New York ruling deals deal latest blow to US offshore wind industry

By Will Wade (Bloomberg) — Offshore wind developers are reevaluating some New York projects after regulators rejected higher rates by Equinor ASA, Orsted A/S and others that would have added as much as $12 billion in costs.

Developers planning to build more than 4 gigawatts of wind energy off Long Island must adhere to existing contracts to deliver the energy, New York’s Public Service Commission ruled unanimously during a meeting Thursday.

The ruling is the latest blow to a U.S. offshore wind industry already plagued by inflation and supply chain problems. The future of projects like Orsted’s Sunrise Wind is now in question following Thursday’s decision.

“We are reviewing the PSC order, but Sunrise Wind’s viability and thus ability to build faces significant challenges without this amendment,” David Hardy, Orsted’s CEO of the Americas, wrote in an email. “We will evaluate our next steps and report on the status of the project as soon as possible as our joint venture and board consider the best options moving forward.”

Challenges facing the US offshore wind industry

Shares of some of the largest offshore wind energy companies fell during the meeting. Orsted shares fell 3.3% in Copenhagen as commissioners began to share their views. Eversource Energy, the company involved in developing the Sunrise project, fell 7.5%.

Eversource took an after-tax impairment charge of $331 million in the second quarter for its offshore wind operations. Even wind developers with no plans to build facilities in New York saw their stocks take a hit.

Avangrid Inc., which agreed to pay $64 million to exit offshore wind deals in other states but did not participate in New York’s rate call, fell 3.5%.

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New York’s decision is a blow to developers who said they may not be able to complete projects under current contract terms. Many of these projects were designed years ago, before interest rates and material costs rose. While the move could threaten the state’s clean energy goals, the commission said reviewing the contracts would set a dangerous precedent and undermine its competitive energy procurement process.

Ørsted is ready to abandon US wind energy projects amid challenges

“To the developers: We have a deal,” Rory Christian, the commission’s chairman, said during the meeting. “Developers must abide by the terms of their contracts.”

Commission staff estimated that the requested amendments would burden consumers with up to $12 billion in additional costs. The committee said companies could exit deals and bid again on future purchases.

Equinor, along with BP Plc, plans to develop the offshore Empire and Beacon projects, with a total combined capacity of 3.3 gigawatts that together could power about 2 million homes in New York. The companies told the state in June that “adverse economic impacts have imposed unprecedented and escalating cost increases on projects.” To remain viable, they asked the state to approve a 54% price increase.

“Equinor and BP are disappointed by the New York Public Service Commission’s denial of Empire Wind and Beacon Wind’s request for support to help navigate the unexpected challenges facing our industry today caused by inflation, supply chain disruptions and rising interest rates,” President Molly Morris said. of Equinor Renewables Americas, he wrote in an email. “These projects must be financially sustainable to move forward. Equinor and BP will assess the impact of the state’s decision on these projects.

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Danish wind giant Orsted has several projects underway off the US East Coast, including the 924-megawatt Sunrise project east of Long Island, enough to provide power to about 600,000 customers. Orsted CEO Mads Nipper said the company is prepared to withdraw from development projects in the United States if it does not receive more government aid. Ørsted’s request to New York State was for a 27% increase.

Commission staff concluded that the higher prices sought by developers would increase electricity rates for commercial and industrial customers by up to 10.5% and consumer rates by up to 6.7%.

“The level of relief needed here is staggering,” Commissioner Diane Burman said during the meeting.

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