Latest occasions within the wind energy trade, all occurring on a single day, present a snapshot of the sector’s challenges and alternatives heading into 2024.
Ørsted, the world’s largest developer of offshore wind, on Oct. 31 introduced the cancellation of Ocean Wind 1 and a pair of, two 1,000-MW-plus tasks off the coast of New Jersey. In the identical announcement, Ørsted touted its choice to maneuver ahead with Revolution Wind, a 704-MW wind mission and three way partnership with Eversource Power off the coast of Connecticut and Rhode Island.
COMMENTARY
The Biden administration made its personal main announcement that day. It authorised the nation’s largest offshore wind mission but, Coastal Virginia Offshore Wind, which plans to supply 2,600 MW of wind power.
The small print behind these tasks spotlight the macroeconomic and logistical challenges which have pushed the cancellation of a number of main wind tasks in 2023. There stay loads of alternatives to deploy wind energy tasks, and there nonetheless are many challenges that the trade and regulatory companies should handle.
A Story of Two Initiatives
When canceling Ocean Wind 1 and a pair of, Ørsted cited “[m]acroeconomic components” that “have modified dramatically over a brief time frame, with excessive inflation, rising rates of interest, and provide chain bottlenecks impacting our long-term capital investments.”
Inflationary pressures and excessive rates of interest which have impacted renewable power tasks throughout the county have had a very harsh influence on offshore wind tasks, which require multibillion-dollar investments for a decades-later payoff. These developments have bucked assumptions on which builders, utilities, and business off-takers negotiated energy buy agreements, signaling to the builders that tasks could by no means attain profitability.
Additional, in states like New York, utility regulators have rejected requests to amend these agreements based mostly on these altering dynamics.
These macroeconomic forces solely enhance the significance of a mission’s capability to make the most of the power tax credit within the Inflation Discount Act (IRA). Ørsted’s dedication choice in Revolution Wind supplies a first-rate instance. Ørsted expects that Revolution Wind will qualify for the IRA’s “power neighborhood” credit score, which permits builders to deduct an additional 10% of its complete funding (40% vs. 30%). The IRA’s power neighborhood credit score is offered for tasks that redevelop brownfields, together with websites beforehand used for coal-fired energy vegetation and extraction (coal mines). The credit score additionally helps applications to assist fossil-fuel-reliant communities experiencing above-average unemployment.
The Ocean 1 and a pair of cancellations spotlight the provision chain and logistical points dealing with the wind trade. For these tasks, Ørsted expressed considerations that it couldn’t acquire entry to the large vessels needed for development. Revolution Wind, in distinction, expects to have entry to these vessels. And assuaging the Jones Act’s restrictions on the usage of overseas vessels might additional assist handle these points.
Broader provide chain prices and delays are additionally impacting the wind trade. In an April 2023 report, Power Monitor estimated that wind turbine prices have risen 38% in two years because of rising commodity prices. Additional, the common worth of the wind trade’s seven most crucial minerals has elevated by 93% since January 2020.
Ocean Wind 1 additionally confronted authorized challenges. In July, the group Shield Our Coast NJ, together with particular person property homeowners, filed go well with in opposition to the mission in New Jersey state court docket. And simply weeks earlier than the cancellation, Cape Might County, N.J., and a coalition of tourism and fishing teams filed a lawsuit in federal court docket difficult the federal Bureau of Ocean Power Administration’s (BOEM) approval and environmental evaluation of the mission.
Biden Administration Stays All-In
Whereas litigation, or the specter of it, could gradual impacted tasks, the Biden administration has demonstrated its dedication to shifting tasks ahead via the environmental assessment and allowing course of. As famous earlier, the administration on Oct. 31 approved the development of the Coastal Virginia Offshore Wind mission, BOEM’s fifth and largest offshore wind mission approval.
BOEM expects to finish the environmental assessment of 16 offshore wind tasks by 2025. These efforts reaffirm the administration’s dedication to the president’s purpose of deploying 30 GW of offshore wind power by 2030.
Nonetheless, offshore wind developments on the West Coast have additionally begun to face challenges. In December 2022, the administration carried out a wind power public sale for 5 leases off the California coast. Profitable bids for the 5 leases totaled greater than $750 million, aligning with tasks that might produce greater than 4.6 GW of power.
However the proposed tasks off California’s Central Coast are dealing with pushback from indigenous tribal leaders who oppose plans to put cables throughout the Chumash Heritage Nationwide Marine Sanctuary to succeed in transmission strains on the Diablo Canyon nuclear energy plant. Using present transmission strains performs a significant position within the tasks’ viability, provided that transmission capability and availability have lengthy plagued wind power builders. Funding and siting points proceed to delay the development of latest transmission strains throughout the nation.
Whereas Oct. 31 demonstrated the influence of macroeconomic components on beforehand negotiated tasks, it additionally demonstrates the highly effective position that the IRA’s tax credit and the federal authorities can play in nurturing the wind trade. Discovering methods to beat the macroeconomic and provide chain challenges dealing with the wind trade stays important to states assembly their local weather targets and supporting different new applied sciences like inexperienced hydrogen that want entry to dependable renewable power.
—John M. Ugai is an environmental legislation lawyer at Farella Braun + Martel LLP in San Francisco, the place he’s a member of the agency’s Power + Infrastructure Trade Group. He might be reached at [email protected] or through the agency’s web site at https://www.fbm.com.
