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Runaway costs create uncertain future for offshore wind projects in CT, other northeast states

Posted on October 5, 2023

The first wind turbine tower and related components pass through the hurricane barrier in New Bedford, Mass., in September 2023 en route to the Vineyard Wind offshore wind farm under development by Copenhagen Infrastructure Partners and Avangrid based in Orange, Conn. (Avangrid press photo by Worldview Films)

As Rhode Island begs developers to step up with proposals for a new offshore wind farm, Connecticut and Massachusetts are next in line — but with the three states and others on the Eastern Seaboard drifting into a market that is stuck in the doldrums.

In a joint letter to the Biden administration in mid-September, Gov. Ned Lamont and other Northeast governors warned the Biden administration of escalating costs that could stall any new wind farm proposals. Blaming inflation and continuing bottlenecks in industrial supply chains that have “created extraordinary economic challenges that threaten to reverse these offshore wind gains,” the governors want more support to be steered to wind power under the Inflation Reduction Act to help cover the jump in wind farm costs.

“These pressures are affecting not only procurements of new offshore wind but, critically, previously procured projects already in the pipeline,” the governors stated in the joint letter. “Absent intervention, these near-term projects are increasingly at risk of failing.”

The governors’ plea came two weeks after Orsted warned investors it expected to incur $700 million in lower long-term profits. That is the result of runaway costs for the Revolution Wind farm that will generate electricity for Connecticut and Rhode Island, as well as for wind farms slated for New York and New Jersey.

On an Aug. 30 conference call, Orsted executives added costs could double again if the company is unable to qualify for additional federal tax credits it has been seeking in connection with U.S. wind farm construction, and balloon further if interest rates remain high. Eversource had already signaled its intent to find a buyer for its share of the Revolution Wind project as an original co-investor alongside Orsted.

CEO Joe Nolan told investors in early August that turbine pre-assembly work was under way in New London, and that Eversource was at “the one-yard line,” in his words, to completing a transaction for its stake in Revolution Wind. The company sold its remaining offshore wind leases last May to Orsted for $625 million, while pushing ahead with South Fork Wind and Sunrise Wind for New York.

“The expected spending and ‘in-service’ dates have not changed for the three offshore wind projects,” Nolan said. “Our offshore wind leases are very, very prized assets — they sit in an area that have all the fundamentals necessary to deliver great wind speeds.”

By month’s end, however, Orsted was warning that delays by the company supplying foundations for the Revolution Wind and Sunrise Wind farms would force it to take a large charge against earnings.

Despite the financial hit and continuing uncertainty over costs, Orsted Group CEO Mads Nipper said it made sense to see Revolution Wind through completion, given the investments it has already made, which include upgrades to the State Pier in New London that Eversource and the state of Connecticut helped underwrite. Orsted has invested more than $4 billion to date in U.S. wind farm development.

“Is it tempting to say, ‘couldn’t we just walk away?'” Nipper told investors in August. “The level of sunk cost just means that it is the financially rational decision to stay in these projects.”

Avangrid, the Orange-based developer of the Park City Wind project that eyes Bridgeport as its base of construction operations, announced on Wednesday the sale of $100 million in tax credits for existing wind farms it operates, under an Inflation Reduction Act provision that greases the wheels for such transactions.

Rhode Island, which has the most aggressive deadline of any state for 100 percent renewable power by 2033, is moving full steam ahead, issuing on Thursday a request for proposals to install 1.2 gigawatts of new offshore wind farm capacity. Orsted built the Block Island Wind Farm that supplies the Rhode Island community as the first offshore wind farm in America. Dominion Energy, owner of the Millstone Power Station nuclear plant in Waterford, owns the only other one currently operating, Coastal Virginia Offshore Wind, which it hopes to expand from an initial trial size.

With no immediate outlook for industry costs ebbing, Connecticut, Rhode Island and other states may have a lengthy wait on its hands to get any developers to step up if the Biden administration does not free up funding.

Last year, the Connecticut General Assembly set into law a 2040 goal previously articulated by Lamont for the state’s electric grid to achieve zero carbon emissions, phasing out or offsetting polluting power plants in favor of solar, wind and other electric generation and storage technologies.

“These targets reflect what’s necessary and urgently needed to address climate change, which is impacting our communities more severely with every passing year,” stated Katie Dykes, commissioner of DEEP, in a statement forwarded by a DEEP spokesperson Friday in response to a CT Insider query. “We are working hard on solutions to ensure continued deployment of offshore wind and other clean energy resources needed to meet the 2040 target and we remain confident in our ability to achieve that target.”

Avangrid’s Spain-based parent Iberdrola Group estimates it takes seven to 11 years to build an offshore wind farm, including approvals in the permitting process. That would give Connecticut wiggle room to wait out better market dynamics, but render Rhode Island’s 2033 deadline looming very large.

Offshore wind is critical for New England states to hit those goals for renewable power and carbon-emission reductions, according to Amanda Barker, a Rhode Island-based analyst for the Green Energy Consumers Alliance, who addressed the topic during a mid-September forum on offshore wind farms sponsored by the League of Women Voters of Massachusetts.

“New England is uniquely very well positioned to harness the full potential of offshore wind — we have a densely populated coast with very high energy demand,” Barker said. “We have shallow waters on our continental shelf which is ideal for installing the turbines. We also have really strong winds right off our coast — stronger than almost anywhere in the world, and they’re especially strong during the winter which works really well as we start to transition to heat pumps and require more electricity in the winter time.”

But wind farms, nevertheless, produce variable output as is the case with solar panels, requiring the continued operation of traditional power plants to pick up the slack on days when output plunges. Policymakers in Connecticut and elsewhere are eyeing battery storage farms to store power as well, which could inject electricity onto the grid during calmer days.

In a tally of power generator output published by ISO New England, the fluctuating outputs from wind and solar are on daily display, ranging from March 30 when power from solar panels and land-based wind turbines totaled nearly 45 megawatts of power, to a slow day in early January when output fell well short of two megawatts.

For now, Revolution Wind will provide the earliest window into the state of the offshore wind market for New England. In August, Orsted executives cited  delays at a Texas shipyard in the construction of a large ship designed for offshore wind turbine construction, as well as slower-than-expected completion of wind turbine foundations that are being shipped from Bladt Industries in Denmark.

“We’re basically on track from a project schedule standpoint — it’s just creating increased cost to try to maintain the project schedule,” said David Hardy, the Boston-based CEO of Orsted’s U.S. operations, speaking at the end of August. “It’s not super valuable for us to speculate how much worse it could be. There’s so many things that could go right, and there’s obviously things that could continue to go wrong.”


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