Posted on November 20, 2023
The Danish company behind one of the two offshore wind farms planned for Maryland’s coast abandoned two large projects off New Jersey last month and now says its Skipjack project off Ocean City needs to be “reconfigured” to go forward.
“With the project’s current offshore renewable energy credits, technical configuration, and development and construction timeline, it does not currently meet our value creation criteria,” said Maddy Voytek, Orsted’s head of government affairs and market strategy in Maryland, in a statement. “We are exploring options that would support the project’s ability to meet our value creation criteria.”
In other words, Orsted says the Skipjack project as conceived no longer makes financial sense. In dropping the New Jersey wind farms, Orsted — which operates wind farms in Europe and built America’s first farm off Rhode Island — cited supply chain issues, high interest rates and a failure to receive the tax credits that it desired.
Experts say some of the same headwinds Orsted is experiencing are being felt industrywide, with high inflation, shortages of electrical equipment and a limited number of highly specialized turbine installation vessels. American wind farm builders also are contending with increased demand for wind farms in Europe, where countries are seeking to cut back on Russian oil purchases in the wake of the country’s invasion of Ukraine.
Orsted’s decision in New Jersey sent shock waves through the nascent U.S. industry and jeopardized the federal government’s renewable energy goals. It could do the same in Maryland if it pulls back on its two-part Skipjack project.
Meanwhile, the company behind Maryland’s other offshore wind farm proposal — U.S. Wind — is painting a rosier picture for the future.
“I’m very confident we’re going to build Maryland’s first offshore wind farm,” U.S. Wind CEO Jeff Grybowski told The Baltimore Sun.
For Maryland to meet its ambitious climate goals, it needs both U.S. Wind’s and Orsted’s wind farms to move forward — and likely will need more projects to follow. The state has pledged to have 8.5 gigawatts of offshore wind energy by 2031. The projects already approved only account for a quarter of that total.
They are planned for between 10 and 20 miles from the Ocean City coast, a prospect that has sparked criticism by the resort town’s leaders, who worry the turbines will disrupt the ocean view. Neither has started construction, as they await federal approval.
America’s first offshore wind farm, owned by the Danish company, Orsted, seen from a tour boat off the coast of Block Island, Rhode Island.
U.S. Wind’s project is further along than Orsted’s. Last month, the U.S. Bureau of Ocean Energy Management released an important environmental review for the U.S. Wind project, and a public comment period is ongoing. Grybowski said he expects the agency to issue final approval next year, and that construction will begin some time in 2025.
But, Grybowski said, U.S. Wind is certainly looking for ways to cut costs amid the pressures facing the industry, including possibly changing the construction timeline. And U.S. Wind might need an adjustment from Maryland regulators in how much it can charge utility companies for offshore wind energy credits, called ORECs.
For the first round of Maryland wind projects, that rate was set by the Maryland Public Service Commission in 2017. U.S. Wind and Orsted each got approval to sell ORECs at a cost of about $132 per megawatt-hour of wind energy. Utility companies are required to purchase the credits to comply with state renewable energy goals.
“We are looking at ways to improve the way the project pencils out, and I think that may require some adjustments to the ORECs. It could be some of the terms and conditions under the ORECs, that maybe additional flexibility will help,” Grybowski said. “We’re exploring those things, but I think it’s fair to say that everyone in the industry right now is thinking about ways to improve the financial picture.”
Orsted CEO Mads Nipper was far more blunt during an earnings call earlier this month: “If no significant OREC adjustments are made in the near future, we will either cease the development of the project or pursue alternative commercial solutions.”
But state law effectively caps how much the wind companies can charge power companies by limiting how much customers’ bills can be increased by the transaction.
When the $132 OREC price was set, the impact to ratepayers was estimated to be $1.40 per month. The cap was $1.50 per month, so there’s only 10 cents of wiggle room, said Tori Leonard, a spokesperson for the Maryland Public Service Commission.
The second round of projects from Orsted and U.S. had its own cap, which was reached, Leonard said, adding that neither company has formally asked for a change in price.
The General Assembly can raise the ceiling. But that possibility raises eyebrows, said Democratic Del. Lorig Charkoudian of Montgomery County, who has been active on offshore wind issues.
“I don’t find that to be acceptable, moving forward,” she said. “I think there’s other things that we can do.”
The General Assembly took a few of those steps last year by passing the POWER Act, said Charkoudian, who sponsored that bill.
It included provisions allowing the two wind companies to take greater advantage of federal funding from the Inflation Reduction Act. Before the POWER Act, the companies were required to dedicate a certain amount of federal funding to reducing costs for ratepayers. Now they can apply for an exemption from the Public Service Commission that would allow them to use the federal money for other purposes.
Orsted has asked the commission for the exemption, citing financial strains such as higher costs for labor and materials that mean the Skipjack projects need more capital than anticipated to move forward.
“These unexpected and exogenous circumstances have imposed unprecedented cost increases on offshore wind development globally, including the Skipjack Wind projects,” read the petition from Christopher S. Gunderson, counsel for Skipjack Offshore Energy LLC.
U.S. Wind plans to submit a similar petition by the end of the year, Grybowski said.
Turbines at America’s first offshore wind farm, owned by Danish company Orsted, off Block Island, Rhode Island.
