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The past year was tough for offshore wind in the US and the country’s ambitions under its current administration to propel the industry forward, but the sector could regain ground in 2024 as a number of procurement rounds are underway.
Already lagging behind other major economies in offshore wind development, the US only recently hailed first power from its first commercial-scale offshore wind facilities. The 132-MW South Fork offshore wind park off Long Island in New York injected initial electricity into the local grid in December and the 806-MW Vineyard Wind 1 project off the coast of Martha’s Vineyard in Massachusetts achieved that milestone on January 2.
The US currently has only 42 MW of offshore wind capacity in operation from the 30-MW Block Island small-scale wind farm in Rhode Island and the 12-MW Dominion Virginia demonstration facility. This will increase more slowly than hoped for as projects hit snag amid cost increases and supply constraints. Some were stopped and some terminated their power purchase contracts, while a number of developers reported impairments.
In 2021, the US set a goal to build 30 GW of offshore wind by 2030 and outlined a lease sales schedule. States have also set offshore wind targets, competing to secure a share of the new market and advance their clean energy agendas. A sign of developers’ eagerness to take a lead was the record-setting 2022 lease auction in the New York Bight off the coasts of New York and New Jersey, where the six winning bids amounted to almost USD 4.4 billion.
HIGH INFLATION, SUPPLY CHAIN WOES HIT PROJECT DEVELOPMENT IN 2023
A changed economic environment, marked by inflation, increased interest rates and supply bottlenecks, however, rendered many offtake contracts uneconomical.
Last year, Avangrid Inc terminated the power purchase agreements (PPAs) for its 1.2-GW Commonwealth Wind project, which was successful in a Massachusetts tender at the end of 2021, and for its 804-MW Park City Wind offshore project, which was awarded a contract to supply clean power to Connecticut in 2019. The 1.2-GW SouthCoast Wind, a joint venture between Shell New Energies US LLC and Ocean Winds North America, also terminated its PPA in Massachusetts. The developers, which will bear combined termination fees of USD 124 million (EUR 113m), signalled plans to rebid the projects in new tenders being rolled out in the states.
In New York, all four projects contracted by the New York State Energy Research and Development Authority (NYSERDA) – Sunrise Wind, Empire Wind 1, Empire Wind 2 and Beacon Wind, representing 4.2 GW of capacity – sought price adjustments. The request was rejected by the New York State Public Service Commission (NYSPSC) in October 2023, prompting the state governor to announce a planned accelerated procurement to backfill any contracted projects that are terminated.
Major offshore developer Ørsted A/S hit the headlines at the start of November with a decision to cease development of the 1,100-MW Ocean Wind 1 and 1,148-MW Ocean Wind 2 offshore wind projects in New Jersey. The company also recorded large impairment losses on its US offshore wind portfolio. David Hardy, chief executive of the Americas Region at Ørsted, explained in a LinkedIn post that “[…] faced with macroeconomic factors of high inflation, rising interest rates, and supply chain bottlenecks, including a critical installation vessel delay for Ocean Wind 1, we had no choice but to cease development of the projects awarded to us by the NJ BPU [New Jersey Board of Public Utilities].”
Still, one US offshore wind project achieved final investment (FID) decision in 2023. This is the 704 MW-Revolution Wind, which will supply power to Rhode Island and Connecticut, with the FID being announced by Ørsted together with the Ocean Wind 1 and 2 decision.
The new year started with an announcement that Equinor ASA and BP Plc have agreed with the NYSERDA to terminate their contract for the 1,260-MW Empire Wind 2 project. The pair are together developing the Empire Wind and Beacon Wind lease areas. “The Empire Wind 2 decision provides the opportunity to reset and develop a stronger and more robust project going forward,” said Molly Morris, president of Equinor Renewables Americas.
HOPEFUL PROSPECTS FOR 2024
While costs have increased, 2024 could bring better news for the young industry in the US. A recent report highlighted that the US is currently seeing record offtake activity, with five auctions underway. The expedited New York solicitation was launched at the end of November and developers have until January 25, 2024 to submit proposals, with awards expected to be announced in February 2024. Auctions have also been announced in Massachusetts, Rhode Island, Connecticut and New Jersey. New Jersey has also accelerated its fourth offshore wind solicitation and plans to launch it early in 2024.
The Northeast US states of Massachusetts, Rhode Island and Connecticut agreed in the latter part of 2023 to coordinate selection of offshore wind as each state solicits offshore wind capacity through their state procurements. The collaborative approach is expected to unlock economies of scale opportunities for the developers.
(USD 1 = EUR 0.910)
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