US Wind Projects Set Back, Not Stalled

By Carly Fields and Simon West

Thomas Wylie at deugro and Marco Poisler at UTC Overseas remain bullish for offshore wind projects in the U.S., despite recent setbacks. From Issue 2, 2024 of Breakbulk Magazine.


Several U.S. offshore wind ventures face uncertainty as escalating costs compel developers to terminate agreements and incur substantial losses. The combination of rampant inflation, high interest rates, and supply chain disruptions has driven up installation expenses for expansive arrays along the U.S. Eastern seaboard. Despite pleas from developers, state regulators have so far rebuffed requests for adjustments to contracted electricity rates, constraining profit margins.

Project cargo movers are closely watching the situation in the U.S. – which is mirrored in the UK – to see if government will heed the cries of renewables engineering, procurement and construction companies on the perils of rising project-crippling costs.

Late last year, Ørsted, a global leader in offshore wind, halted progress on its Ocean Wind 1 and 2 projects in New Jersey, totaling 2.2 gigawatts (GW). The Danish firm said it anticipated impairments up to US$5.6 billion due to heightened expenses and logistical setbacks. In an announcement, Ørsted specifically referred to “vessel delay” on Ocean Wind 1 that “considerably impacted project timing.”

In the media, Ørsted’s CEO, Mads Nipper, expressed regret over early-stage investments in Ocean Wind 1, advocating for a reassessment of offshore wind pricing to align with escalating costs.

Meanwhile, oil and gas giants BP and Equinor have tinkered with their ownership of the Beacon and Empire offshore wind initiatives in New York. Both projects were previously being jointly pursued. But in January, an agreement to restructure resulted in bp taking ownership of Equinor’s 50 percent stake in the Beacon Wind 1 and 2 projects and Equinor taking ownership of bp’s 50 percent stake in the Empire Wind 1 and 2 projects. In addition, bp agreed to take ownership of Equinor’s 50 percent interest in the Astoria Gateway for Renewable Energy site and, subject to certain future conditions, Equinor has agreed to take ownership of bp’s 50 percent interest in the South Brooklyn Marine Terminal. Under the agreement, the companies will work independently to develop their wholly owned projects.

Beacon Wind 1 and 2 comprise a combined area of 128,000 acres in federal waters between Cape Cod, Massachusetts, and Long Island, New York. The combined potential generative capacity of the projects is more than 2.5 GW which has the potential to deliver renewable energy to over 2 million consumers in the northeastern U.S.

In total, a minimum of ten U.S. East Coast projects have sought to renegotiate offtake prices, according to press reports, and the consequent contract terminations and broader project uncertainties could pose an early setback to U.S. offshore wind aspirations.


Impact of Cost Increases

Thomas Wylie, head of global strategic projects and accounts at deugro, said: “The situation for both the UK and the U.S. wind sectors is problematic. Governments need to acknowledge that costs for these long-term offshore wind commitments have increased since the pandemic.”

That said, the global offshore wind industry is still poised for substantial growth, he said. “From a client perspective, there is anticipation of a proliferation of projects worldwide over the next 2-3 years. The UK and the U.S. are expected to play prominent roles.”

However, a crucial factor in realizing these projects is having the supply chain in place, along with pricing stability and investment incentives. “Governments must make long-term commitments to support these offshore wind projects and provide assurances regarding pricing stability to incentivize investment. Nevertheless, both in the UK and the U.S., there are obstacles hindering progress. This uncertainty affects the supply chain, leading to hesitancy in investment in assets,” Wylie said.

Marco Poisler, chief operating officer, global energy and capital projects at UTC Overseas, also saw the supply chain as a key challenge to offshore wind ambitions in the U.S. “There is a challenge with having the availability of competitive U.S. maritime assets. The Jones Act is a challenge, but I think that can be overcome as well – there are some newbuilds and a lot of local shipyards are busy with work. At the end of the day, from an investment strategy, we have to see if these will be backed and financed by governments.”

