workers’ wages soared after the pandemic, while Russia’s invasion of Ukraine sent commodity prices skyrocketing. The Federal Reserve’s rate increases drove up the cost of borrowing for billion-dollar developments. A global backlog of wind farm plans created a shortage of the vessels needed to haul turbines and their foundations from ports to job sites in the ocean. Delays stacked up. “The problem is the cost has spiraled out of control,” Bartlett said.


Offshore wind turbines are proving too risky for many utilities

U.S. power companies raced to get in on the offshore wind boom a few years ago. Now some are rushing to get out.

Already, utilities have unloaded pieces of a planned New Jersey wind farm and a yet-to-be-built seabed off Massachusetts. Now, “for sale” signs sit on stakes in four developments aimed at electrifying hundreds of thousands of homes in New York, Connecticut, Rhode Island and Virginia.

The pullback is adding to the turmoil in a new industry at the center of the U.S.’s renewable-energy ambitions. Developers behind projects totaling 8.5 gigawatts of electricity—more than a quarter of President Biden’s 2030 goal—canceled or are expected to cancel state-approved power …

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Offshore wind turbines are proving too risky for many utilities

U.S. power companies raced to get in on the offshore wind boom a few years ago. Now some are rushing to get out.

Already, utilities have unloaded pieces of a planned New Jersey wind farm and a yet-to-be-built seabed off Massachusetts. Now, “for sale” signs sit on stakes in four developments aimed at electrifying hundreds of thousands of homes in New York, Connecticut, Rhode Island and Virginia.

The pullback is adding to the turmoil in a new industry at the center of the U.S.’s renewable-energy ambitions. Developers behind projects totaling 8.5 gigawatts of electricity—more than a quarter of President Biden’s 2030 goal—canceled or are expected to cancel state-approved power contracts to propose deals with new terms, according to Intelatus Global Partners. Two projects have been nixed outright.

The retreat by utilities underscores the challenge of building turbines the size of skyscrapers in the ocean, with supply-chain snarls and higher interest rates blowing up project budgets.

“Utilities over time have learned they don’t want to be first movers,” said Shahriar Pourreza, an analyst at Guggenheim Partners, adding that investors in the sector seek slow and steady returns. “Let someone else be the first, second and third mover.”

Several U.S. power companies set out on offshore developments years ago, competing alongside larger energy firms including British oil behemoth BP and Norway’s Equinor. Biden and Democratic governors in the Northeast threw their weight behind such megaprojects, which promised to harness powerful winds off the East Coast to help decarbonize the economy.

With cheap debt available and the successful record of wind farms across Northern Europe, the offshore industry appeared poised to take off stateside. 

“There was a land grab going on,” said John Bartlett, president of Reaves Asset Management, which invests in utilities. 

Then the problems started mounting. American workers’ wages soared after the pandemic, while Russia’s invasion of Ukraine sent commodity prices skyrocketing. The Federal Reserve’s rate increases drove up the cost of borrowing for billion-dollar developments. A global backlog of wind farm plans created a shortage of the vessels needed to haul turbines and their foundations from ports to job sites in the ocean. Delays stacked up. 

“The problem is the cost has spiraled out of control,” Bartlett said.

Utilities’ pullback began in earnest in May. In New Jersey, Public Service Enterprise Group PEG 0.38%increase; green up pointing triangle sold its 25% stake in a project known as Ocean Wind 1 to partner Ørsted for more than $200 million. The Danish wind-power giant later deep-sixed the project and sister Ocean Wind 2. 

In New England, the withdrawal by utility Eversource Energy ES -1.09%decrease; red down pointing triangle has been even more extreme. The company in September sold Ørsted its 50% stake in an undeveloped lease off Massachusetts, as well as assets including a maintenance facility and regional port deals, for $625 million. 

Eversource said it is in advanced talks with a private infrastructure investor to sell similar stakes in three projects with Ørsted that aim to power parts of New York, Connecticut and Rhode Island. The upheaval in the offshore market has made it harder to complete a deal, according to people familiar with the matter.

Eversource expects to write down up to $1.6 billion from the projects in the fourth quarter. Chief Executive Joe Nolan last week called it “an unfortunate reflection of the current market conditions we are facing.” 

Any buyer will have to navigate a web of existing contracts approved by state regulators and supplier deals for everything from turbine parts to ships. Former Ørsted executives say the company had teamed up with Eversource in part because of its local political connections and onshore development know-how. 

Eversource will continue to support onshore construction of the three wind farms after any deal, an Ørsted spokesman said.

Analysts say the projects have suffered more than most because of the bad timing of power-purchase agreements just before inflation and supply-chain chaos struck. Those contracts, approved by regulators, exposed developers to the risk of cost overruns.

That isn’t the case in Virginia, where plans for Dominion Energy’s D -0.35%decrease; red down pointing triangle huge wind farm have stayed on time and on budget. Executives chalk up the progress in part to a model that lets it recover costs from ratepayers—which gave the company the flexibility to make investments before U.S. supply chains faltered.

Even so, Bank of America recently told clients it is cautious about Dominion and other utilities with offshore ambitions. Dominion said in November that it is seeking an investor in the nearly $10 billion development as part of a wider strategic review of its business.

“Our objective is to get a true equity partner with pro rata sharing of project costs,” Dominion Chief Executive Robert Blue said on a call with analysts. Dominion declined to comment further. 

In Connecticut, Avangrid AGR 0.36%increase; green up pointing triangle last year paused two of its three offshore projects, paying tens of millions in termination fees to get out of power contracts in Connecticut and Massachusetts.

Owned by Spanish electric and renewables giant Iberdrola IBE -0.40%decrease; red down pointing triangle, Avangrid believes its ability to tap in to its parent company’s expertise and European supply chains insulated it from some of the recent turmoil. CEO Pedro Azagra Blázquez said the company is waiting for the market to stabilize before offering new proposals for its stalled developments.

“The question is always when,” he said. “We don’t stop. We just take some breaks.”


Source:https://archive.li/2024.01.20…

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