Emissions reduction
After a brutal 2023, offshore wind looks to overcome growing pains
Offshore wind is a key piece of the U.S. energy transition, but the emerging industry has been clobbered by financial challenges. Now, it’s trying to move forward.
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ATLANTIC OCEAN — Three huge blades spin hypnotically overhead, illuminated by the morning sun shining through cotton-ball clouds. Our vessel cruises over gentle waves past the yellow foundation of a 600-foot-tall wind turbine, one of five rising from the waters off the coast of Rhode Island. A cable buried six feet under the seabed below us carries clean electricity from the offshore turbines back to land.
For most of the last seven years, this development — the 30-megawatt Block Island project — stood alone off the coast of the northeastern United States. Just one other offshore wind farm existed elsewhere in the country: a two-turbine, 12 MW pilot project near Virginia. That reality is starting to change, as is evident on a boat tour I’ve joined in early December.
As we continue east past Block Island, the tiny silhouettes of new turbines gradually appear on the deep-blue horizon, signaling the emergence of a crucial clean-energy industry off America’s Atlantic coast. But how quickly or smoothly offshore wind can grow remains an open question as developers face an onslaught of economic disruptions and supply-chain delays.
Danish energy giant Ørsted and Boston-based utility Eversource have chartered the high-speed ferry on this frigid winter day to check out their joint project, South Fork Wind, located 19 miles from Block Island. When completed early next year, a dozen turbines totaling 132 MW in capacity will produce enough electricity to power 70,000 homes in Long Island, New York. That will make it the country’s largest offshore wind farm, at least until another, larger project being built near Massachusetts comes online.
Project developers, utility employees, New York state officials and environmentalists — many of whom worked on South Fork Wind during the last decade — crowd into the ferry’s heated cabin or huddle on the wind-whipped decks during the nearly eight-hour voyage. As we approach the second wind farm, everyone flocks outside and cranes their necks toward two completed turbines. A ship carrying spear-shaped blades hovers near a third turbine tower.
“We’ve all been working on this project for so long,” Jennifer Garvey, Ørsted’s head of New York market strategy, tells me as the boat speeds somewhere over the Outer Continental Shelf. “It’s very satisfying to see it up close.” The previous day, the project reached a milestone when it started sending electrons to the grid, making it the first utility-scale offshore wind farm in U.S. federal waters to do so.
Especially for densely populated areas and coastal cities, the ocean represents one of the few available areas for harnessing massive amounts of carbon-free power. This clean electricity is not only needed to replace the polluting fossil fuel plants that are cooking the planet — it’s also key to meeting rising electricity demand from a growing population and greater numbers of electric vehicles and heat-pump-powered buildings.
Still, for all the stunning vistas and platters of decorative cookies on offer, the excursion to South Fork Wind feels less like a victory lap than a much-needed respite. If the atmosphere aboard the ferry is celebratory and relaxed, the prevailing mood on land is decidedly more anxious and uncertain across the broader offshore wind industry.
In 2023, financial hardships and logistical challenges hammered project developers in the United States, leading them to cancel a quarter of the nation’s offshore wind farms under contract. Even with recent successes like South Fork Wind, the setbacks threaten to dramatically delay the nation’s ambitions to put tens of gigawatts’ worth of renewables in the water this decade.
Passengers flock to take selfies with the South Fork Wind project's first completed turbine. (Maria Gallucci/Canary Media)
“If I had to sum it up in one word, I’d say this year has been ‘tumultuous,’” Chelsea Jean-Michel, a wind analyst at the clean-energy research firm BloombergNEF, said later by phone.
Only a few weeks before the boat tour, Ørsted announced that it was ceasing development on its Ocean Wind 1 and 2 projects in New Jersey, a move that will force the developer to write off as much as $5.6 billion. Ørsted said high inflation and rising interest rates contributed to its decision, as did supply-chain constraints. In particular, delays on a turbine-installation vessel under construction in Brownsville, Texas “considerably impacted” project timing.
“The world has in many ways, from a macroeconomic and industry point of view, turned upside down,” Mads Nipper, Ørsted’s CEO, said on an October 31 call with reporters.
Missed expectations, but exponential potential
The turmoil roiling U.S. offshore wind arrived just as the nascent industry seemed to be gaining momentum.
Globally, the United States accounted for less than 0.1 percent of the 64.3 gigawatts of total offshore wind capacity at the end of last year. Domestically, offshore wind represents a similarly imperceptible percentage of overall U.S. wind power capacity, which totaled 146 GW in early 2023.
But America has amassed a hefty pipeline of offshore wind projects as coastal states look to develop renewable energy to meet their climate goals. Before the recent cancellations, nearly 53 GW were in the queue, though most of those projects are still in the earliest stages of planning and development.
To be sure, all kinds of clean energy technologies — including solar power, onshore wind and residential heat pumps — have suffered the effects of rising costs. But offshore wind has felt the pain acutely, in part because it requires so much money and time to build massive turbines many miles from shore. The lack of a domestic supply chain for turbine components, subsea cables and vessels further exacerbates cost and timing issues. So, too, does the complex challenge of installing high-voltage transmission lines that run beneath the seafloor and beaches to reach onshore grids.
