Demand for US East Coast offshore wind remains despite gust of disruptions

Canceled contracts, scrapped projects and multiple quarters of impairments have painted an increasingly dire picture for US offshore wind development in recent weeks, but many observers and analysts still anticipate these projects will get built.

In January alone, BP and Eversource Energy disclosed expected fourth-quarter 2023 write-downs, BP and Equinor split up their East Coast joint venture, and Ørsted both terminated offtake deals for two Maryland projects and agreed to buy Eversource's stake in the 924-MW Sunrise Wind pending a successful rebid in New York.

Even as supply chain bottlenecks, inflated costs and higher interest rates continue to impact the industry, experts see demand ultimately driving a substantial buildout.

"We're seeing explicit support for the industry from key lawmakers and policymakers in Massachusetts, Connecticut, New Jersey and New York, so we continue to see a lot of long-term opportunity for offshore wind notwithstanding the recent contract disputes," Timothy Fox, managing director at research firm ClearView Energy Partners, said in an interview.

The New York State Energy Research and Development Authority in December 2023 issued an expedited request for offshore wind and onshore renewable projects, in response to several developers' rejected requests for higher offtake prices. Proposals were due Jan. 25. Sunrise Wind and the first phase of Equinor's 2,076-MW Empire Wind project were among those submitted.

A more streamlined bid

For Eversource, the conditional sale of its 50% interest in Sunrise Wind should allow for a more streamlined rebid, according to analysts at Guggenheim.

"The deal removes the prospects for a disagreement between the partners on how to bid," Guggenheim wrote in a report Jan. 24.

Eversource is reportedly in negotiations with Global Infrastructure Partners, known legally as Global Infrastructure Management, to buy the rest of the utility's company offshore wind portfolio.

Analysts at RBC were less optimistic about Equinor's sole ownership of Empire Wind 1.

"Under the new expected price point, the project is expected to generate a return in the low end of Equinor's guided range of 4-8%, hardly inspiring," they wrote Jan. 26.

While the cost of acquiring BP's 50% stake is "effectively fully written off," the restructuring "represents a meaningful capex increase into a low return project," the analysts continued.

State regulators and electric utilities whose contracts have been canceled are also frustrated by sophisticated and experienced developers' "need to terminate these projects" ClearView's Fox noted.

Stops and starts

The past few months have seen progress in offshore wind developments as well. In October 2023, New York issued conditional awards to offshore wind projects with a combined 6.4 GW of generation capacity, and New Jersey on Jan. 24 selected projects with more than 3.7 GW of total capacity.

On Jan. 30, Dominion Energy said Jan. 30 it had received the two final federal approvals necessary to begin construction on the 2.6-GW Coastal Virginia Offshore Wind project, allowing it to remain on schedule for construction completion in late 2026.

"Progress is notable in developing support infrastructure, robust policy drivers persist at state and federal levels and, crucially, many East Coast states have limited alternatives to incorporating large volumes of clean energy," a Jan. 9 report by S&P Global Commodity Insights noted.

Meanwhile, Massachusetts, Connecticut and a Rhode Island utility are delaying a joint offshore wind auction by nearly two months, from Jan. 31 to March 27, as they seek clarity from the US government on which types of energy property are eligible for federal clean energy tax credits.

"Over the past two years, the total cost of an offshore wind project has increased by more than 30%," the S&P Global report said. "Hard costs such as those for turbines, foundations, towers, cables and vessels account for more than 40% of this increase, while financing costs and soft costs such as labor and project development correspond to 35% and 25% increases, respectively."