If projects are either delayed or canceled, decision-making regarding supply chain resource investment becomes challenging, Wylie added. “Yet, it’s imperative to invest now to facilitate execution in the coming years. While this presents a short-term setback, the demand for offshore wind projects remains strong, indicating that this is merely a temporary blip with long-term ramifications.”

deugro is dedicated to supporting offshore wind projects and has operated two vessels between mainland Europe and the UK for an OEM partner for the past decade. Recently, deugro modified those vessels to accommodate larger wind turbine components. “Additionally, for the U.S. market, we are currently constructing two larger vessels capable of handling bigger components. We are committed to serving the offshore wind sector in the future.”


Government Support Needed

UTC’s Poisler led a panel discussion in Houston to address the challenges facing the maritime and logistics industries as more offshore wind projects are announced in the U.S.

An expert panel of speakers discussed a variety of topics including the availability of vessels and vehicles needed to transport equipment, permitting, marshalling, skilled labor training, as well as federal funding for infrastructure initiatives supporting the industry and how the Jones Act comes into play with government-funded decarbonization projects.

While UTC does deem the U.S. offshore wind sector a “key” market for project logistics, Poisler said to Breakbulk that there are “some apparent setbacks with some of the government support in the northeastern states. But it’s going strong in so many ways – we have new investors coming in and tremendous gigawatt potential there in the region.”

He said that the issues may well necessitate a reassessment of the U.S. government’s target of 30 GW of installed capacity by 2030. “We’re probably lucky if we get half that. That’s due to high supply chain costs that have gone up since the original financing, and interest rates are higher. And I think the reality is that for many of those projects, what it costs today has set it back. But saying that, it’s still very interesting for project cargo.”

Despite its setbacks in the U.S., Ørsted agrees. Speaking in an Ørsted release, David Hardy, group executive vice president and CEO Americas, said: “We remain committed to the U.S. renewable energy market, building clean power that will create jobs across technologies and states from the Northeast to Texas. Offshore wind energy remains an integral solution to helping the U.S. meet its clean energy ambitions, including job creation, a domestic supply chain and a reinvigorated maritime industry.”


Projects Taking Shape

Hardy is right to say that it is not all doom and gloom in the U.S. wind sector. Some U.S. offshore wind projects have experienced relatively minimal impacts from escalating costs and interest rates, with timing playing a crucial role in this resilience. In October, Ørsted and Eversource took the final investment decision for their 704 MW Revolution Wind endeavor situated off the coasts of Rhode Island and Connecticut. While onshore construction is already underway, offshore construction is slated to commence in 2024, with project completion anticipated in 2025. Notwithstanding the impairment of DKK 3.3 billion that Ørsted is recording in its Q3 results, Revolution Wind has an “attractive forward-looking value creation with a forward-looking spread to WACC above Ørsted’s guided range,” the wind specialist said.

And prioritized construction schedules for the 800 MW Vineyard Wind 1 and the 132 MW South Fork Wind projects have mitigated the impact of inflation, enabling ongoing progress. Vineyard Wind 1, a collaboration between Avangrid and Copenhagen Infrastructure Partners (CIP), reached financial closure in September 2021, while Ørsted and U.S. utility Eversource sealed financial closure for their South Fork project in February 2022.

Concurrently, U.S. utility Dominion Energy is advancing its 2.6 GW Coastal Virginia Offshore Wind initiative, leveraging regulated utility price mechanisms instead of power purchase agreements with state authorities. Recent regulatory approval for project construction sets the stage for power generation to commence in 2026. This venture marks the fifth and most extensive offshore wind project authorized by the Biden administration, with Dominion spearheading the construction of the first U.S. wind turbine installation vessel (WTIV).

But neither has this project been immune to cost increases: In 2021, Dominion Energy revised its cost estimate for the project upwards by US$2 billion to US$9.8 billion, citing escalations in commodity costs and revisions to onshore transmission designs.

However, while there is a dance in motion between EPCs and officials, the demand for renewable power in the U.S. has not abated and once a pricing agreement is reached, the U.S. is expected to reclaim its crown for future wind project dominance.


deugro and UTC Overseas will be exhibiting at Breakbulk Europe 2024 on 21-23 May.

TOP PHOTO: The first turbine is installed on South Fork Wind. CREDIT: Ørsted