Plans to build two wind farms off the coast of New Jersey have been canceled, the company behind them said Wednesday, a blow to the state’s efforts to cut greenhouse gas emissions and a jolt to the U.S. wind energy industry.
The move, which will force Ørsted, a Danish company, to take a write-down of up to $5.6 billion, will hamper the Biden administration’s plans to make the wind industry a critical component of plans to reduce greenhouse gas emissions. High inflation and high interest rates make planned projects that seemed like winners several years ago no longer profitable.
“The world has been turned upside down in many ways, from a macroeconomic and industry point of view,” Ørsted CEO Mads Nipper said in a call with reporters on Wednesday.
The projects, known as Ocean Wind 1 and 2, were intended to provide green energy to New Jersey. They received strong support from the state governor, Phil Murphy, a Democrat with national ambitions who emphasizes his environmental credentials but has drawn scorn recently for his failure to combat climate change. He suggested on Wednesday that Ørsted was a dishonest broker, insisting that the “future of offshore wind” along the state’s 130-mile coastline remains strong.
Orsted believes losses on New Jersey projects will rise over time, so “the only sensible thing is to draw a line in the sand,” Mr. Knepper said.
Overall, the Biden administration wants to install 30 gigawatts of wind energy in the U.S. by 2030, and officials in New Jersey were aiming for 11 gigawatts by 2040.
Offshore wind and other parts of the renewable energy industry have faced some hurdles in Europe, especially in Britain. But Mr. Nipper said the problems were more severe in the United States because early contracts lacked inflation protection and developers incurred high costs due to delays in approvals during the Trump administration.
The company’s stock price fell nearly 26 percent on Wednesday after it reported a loss of about $3.2 billion for the third quarter and warned that writedowns — essentially a decline in the value of the company’s investments — would impact Ørsted’s finances.
Ørsted is writing off 28.4 billion kroner, or about $4 billion, now. The company estimates it could incur another charge of up to 11 billion kroner later in the year.
Ørsted is not alone in facing risks in the emerging US offshore market.
BP, the London-based energy giant, said on Tuesday it would write off $540 million in three wind projects planned off New York, after state authorities refused to renegotiate their terms. BP says it is evaluating future plans for projects in light of the decision.
In her announcement, Ørsted said she would move forward with a $4 billion project called Revolution Wind aimed at providing energy to consumers in Rhode Island. Other developers have projects under construction, such as Vineyard Wind, which will eventually have 62 turbines in the waters off Martha’s Vineyard, Massachusetts.
Offshore wind is not dead, but the industry and its backers are certainly learning some hard lessons. The Biden administration’s ambitions and states along the East Coast such as New York, New Jersey and Massachusetts to install large amounts of clean electricity generation through offshore wind will likely decline in the coming decades.
The industry is dealing with equipment shortages as a result of pandemic-era supply chain issues, and is trying to manage a growing number of orders for wind turbines as governments seek to meet green energy goals. Rising interest rates, while central banks around the world try to rein in inflation, have sent financing costs soaring.
Consumers are also likely to pay more on their electricity bills for power generated by offshore wind, as developers demand higher prices and protection from inflation.
Mr. Nipper said renewed interest in offshore wind development off the East Coast depends on “the cost reset that offshore energy needs.”
New York State in October refused to renegotiate existing offshore wind contracts, but a subsequent auction awarded deals to supply the energy at much higher prices and with different terms to protect developers from inflation.
However, there is no doubt that the set of challenges that Mr. Nipper described as a “perfect storm” is burdening the industry that governments rely on to produce large amounts of clean, relatively cheap electricity to tackle climate change.
Ørsted has been a pioneer and leading developer of offshore wind energy. After building its first offshore wind farm off Denmark in the early 1990s, the company has built a global portfolio that includes projects in Britain, Poland and Taiwan as well as the United States.
Mr. Nipper said the company would consider several cost-saving measures including reshaping its investment portfolio. The company is likely to be more cautious in its investment plans, at least in the near term.
Oersted’s problems do not occur in a vacuum. Siemens Energy, a large German manufacturer of electrical power equipment, recently said it was seeking government help to finance order guarantees and expected major losses due to problems at its wind turbine unit, Siemens Gamesa.
In Ørsted’s case, the writedowns are largely due to the company’s decision to cancel the large project underway off New Jersey, Ocean Wind 1, and its sister project, Ocean Wind 2.
The write-offs will include investments the company has already made in building the project, payments to suppliers for goods already ordered or delivered, and penalties for reneging on contracts.
The projects became politically charged in New Jersey, and were opposed by many Jersey Shore residents concerned about tourism revenues and polluted ocean vistas, and fishermen were concerned about the impact on their livelihoods. When Ørsted began construction in September in Ocean City, New Jersey, workers were cheered by nearly 60 demonstrators, including The six who were arrested After refusing police orders to return.
Jeff Tittle, a longtime New Jersey environmentalist and former director of the Sierra Club’s state chapter, said Ørsted’s withdrawal was a major setback for the state’s efforts to generate more green energy.
“There is no plan B at the moment,” he said. “It is a political disaster.”
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