Developers in the U.S. offshore wind industry will likely cancel some power sales contracts in New York after the state last week denied passing on more of the costs to consumers, but major projects off Massachusetts and Rhode Island are set to start up later this year.
Several states and U.S. President Joe Biden's administration consider offshore wind to be a key part of their plans to transition away from fossil fuels for energy, create jobs and reduce carbon dioxide emissions.
Last week, New York utility regulators dealt the industry a severe blow by denying requests to increase the amount of money New Yorkers would have to pay under existing contracts for power to be produced at four offshore wind projects under development.
The wind developers, including units of European energy companies Orsted, Equinor and BP, requested those increases to cover rising labor and equipment costs due to soaring inflation and higher financing costs from interest rate hikes.
The companies said they are reviewing the New York decision before taking next steps on their projects, including Orsted's 924-megawatt (MW) Sunrise Wind, and Equinor/BP's 816-MW Empire Wind 1, 1,260-MW Empire Wind 2 and 1,230-MW Beacon Wind.
"Contract disputes are near-term risks for some projects and state renewable energy goals," Timothy Fox, VP at research firm ClearView Energy Partners, told Reuters. "In the long run, however, we still think offshore wind will be a major producer of power ... it's just on a longer and flatter trajectory than first envisioned by the states and the Biden administration."
Future offshore wind bids are expected to incorporate climbing costs for projects, said Eli Rubin, senior energy analyst at energy consulting firm EBW Analytics Group.
"States will likely have to either approve sharply higher consumer rates or find another pathway toward a low-carbon future," Rubin said.
Projects moving forward
Despite the troubles in New York, other U.S. projects were still moving ahead, some of which started construction before the U.S. Federal Reserve started raising interest rates to fight inflation over a year ago.
U.S. energy company Avangrid's 806-MW Vineyard Wind 1 off Massachusetts and Danish energy firm Orsted's 130-MW South Fork off Rhode Island and Massachusetts were on track to produce first power in late 2023.
Orsted, the world's biggest offshore wind company, said it has also started onshore construction at its 704-MW Revolution Wind off Rhode Island and Massachusetts and the 1,100-MW Ocean Wind 1 off New Jersey. Both projects are expected to produce their first power in 2025.
In Virginia, U.S. energy company Dominion Energy said its roughly $10 billion, 2,587-MW Coastal Virginia Offshore Wind project remained on budget and on track to start offshore construction in May 2024 with first power expected in the second half of 2025 and completion in late 2026.
(Reuters - Reporting by Scott DiSavino and Nichola Groom. Editing by Jane Merriman)