Explainer: Why the US offshore wind industry is in the doldrums

Explainer: Why the US offshore wind industry is in the doldrums

Energy giants BP and Norway’s Equinor have recently reported significant impairments on their U.S. offshore wind power portfolios, highlighting the challenges facing the renewable energy industry. Danish company Orsted, the world’s largest offshore wind farm developer, also anticipates impairments due to supply delays, high interest rates, and a lack of new tax credits. These companies are among several trying to build new offshore wind farms in the U.S., but they are facing difficulties that raise questions about the future of these projects. Despite the Biden administration’s goal of deploying 30,000 megawatts of offshore wind by 2030, developers are encountering obstacles.

The U.S. offshore wind industry has developed more slowly than in Europe due to delays in subsidies, rules, and regulations. However, in recent years, government policies have started to align in favor of the industry, leading to the unveiling of numerous project proposals along the U.S. East Coast. Two small projects have already been completed, but the COVID-19 pandemic has disrupted supply chains and increased costs, making new projects more expensive than initially projected. This has caused project financing and development to face challenges, with many contracts likely to be renegotiated and higher prices passed onto power customers.

Financing costs have also increased as the U.S. Federal Reserve raised interest rates to combat inflation. Many contracts for offshore wind projects do not have mechanisms to adjust for higher interest rates or costs. Some developers have chosen to pay to terminate contracts rather than face years of losses or low returns. For example, in Massachusetts, two offshore wind developers agreed to terminate deals that would have delivered significant energy capacity. In New York, Equinor and BP sought to increase the price of power produced at their planned projects but were rejected. Orsted has also expressed concerns about making investment decisions without factoring in inflation.

While the Biden administration has passed the Inflation Reduction Act to incentivize clean energy projects, the offshore wind industry believes that the subsidies provided are insufficient. Developers argue that bonus incentives for using domestic materials and siting projects in disadvantaged communities are difficult to secure but are crucial for making projects financially viable. These credits, worth 10% of a project’s cost, can be claimed on top of the base 30% credit for renewable energy projects, bringing the total subsidy to as much as 50%. Developers and trade groups are urging officials to revise the requirements to prevent job losses and lost investments.

In conclusion, the U.S. offshore wind industry is facing challenges such as impairments, supply delays, high costs, and insufficient subsidies. Despite the Biden administration’s goals, the future of offshore wind projects remains uncertain.

About News Team

Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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