The U.S. offshore wind industry is eying a brighter 2024, with work expected to start on several projects following a year marked by stalled developments and billions of dollars in write-offs.
The offshore wind industry is expected to play a major role in helping several states and U.S. President Joe Biden meet goals to decarbonize the power grid and combat climate change.
But progress slowed in 2023 after offshore developers canceled contracts to sell power in Massachusetts, Connecticut and New Jersey, and threatened to cancel agreements in other states, as soaring inflation, interest rate hikes and supply chain problems increased project costs.
European energy companies Orsted (ORSTED.CO), Equinor (EQNR.OL) and BP (BP.L) took about a combined $5 billion in writedowns on U.S. offshore wind projects that were in development because existing power sales contracts would not cover the cost of building and financing the projects.
Next year, developers hope to revive projects with canceled or threatened power sales contracts by bidding their facilities in upcoming solicitations in several states, including New York, New Jersey, Massachusetts and Connecticut.
"While auction clearing prices may increase, states appear to remain committed to clean energy goals," said Eli Rubin, senior energy analyst at energy consulting firm EBW Analytics Group.
There were only two small offshore wind projects operating in the U.S. at the start of 2023, one in Rhode Island and another in Virginia, with total capacity of just 41 megawatts (MW). Capacity is set to jump to almost 1,000 MW in 2024 as commercial-scale projects off New York and Massachusetts enter service.
One thousand megawatts of offshore wind can provide power to around 500,000 U.S. homes.
"State procurements and policies will continue to drive demand for offshore wind energy and federal support will enable more job creation, supply chain investment and domestic energy production," said Ryan Ferguson, spokesman at Danish energy company Orsted.
STATE SUPPORT
The state accelerated the solicitation in October after several developers, including Orsted, BP and Equinor, threatened to cancel contracts to sell power that were awarded in 2019 and 2021 before the Federal Reserve started hiking interest rates in March 2022 to fight soaring inflation.
New York's first offshore wind farm, Orsted's 132-MW South Fork provided first power in December.
In New Jersey, Governor Phil Murphy directed state utility regulators in November to launch an accelerated offshore wind solicitation in early 2024 after Orsted, the world's biggest offshore wind company, canceled its two Ocean Wind projects.
Elsewhere in New Jersey, Shell (SHEL.L) and France's EDF continue to develop the 1,510-MW Atlantic Shores wind farm, which should produce power by 2027-2028, according to the project's website.
In Virginia, U.S. energy company Dominion Energy (D.N) 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. First power is expected in the second half of 2025 and completion is set for late 2026.
In Massachusetts, Avangrid (AGR.N) and Copenhagen Infrastructure Partners' 806-MW Vineyard Wind 1 project is on track to produce first power in the near future.
Avangrid, which canceled contracts to sell power from projects off Massachusetts and Connecticut in 2023, said it plans to re-bid its 1,232-MW Commonwealth Wind off Massachusetts and 804-MW Park City off Connecticut in future solicitations.
"What you're going to see in 2024 is a lot of competitive bids that will lead to contracts that will enable projects to go forward," said Ken Kimmell, chief development officer for offshore wind at Avangrid.
Avangrid is majority owned by Spanish energy company Iberdrola (IBE.MC).
Orsted, meanwhile, said it plans to start offshore construction in the spring of 2024 on its roughly $4 billion Revolution Wind project, which will supply 704 MW to consumers in Rhode Island and Connecticut.
