Plans to build two wind farms off the coast of New Jersey have been canceled, the company behind them said Wednesday, a blow to the state’s efforts to cut greenhouse gas emissions and the latest setback in the U.S. wind industry.
The move, which would force Danish company Orsted to forgive up to $5.6 billion, would affect the Biden administration’s plan to make the wind industry a key component of plans to reduce greenhouse gas emissions. Due to high inflation and rising interest rates, planned projects that appeared to be winners several years ago are no longer profitable.
“The world has in many ways been turned upside down from a macroeconomic and industry perspective,” Orsted Chief Executive Officer Mads Nipper told reporters on Wednesday.
The two projects, known as Ocean Wind 1 and 2, were destined to provide New Jersey with green energy. He had the strong support of the state governor, Phil Murphy, a Democrat with national ambitions who emphasizes his environmental credentials but has recently been vilified for failing to tackle climate change. On Wednesday he suggested Orsted was a dishonest broker and insisted that “the future of offshore wind” remains strong along the state’s 130 miles of coastline.
Mr. Nipper said Orsted thought losses on New Jersey projects would increase over time, so “the only sensible thing to do is draw a line in the sand.”
Overall, the Biden administration wants to install 30 gigawatts of wind power in the United States by 2030, and New Jersey officials were aiming to produce 11 gigawatts of wind power by 2040.
Other parts of the offshore wind and renewables industry have experienced some disruption in Europe, particularly the UK. But Mr Nipper said the problems were more serious in the United States because early contracts lacked inflation protection and developers faced higher costs because of delays in approval during the Trump administration.
The company’s share price fell nearly 26 percent on Wednesday after it reported a loss of nearly $3.2 billion in the third quarter and warned that write-downs – essentially reducing the value of the company’s investments – would impact Orsted’s finances. Will do.
Ørsted is now writing off 28.4 billion krone, or about $4 billion. The company estimates it could incur additional charges of up to 11 billion kroons at the end of the year.
Ørsted is not alone in facing threats in the budding offshore market in the United States.
On Tuesday, London-based energy giant BP said it would waive $540 million on three planned wind projects in New York after state officials refused to renegotiate their terms. BP says it is assessing future plans for the projects in light of the decision.
In its announcement, Orsted said it would move forward with a $4 billion project called Revolution Wind aimed at supplying electricity to consumers in Rhode Island. And other developers have projects under construction, like Vineyard Wind, which will eventually have 62 turbines in the waters off Martha’s Vineyard, Mass.
Offshore wind isn’t dead, but the industry and its supporters are certainly learning some hard lessons. The ambitions of the Biden administration and East Coast states like New York, New Jersey and Massachusetts to establish large amounts of clean electricity generation through offshore wind in the coming decades are likely to be dealt a blow.
The industry is dealing with equipment shortages as a result of pandemic-era supply chain issues, and trying to manage a rising number of orders for wind turbines as governments look to meet green energy targets. And rising interest rates, as central banks around the world try to curb inflation, have pushed up financing costs.
Consumers will likely pay more in their electricity bills for power generated from offshore wind, as developers demand protection from higher prices and inflation.
Mr Nipper said rekindling interest in developing offshore wind power on the East Coast depended on a “recalibration of the cost of offshore electricity”.
New York state declined to renegotiate existing offshore wind energy contracts in October, but subsequent auctions gave developers deals to supply power at substantially higher prices and with various provisions to protect against inflation.
Still, there is no doubt that the confluence of challenges that Mr Nipper described as a “perfect storm” is taking a toll on an industry that governments rely on to tackle climate change by producing large quantities of clean and relatively inexpensive Expecting to produce electricity.
Ørsted has been both a pioneer and leading developer of offshore wind. After building the first offshore wind farm in Denmark in the early 1990s, the company has built a global portfolio with projects in the UK, Poland and Taiwan, as well as the United States.
Mr Nipper said the company would consider various cost-saving measures, including reshaping its portfolio. The company is likely to be more cautious in its investment plans, at least in the near term.
Ørsted’s problems are not occurring in a vacuum. Siemens Energy, a large German power equipment maker, recently said it was seeking government help to finance guarantees for orders because of problems at its wind turbine unit, Siemens Gamesa, and anticipated big losses. Has been.
In Orsted’s case, the write-off is largely the result of the company’s decision to cancel a larger project well underway in New Jersey, Ocean Wind 1, and a sister project, Ocean Wind 2.
Write-offs will include the investment already made by the company in building the project, payments to suppliers for goods already ordered or delivered, and penalties for walking away from the contract.
These projects were politically charged in New Jersey, with many residents of the Jersey Shore opposed to them, concerned about lost tourism revenues and degraded marine landscapes, and fishermen worried about the impact on their livelihoods. When Orsted broke ground in Ocean City, NJ, in September, workers were greeted by about 60 protesters, including protesters The six who were arrested After refusing police orders to return.
Jeff Tittel, a longtime New Jersey environmental advocate and former director of the state chapter of the Sierra Club, said Orsted’s withdrawal was a major blow to the state’s efforts to generate more green energy.
“There’s really no Plan B right now,” he said. “This is a political disaster.”