Two major New York offshore wind projects are back on track

Two major offshore wind farms slated for New York’s waters are back on track after a brutal 2023 threatened to derail the projects — and the emerging industry’s prospects in the U.S.

On Thursday, New York Gov. Kathy Hochul (D) said the state had selected the 924-megawatt Sunrise Wind project and the 810-megawatt Empire Wind 1 project in its fourth competitive auction for offshore wind contracts. Developers of both projects had secured long-term agreements to deliver clean electricity to the state in 2019. But they opted to replace those contracts and rebid their offshore wind projects in order to secure more favorable terms amid dramatically different economic conditions.

“Offshore wind is foundational to our fight against climate change,” Hochul said in a statement. ​“These awards demonstrate our national leadership to advance a zero-emissions electric grid at the best value to New Yorkers.”

New York is aiming to build 9,000 megawatts (9 gigawatts) 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. The plan is key to the state’s goal of achieving a carbon-free grid by 2040. Nationwide, the Biden administration has set a goal of installing 30 GW of offshore wind by the end of this decade.

As of February, the United States has installed over 240 megawatts of offshore wind capacity off the coasts of New York, Massachusetts, Rhode Island and Virginia — up from just 42 megawatts a year ago.

However, the offshore wind targets of New York and the nation were all thrown into jeopardy last year after financial hardships and logistical challenges hammered project developers. Supply-chain constraints driven by the pandemic, plus rising material costs, higher interest rates and permitting delays, all made it more expensive and less profitable to develop massive, complex offshore wind projects.

The developers most affected by the tumultuous conditions were the ones that had already signed offtake agreements with utilities or public agencies, as was the case for Ørsted and Eversource, which are building the Sunrise Wind farm, and Equinor, which is developing Empire Wind 1.

Companies sign these long-term agreements early in the planning process to specify the rate customers will pay for the electricity and how much of the supply they’ll use. The problem is that existing contracts don’t provide much flexibility to account for soaring project costs or external delays. Last year, developers with contracts signed before the pandemic suddenly found it impossible to turn a profit under their existing terms.

In 2023, developers canceled contracts to sell 5.5 GW of offshore wind power from projects in New Jersey, Connecticut and Massachusetts, incurring billions of dollars in penalties.

Meanwhile, companies in New York initially sought to renegotiate agreements for projects in the pipeline. Ørsted and Eversource petitioned the state’s Public Service Commission for a 27 percent increase in future power prices for their Sunrise Wind project. Equinor and BP sought a 54 percent hike on average for their projects Empire Wind 1 and 2 and Beacon Wind. (The partners have since split, with Equinor owning all of the Empire Wind projects and BP taking the Beacon Wind development.)

The state commission denied developers’ requests for more money, saying that awarding higher payments would cost ratepayers billions of dollars and undermine the competitive bidding process. So in January, the New York State Energy Research and Development Authority (NYSERDA) launched a fourth and expedited auction to give companies a chance to rebid their projects — and, crucially, to replace existing contracts with new ones without penalty.

The awards announced on Thursday are the result of that process. They’re also still conditional and under negotiation between NYSERDA and developers.

State officials said that, for the two winning projects, the weighted average all-in development cost is $150.15 per megawatt-hour over the life of the contracts. That’s significantly higher than the projects’ all-in development cost of $83.36 per MWh announced in October 2019, when NYSERDA finalized the first contracts for Empire Wind and Sunrise Wind.

The average bill impact for residential customers is now expected to be about $2.09 per month, up from 73 cents per month under the original agreements.

“This is a promising new beginning for Empire Wind, and we’re ready to get started,” Molly Morris, president of Equinor Renewables America, said on Thursday in a statement. The company expects to begin delivering electricity from the project in 2026.

Equinor opted not to rebid its second offshore wind project, the 1,260 MW Empire Wind 2 farm, after canceling its existing contract with NYSERDA in January. Instead, Empire Wind 2 will be ​“matured for future solicitation rounds,” the company announced. Its former partner, BP, did not indicate that it planned to rebid the Beacon Wind offshore wind farms in the latest auction.

Danish energy giant Ørsted announced that, after today’s successful rebid, it will acquire Eversource’s 50 percent ownership share in Sunrise Wind, which is slated to be completed in 2026.

Ørsted is one of only two developers that currently operates a commercial offshore wind farm in the United States. The company owns the 30 MW Block Island wind farm near Rhode Island, and earlier this month, Ørsted said it had installed the final wind turbine at its 132-megawatt South Fork Wind farm near Long Island, which is already sending electricity to the grid. Meanwhile, onshore construction is underway on Ørsted’s 704 MW Revolution Wind farm, which will supply electricity to Connecticut and Rhode Island.

Just last week, the developer Avangrid said it had powered five offshore wind turbines operating near Martha’s Vineyard, Massachusetts. The project is now providing 68 megawatts of renewable energy to the New England grid, out of what will eventually become 806 megawatts when construction is complete.