Challenges Threaten Offshore Wind Farms in New York and New Jersey
The US offshore wind industry is facing a crisis as developers, including Orsted A/S and BP Plc, take significant writedowns on projects, jeopardizing President Joe Biden's renewable energy targets. This week alone, energy companies have reported nearly $5 billion in impairments on turbine farms proposed off New York and New Jersey. These writedowns pose a threat to future investments and the goal of deploying 30 gigawatts of offshore wind capacity within the next nine years.
The challenges faced by wind developers include higher costs for turbines, supply chain bottlenecks, and difficulties securing financing. Unlike in other countries, offshore wind contracts in the US are not typically linked to inflation, leaving developers exposed to rapidly rising prices. The industry is experiencing a "perfect storm" of adverse impacts, including skyrocketing interest rates and supply chain disruptions.
Orsted, the world's largest offshore wind builder, has announced $4 billion in impairments after deciding to abandon the Ocean Wind 1 and 2 projects in New Jersey. BP has also taken a pretax impairment charge of $540 million related to the development of wind parks off New York. The US offshore wind industry is described as "fundamentally broken" by BP's head of gas and low-carbon energy.
While the US is lagging behind Europe and China in offshore wind development, the Biden administration remains committed to expanding the industry. However, developers must navigate challenges such as ensuring a significant portion of components are US-made to fully benefit from incentives. The crisis is not limited to the US, as China and Norway have also faced setbacks in their offshore wind projects.
The duration of these challenges remains uncertain, but the industry continues to face headwinds. Despite the obstacles, there is momentum for the expanding US offshore wind industry. The long-term success of offshore wind farms in New York and New Jersey will depend on addressing these challenges and finding solutions to mitigate inflationary pressures and permitting delays.
Hot Take: Offshore Wind Farm Challenges and Their Impact on New Businesses
The crisis facing the US offshore wind industry, marked by significant writedowns on projects by developers like Orsted A/S and BP Plc, presents a daunting landscape for new businesses venturing into this sector. With nearly $5 billion in impairments reported on turbine farms off New York and New Jersey, the future of offshore wind investment and the goal of deploying 30 gigawatts of offshore wind capacity within the next nine years are under threat.
Understanding the Challenges
New businesses must navigate a series of challenges, including higher turbine costs, supply chain bottlenecks, and difficulties in securing financing. The lack of inflation linkage to offshore wind contracts in the US, unlike other countries, further exposes developers to rapidly rising prices. This "perfect storm" of adverse impacts, which also includes skyrocketing interest rates and supply chain disruptions, could deter new businesses from entering this industry.
Learning from Industry Giants
The decision by Orsted, the world's largest offshore wind builder, to abandon projects in New Jersey following $4 billion in impairments, and BP's pretax impairment charge of $540 million related to wind parks off New York, serve as cautionary tales for new businesses.
Navigating the Future
Despite these challenges, the Biden administration's commitment to expanding the industry and the ongoing momentum for the US offshore wind industry suggest potential opportunities for new businesses. However, long-term success will hinge on their ability to address these challenges, mitigate inflationary pressures, and navigate permitting delays.