A developer that plans to build Rhode Island’s first grid-scale offshore wind farm announced this week it is abandoning two projects in New Jersey, stoking concerns about the commercial viability of a clean energy source that several states are counting on to reduce their greenhouse gas emissions.
In anticipation of an earnings call with investors on Wednesday, Orsted announced that it plans to walk away from contracts for two wind farms in New Jersey — Ocean Wind 1 and its sister project, Ocean Wind 2 — that promised electricity at prices the company no longer considers profitable. The Denmark-based company, which is the world’s largest offshore wind developer, said inflation, rising interest rates, and the delay of a specialized installation vessel increased the project’s construction costs.
But Orsted is not walking away from its plans to begin construction next year on Revolution Wind, a joint development with Eversource that is slated to be Rhode Island’s largest source of clean electricity.
Components like an offshore power substation and foundations for the project’s turbines have already been manufactured. Revolution Wind is contracted to provide up to 400 megawatts of electricity to Rhode Island and another 304 megawatts to Connecticut, which Orsted estimates is enough to power about 350,000 homes in the two states. That total is more than 23 times the amount of electricity currently generated by Rhode Island’s first-in-the-nation Block Island Wind Farm, which opened in 2016.
“With our final investment decision, we’re solidifying our commitment to building this second offshore wind farm for Rhode Island, and the first offshore wind project for Connecticut,” said David Hardy, Orsted’s CEO for North America.
Still, Orsted reported to investors that Revolution Wind has suffered a major “impairment,” estimating the project is about $467 million less profitable than initially anticipated.
Kris Ohleth, the director of the Special Initiative for Offshore Wind, who previously worked for Orsted, said the company’s projects are victims of the same macroeconomic forces that spurred offshore wind developers to seek higher electricity prices in Massachusetts, Connecticut and New York.
“Really any projects that were bid and procured between 2019 and 2022 are going to have the same issues,” Ohleth said. “They bid in a different market and are now having to deal with the inflationary issues, supply chain competition, and permitting delays.”
Orsted’s plans to scale back its North American portfolio were announced less than a week after the Biden administration approved America’s fifth and largest wind farm to date, Dominion Energy’s Coastal Virginia Offshore Wind Commercial Project. The State of New York also recently accepted bids for new offshore wind farms from a trio of developers.
Ohleth said these are signs that offshore wind developers, including Orsted, are still pursuing viable projects in America, albeit with higher electricity prices.
“New projects coming online that are bidding now are going to be in much better shape because we’ve learned from these challenges and those things are now being factored into the new procurement processes,” Ohleth said.
Contracts for new offshore wind farms in several states now offer developers more flexibility with electricity prices if there are sudden increases in construction costs.
Massachusetts and Rhode Island both have open procurements seeking bids from developers for new offshore wind farms.
Ben Berke is the South Coast Bureau Reporter for The Public’s Radio. He can be reached at bberke@thepublicsradio.org.
