Just this week, the US Bureau of Ocean Energy Management identified eight draft offshore wind energy areas off the coasts of North Carolina, Virginia, Maryland and Delaware, as it continues its chase to install 30GW of offshore wind by 2030.
As well as being a catchy political slogan, it’s an ambitious target for a nation whose operational offshore wind currently amounts to trial sites. The US did, however, conclude the historic New York Bight offshore wind auction in February, netting $4.37 billion in investment.
Those projects, and others such as those to be leased from October’s auction on the west coast, now face significant obstacles to become both operational and profitable. The alarm bells were raised last month by Avangrid Renewables, a subsidiary of Spanish utility Iberdrola, which is developing the 1.2GW Commonwealth Wind project in Massachusetts.
Having received a $72/MWh power-purchase agreement by the state last December, the company asked the department of public utilities to suspend the project to renegotiate the PPA, citing concerns over “unprecedented commodity price increases, interest rate hikes and supply shortages [affecting] the overall viability of Commonwealth Wind’s offshore wind generation project that is the subject of the PPAs, including whether it remains economic and whether it can be financed under the current terms of the PPAs”.
Avangrid was joined in a similar request by Mayflower Wind, a project being developed by EDPR, Engie and Shell, to address the “current extraordinary global economic conditions on the PPAs”.
Even international offshore wind giant Ørsted is struggling in this respect, saying in its most recent earnings call that “the returns of the US projects, including Ocean Wind 1 [in New Jersey], is not where we want it to be. But we continue to explore these options.”
The request for a stay on both Massachusetts projects were rejected by the DPU, which stated they were procured in competitive processes, and both projects subsequently said they will continue to develop the sites, although that shouldn’t diminish the requests in the first place. While energy prices were rising before Russia’s invasion of Ukraine in February, the PPAs agreed in December were awarded in a very different commercial reality to today.
“This issue of rising prices with respect to products that have PPAs locked into lower prices is something we’re all working on,” Benjamin Koenigsberg, co-head of projects at law firm Norton Rose Fulbright, told Infrastructure Investor.
“The entire industry is dealing with this, but with respect to offshore wind, the projects are very large [so] it could have a larger knock-on effect in terms of its impact,” he added.
And what about federal support from the much-touted Inflation Reduction Act? “Commonwealth Wind believes there may be potential opportunities to share benefits associated with the IRA with ratepayers”, it told the Massachusetts DPU, but benefits from the IRA are “not anticipated to make the project economic absent other changes to the PPAs”.
Those bidding in auctions this year – especially on the west coast later in the year – would have bid at slightly more aggressive prices to account for the new reality of higher energy and supply chain prices and rising interest rates. However, the uncertainty in this respect still makes the US’ offshore dreams just that for now.