The POWER Act also set up a new state procurement process for offshore wind projects, allowing the state to sign contracts for offshore wind that would be funded by taxpayer dollars, rather than ratepayer dollars, Charkoudian said.
“Smart people coming together with some of the options that I’ve talked about — and maybe more, when we get creative — we can still make this happen and we can make it happen without raising the OREC cap,” Charkoudian said.
For his part, Gov. Wes Moore, a Democrat, has been vocal about his desire for Maryland to embrace offshore wind. Earlier this year, Moore backed the state’s ambitious offshore wind goal at an industry conference in Baltimore, which the General Assembly then included in the POWER Act.“
“The governor recognizes that [the] industry has faced a changing landscape because of an increase in inflation, interest rates, and international supply chain disruptions,” said Brittany Marshall, a Moore spokeswoman. “The governor working in partnership with the Maryland Energy Administration and the legislature will continue to explore options on how to best support the offshore wind industry, while keeping in mind the costs to Maryland ratepayers — as we move towards achieving our clean energy goals, and making Maryland a leader in clean renewable wind energy.”
Moore’s support makes U.S. Wind feel positive about the future, Grybowski said.
“We’ve not slowed down our investment in our Maryland offshore wind farms. So, I have a high degree of confidence that Maryland is going to work through this, because I think Maryland’s been at the forefront so far,” he said.
Other industry representatives said the same, including Sam Salustro, vice president of strategic communications at the Oceantic Network, formerly the Business Network for Offshore Wind.
“It’s easy for people to look at what is happening across offshore wind — regular people and suppliers — and draw the wrong conclusions. Because there’s a strong foundation to this industry that’s going to propel it forward both here in Maryland and across the country,” Salustro said.
Salustro, Grybowski and Charkoudian believe the POWER Act gives Maryland tools may prevent projects from being canceled here.
James Baeder, an aerospace engineering professor at the University of Maryland, College Park, who has studied the economics of offshore wind, said he believes Orsted will stick with its Maryland projects.
“They felt that they needed to take this political hit — if you want to think — in New Jersey,” Baeder said. “I don’t think that they really want to have to take more hits.”
In a way, Baeder said, the elimination of a few U.S. projects could bolster others, as all of the builders scramble for the same types of materials and access to a limited set of installation vessels. Just seven vessels can install the foundations necessary for offshore wind, none of which are U.S.-flagged, Grybowski said.
“If you’re a vessel supplier, you’re thinking: ‘Well, I can have my vessel hang out in the North Sea and just build project after project after project. Or, I can go to North America, where they seem to be struggling and everything gets delayed and who knows when the project’s really gonna get built,’” he said. “So, it’s kind of hard to get these vessels to make commitments to come to North America.”
Democratic Del. Lorig Charkoudian of Montgomery County has been active on offshore wind issues.
Orsted’s recent announcement halting the New Jersey farms — Ocean Wind I and Ocean Wind II — stunned Maryland businesses that were going to be involved in their development. Crystal Steel Fabricators in Federalsburg was involved in the production of offshore wind components for Ocean Wind I, President William Lo said in a statement.
“We will assess the project’s construction plans and activities in the coming days and weeks as we get further information from our client,” Lo said.
Orsted has leased a 40-acre parcel at Tradepoint Atlantic, a 3,300-acre site formerly home to Bethlehem Steel in Baltimore County’s Sparrows Point. Earlier this year, Orsted announced plans to construct the state’s first “offshore wind advanced foundation components center” there. It remains unclear whether that center will advance or be scrapped in light of Orsted’s self-described financial challenges.
“Tradepoint Atlantic is a long-standing partner to Orsted and Skipjack Wind,” said Orsted’s Voytek in response to questions from The Sun about the site. “We expect to have more clarity on Skipjack Wind’s path forward as we continue discussions with stakeholders in Maryland and Delaware.”
At Tradepoint, officials were “disappointed” to learn of Orsted’s decision to cancel the New Jersey projects.
“We remain optimistic of offshore wind’s future — and it may be a different future — but there’s still a future,” said Aaron Tomarchio, Tradepoint’s executive vice president of corporate affairs.
Tomarchio said his company remains “very excited about our partnership with U.S. Wind and their long-term commitment to Maryland.”
U.S. Wind signed a 25-year lease for 90 waterfront acres at Tradepoint Atlantic, Grybowski said, where it plans to do steel fabrication — essentially taking large steel slabs and bending them into the massive tubes that will support the spinning turbines in the sea. The company also plans to operate what’s called a marshaling facility at Tradepoint, where the turbine components will be prepared to head offshore.
The U.S. Wind manufacturing hub, named Sparrows Point Steel, is still being designed. It’s meant to serve the broader U.S. offshore wind industry, so it could be affected by the industry’s recent ebb, Grybowski said.
“If our customers are having trouble, and are delaying or canceling, well that’s not good for Sparrows Point Steel’s business. So, Sparrows Point Steel is also something that we have to be flexible about and we have to sort of respond to the market and when the market wants us — that’s when we can build things for them,” Grybowski said. “But I would say right now, the whole industry is in this kind of state of flux, as all these projects try to figure out: ‘What is our schedule?’”