Another key hurdle for U.S. offshore wind developers involves their offtake agreements.
Companies sign long-term contracts with utilities or public agencies early in the planning process that specify the rate that customers will pay for the electricity and how much of the supply they’ll use. The problem is that existing contracts don’t offer wiggle room to account for soaring project costs or external delays — something that developers of European projects do have.
“These offtake agreements were signed a few years ago, and now the reality looks very different,” Jean-Michel said.
This year, developers have canceled contracts to sell 5.5 GW of offshore wind power from projects in New Jersey, Connecticut and Massachusetts. Companies are also seeking to renegotiate agreements from an additional 6.5 GW worth of projects. The combined 12 GW represents around half of the current U.S. offshore wind pipeline under contract, according to BNEF.
As a result, analysts have sharply reduced their outlooks for the U.S. offshore wind sector, with BNEF now anticipating that 14.5 GW of capacity will be built by 2030. That’s far short of the Biden administration’s goal of installing 30 GW of offshore wind by the same year.
Still, Jean-Michel noted that even the lowered expectations represent “significant growth” for the nascent industry, which will likely keep building giant projects later into the next decade.
“The ramp-up is going to be slower, but it’s going to be a ramp-up nonetheless,” she said.
States work to keep industry afloat
Nearly a dozen states are banking on the acceleration of offshore wind to help decarbonize their grids — from Oregon and California, into the Gulf of Mexico and up through Maine.
New York in particular is moving aggressively to build up the nascent sector, both to achieve the state’s plan for a fully “zero-emissions” grid by 2040 and to keep the electric grid from straining beneath a surge of future electricity demand. Officials are aiming to build 9 GW of offshore wind capacity by 2035 — the most ambitious near-term goal in the country, and enough to meet about 30 percent of the state’s total electricity needs.
“We are looking at a massive buildout of our grid, and we need extraordinary amounts of renewable energy,” Doreen Harris, president and CEO of the New York State Energy Research and Development Authority, said in mid-November.
Harris was speaking at a clean-energy summit held in lower Manhattan, where the battered offshore wind industry was very much on everyone’s mind — and not just because one project developer was handing out novelty socks with the company’s logo. The New York Public Service Commission had recently denied requests from four offshore wind and 26 land-based renewables projects to make inflation-related adjustments to their contracts with the state.
Ørsted and Eversource were among the unsuccessful petitioners. The joint-venture partners had sought a 27 percent increase in future power prices for their 924 MW Sunrise Wind project, which is also planned near Long Island. Other offshore wind partners, Equinor and BP, sought a 54 percent hike for their projects Empire Wind 1 and 2 and Beacon Wind.
The commission said that awarding higher payments would cost ratepayers billions of dollars and undermine the competitive bidding process. Instead, New York has decided to offer companies a chance to rebid offshore wind projects through an expedited solicitation process, which is set to wrap in February. The step could allow developers to replace existing contracts with new ones without incurring major penalties.
Harris said the process is part of New York’s larger effort to “keep the industry moving forward” during a particularly challenging year. “We stay the course, and we realize this transition together,” she told the audience.
Ørsted is considering rebidding its Sunrise Wind project through the new solicitation process, Jennifer Garvey tells me as we zip across the water in the high-speed ferry.
“It’s basically shovel-ready, and some parts of it are already being built,” she says of the project. “But the company’s been clear that Sunrise Wind’s financial viability is quite challenged under its current [contract].” If the developers can strike a better deal, she adds, “There will be an awful lot of work happening in 2024.”
As New York looks to throw a lifeline to its existing projects, the state is also investing in new ones. In October, Governor Kathy Hochul (D) announced conditional awards for three additional offshore wind farms totaling over 4 GW of clean energy capacity — along with awards for 22 land-based solar, wind and hydropower projects.
Crucially, the new offshore wind awards include inflation-adjustment mechanisms, putting future projects in a potentially better position to navigate financial headwinds, analysts say. Connecticut, Massachusetts, New Jersey and Rhode Island have all committed to including similar mechanisms to reflect changes in inflation, interest rates and supply-chain costs when they award more offshore wind contracts next year.
“This mark of confidence that states are now providing for the industry — it can’t be overstated how important that is,” Theodore Paradise, an attorney specializing in offshore wind at the law firm K&L Gates, said of the recent measures.
“We’ve gone through a tempering of the industry, and we’ve lost some of that ‘day one’ enthusiasm,” he said, reflecting on the last year. “But after a heavy sigh and disappointment over some projects, I think there’s been a return to reason of, OK, these are the economic terms. We know how to address this.”
Later on the boat, after many hours at sea, some passengers crack open beers while others swallow more Dramamine and stare intently at the horizon. We pass Block Island again on our return, this time from a distance. The five towering turbines now appear like tiny sticks against the early December sunset. If the offshore wind industry is able to push through the growing pains it faced this year, sights like these might become more and more common along the nation’s coastlines.
Maria Gallucci is a senior reporter at Canary Media. She covers emerging clean energy technologies and efforts to electrify transportation and decarbonize heavy industry.
