Offshore Wind Industry Faces Contract Challenges in New York, but U.S. Projects Gain Momentum

In a mixed landscape for the U.S. wind industry, some developers may need to reconsider power sales contracts in New York following the state's recent decision not to shift more costs to consumers. Nevertheless, several major offshore wind projects in Massachusetts, Rhode Island, and beyond are poised to kick off later this year.

Offshore has become a linchpin in the strategies of multiple U.S. states and the Biden administration, aiming to transition away from fossil fuels, foster job growth, and combat carbon dioxide emissions.

However, New York recently dealt a significant blow to the industry by rejecting requests from wind developers, including units of giants Orsted, , and BP, to increase consumer costs under existing contracts. These adjustments were sought to cover surging labor and equipment expenses due to inflation and higher financing costs stemming from interest rate hikes.

While the affected companies, overseeing projects like Orsted's 924-megawatt Sunrise Wind and Equinor/BP's Empire Wind ventures, continue to assess the implications of New York's decision, they confront contract disputes that pose near-term challenges for both projects and state renewable energy goals. As Timothy Fox, VP at research firm ClearView Energy Partners, points out, “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.”

As the offshore wind industry adjusts to these changes, future project bids are expected to account for the rising costs. Eli Rubin, senior energy analyst at energy consulting firm EBW Analytics Group, suggests that “states will likely have to either approve sharply higher consumer rates or find another pathway toward a low-carbon future.”

Despite the hurdles in New York, other U.S. offshore wind projects continue to make headway. Some of these initiatives began construction before the U.S. Federal Reserve initiated interest rate hikes to combat inflation over a year ago.

Projects such as U.S. energy company Avangrid's 806-MW Vineyard Wind 1 in Massachusetts and Danish energy firm Orsted's 130-MW South Fork off Rhode Island and Massachusetts remain on course to produce power by late 2023. Orsted, a global leader in offshore wind, has also commenced onshore construction for its 704-MW Revolution Wind project in Rhode Island and Massachusetts, as well as the 1,100-MW Ocean Wind 1 off New Jersey. These projects are slated to deliver their inaugural power output in 2025.

In Virginia, U.S. energy company reports that its $10 billion Coastal Virginia Offshore Wind project, boasting a substantial 2,587-MW capacity, remains on budget and is scheduled to begin offshore construction in May 2024. The first power generation is anticipated in the second half of 2025, with completion expected by late 2026. This progress underscores the industry's resilience and determination to continue driving the transition to renewable energy sources, even in the face of certain challenges.

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