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It’s Been A Brutal Year For Offshore Wind — Despite Analysts’ Predictions

Some analysts predicted that the U.S. offshore wind industry would bounce back after a rough 2023, but many of the same problems that plagued the industry last year have continued to burden developers through the beginning of 2024.

Energy data analytics provider Wood Mackenzie, consultants from Deloitte, Reuters and environmental lawyers for a law firm called Locke Lord variously projected that the U.S. offshore wind sector would rebound after a distressing 2023. However, four months in to 2024, the inflation, higher borrowing costs, logistical problems and supply chain woes that battered the industry in 2023 have not relented, forcing developers to cancel or seek to renegotiate deals as they did in 2023.

“Obviously, providing affordable and reliable energy for everyone is a challenging endeavor,” Kevin Dayaratna, a senior research fellow for the Heritage Foundation, told the Daily Caller News Foundation. “Even despite all of the subsidies these alternative forms of energy – such as offshore wind – have received, they have still failed to become a significantly mainstream source of energy.”

Since the start of 2023, approximately 60% of all contracts signed by American offshore wind developers have been cancelled, according to E&E News. Ørsted, a Danish company and one of the world’s leading offshore wind developers, backed out of two major planned projects in New Jersey in 2023, while other players like General Electric, British Petroleum (BP) and Equinor attempted to renegotiate with state governments as economic headwinds eroded projects’ profitability.

Similar developments have played out to start 2024, with developers up and down the east coast backing out of deals to sell power from their projects as the same fundamental economic problems persist despite the projections of some market experts and media outlets.

“Vessel owners and operators are actively contracting with original equipment manufacturers and project developers to reserve vessels for project construction in 2024 and beyond,” Locke Lord attorneys M. Benjamin Cowan and Emily Huggins Jones wrote on January 3. “Thus, despite significant headwinds in 2023, with improving economics, more flexible procurement procedures, continued federal support, and increasing legislative support, the U.S. offshore market appears to have weathered the worst of the storm and is poised for growth in the coming year.”

On the same day that the two attorneys published their market analysis, Equinor and BP backed out of a contract with New York state to provide power generated by their planned Empire Wind 2 offshore wind farm due to inflationary pressures. Subsequently, three other New York offshore wind projects were cancelled on April 19.

“The offshore wind sector, which faced setbacks in 2023, is expected to rebound in 2024 with tangible opportunities and a record number of tenders,” Wood Mackenzie wrote on January 25. “In summary, 2024 holds the promise of a global wind energy resurgence, with key areas of focus including market recovery, reliability, profitability for [original equipment manufacturers] and the offshore wind sector’s evolving dynamics.”

The day after Wood Mackenzie published those words, Ørsted announced that it had backed out of Maryland’s orders approving its Skipjack 1 and 2 projects off the state’s coast. The company said at the time that inflation, high refinancing costs and supply chain issues combined to render the state’s subsidies economically unviable, but that it would not give up on the projects altogether.

Several senior employees of Deloitte, one of the country’s top consulting firms, also projected confidence that the offshore wind industry would be able to turn things around in 2024.

“Offshore wind investments dropped in 2023 amid challenges with costs and permitting, but the tide is expected to turn in 2024 as construction and operations get underway at several key projects,” reads a February 9 piece by Deloitte consultants Marlene Motyka, Jim Thomson, Kate Hardin and Carolyn Amon published in The Wall Street Journal’s “sustainable business” section. “Transmission is a factor in many constraints on renewable deployments, although [Infrastructure Investment and Jobs Act] and [Inflation Reduction Act] programs and grants could start tackling transmission issues in 2024.”

Reuters, a global news outlet, echoed some of this optimism in its own projection that the American offshore wind industry would rally after 2023’s turbulence.

“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,” reads a Reuters piece published in December 2023 under the headline “U.S. offshore wind poised for success next year after turbulent 2023.”

The industry’s problems are also complicating President Joe Biden’s climate agenda. The Biden administration has set a goal of having offshore wind providing enough electricity to power 10 million American homes by 2030, but Reuters reported in November 2023 that the target is almost certainly out of reach due to the industry’s struggles.

The industry has struggled despite the availability of robust federal subsidies, including tax credits contained in the Inflation Reduction Act, Biden’s signature climate bill. Despite the industry’s missteps, the administration is pushing ahead with its offshore wind agenda, releasing a robust five-year leasing schedule for the industry on Wednesday that could see up to a dozen lease sales through 2028.

“Biden’s offshore wind fetish ignores the realities affecting the industry here and abroad, but that is the hallmark of all his energy and climate schemes,” Dan Kish, a senior research fellow at the Institute for Energy Research, told the DCNF. “Warren Buffett once said the only reason to build wind turbines is the tax credits, and he was talking about onshore wind. Offshore wind is three times as expensive, and it only makes sense with sweetheart electric rates for the builders gifted to them by politicians looking for golden parachute jobs with wind companies after consumers boot them out of office when they start getting their bills.”

Wood Mackenzie, Reuters, Deloitte, Locke Lord and the White House did not respond to requests for comment.

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