If the first week of 2024 is any indication, this will be an eventful year for the fledgling U.S. offshore wind energy industry.
In a major milestone on Tuesday, a large-scale project called Vineyard Wind delivered its first electricity to New England's grid system. On Wednesday, however, the companies behind another major wind project planned for New York's waters, Empire Wind 2, announced they were terminating their contract, citing rising construction costs.
The back-to-back developments demonstrate both the great potential and growing pains for wind power along the East Coast. Empire Wind's demise is a "near-term setback," according to renewable energy analyst Timothy Fox, managing director for ClearView Energy Partners in Washington, D.C. But Fox said the Vineyard Wind success is more indicative of the longer trend.
"We see considerable growth opportunity for U.S. offshore wind—it's just going to be on a longer and flatter trajectory than first envisioned," Fox told Newsweek.
The stakes are high for how we will power some of the country's most populous places while cutting the greenhouse gas emissions contributing to climate change. Offshore wind is especially important for the Northeast U.S., where electricity demand is high, the wind is strong over the ocean and space is limited for wind farms on land.
This year is shaping up as an inflection point as the industry adjusts to new economic realities of inflation and high interest rates and looks ahead to an uncertain political landscape.
A Step Forward
Vineyard Wind—named for the nearby island of Martha's Vineyard off the southern coast of Cape Cod—is not the nation's first commercial offshore wind project. That honor went to a small project near Block Island in Rhode Island, which has five turbines that started spinning in 2016. Another project in Virginia's waters followed, for a combined total of 42 megawatts of electricity capacity in U.S. waters, according to the Department of Energy.
What's different about Vineyard Wind is size. Officials at the project's lead developer, Avangrid, said the project will have 62 wind turbines when it is completed, generating 806 megawatts, enough to power an average of 400,000 homes in Massachusetts. The first turbine in place started delivering power this week while the rest are under construction.
"We've arrived at a watershed moment for climate action in the U.S., and a dawn for the American offshore wind industry," Avangrid CEO Pedro Azagra Blázquez said in a statement Tuesday.
As with many of the U.S. projects, Vineyard Wind is being built by companies based in Europe, where the offshore wind industry is better established. Avangrid is controlled by the Spanish energy company Iberdrola and has partnered with the Danish company Copenhagen Infrastructure Partners on the project.
Vineyard Wind has strong support in Massachusetts.
"This is clean, affordable energy made possible by the many advocates, public servants, union workers, and business leaders who worked for decades to accomplish this achievement," Massachusetts Governor Maura Healey said in a statement announcing the first delivery of power.
Fox said state support is an important indicator for the industry. He said eight states have offshore wind mandates and another five have ambitious goals for offshore wind as part of their clean energy and climate policies.
A DOE report on offshore wind energy in the pipeline over the coming two decades identified more than 52,000 megawatts of projects in various stages of permitting or planning through 2050—more than half of those are in waters off Massachusetts, New Jersey and New York.
Fox said Vineyard Wind benefited from good timing, winning approval and getting underway before interest rates jumped.
"They secured a contract, and they secured the supply chain they need to build the project before these macroeconomic factors took effect," he said.
Empire Wind 2, however, was not so lucky.
One Step Back
BP and the Norwegian energy company Equinor announced Wednesday they had pulled out of a contract to sell power from the planned Empire Wind 2 project to New York state. The companies planned to build a massive 1,200-megawatt project, with nearly 150 turbines, in water south of Long Island.
However, the companies said the price New York offered for its carbon-free power would not be enough to make the project economically viable, and New York officials declined company requests to renegotiate.
It wasn't immediately clear what the termination of the power purchase contract will ultimately mean for the project.
"The Empire Wind 2 decision provides an opportunity to reset and develop a stronger and more robust project going forward," Equinor Renewables Americas President Molly Morris said in a statement.
The Empire Wind announcement follows another high-profile collapse of offshore wind power deals in New Jersey, where Danish developer Orsted halted two projects in October, also citing cost concerns.
Fox said his company has assessed the planned projects that have contracts to sell power and found that a little more than half are still on track and about 30 percent have been canceled. Of the remaining projects, he said, about 13 percent are at risk.
"We've basically got a number of these projects that are at the level of being underwater," Eamon Nolan told Newsweek. Nolan is a partner at the law firm Vinson & Elkins, where he specializes in energy and infrastructure.
Getting turbines in the water is good, but having a project's finances underwater is clearly not. Nolan said he's seen the term "crisis" used to describe the industry's status, but he disagrees.
"I think 'crisis' is probably too strong of a word," he said. "I think really the reckoning that we're dealing with here is just fundamental project economics."
2024 Outlook
Fox and Nolan both said they expect cost concerns to continue to batter the offshore wind industry in 2024, but they also see some positive signs.
As inflation levels off, many financial analysts expect the Federal Reserve to begin to dial down the interest rates the Fed had raised in order to cool an overheated economy. Lower interest rates and slower inflation would assist the financing and lower supply costs for wind projects.
Longer term, Nolan said he expects project costs to come down as the emerging industry achieves more economies of scale and grows its supply chains and support systems.
Fox said there is one date on the 2024 calendar that looms especially large for the industry: November 5, Election Day.
As important as state government policy is, the federal government makes some of the biggest decisions on permitting offshore wind, and there is a stark contrast between the leading Democratic and Republican candidates.
Joe Biden's administration included substantial support for offshore wind in the Inflation Reduction Act and Bipartisan Infrastructure Act, including partnerships with states to improve the transmission lines connecting offshore wind and funding for technological innovation.
Donald Trump has been critical of wind power as both president and a candidate.
"These macroeconomic factors are significant," Fox said by way of summing up his outlook for 2024, "but the offshore wind industry may view a second Trump administration as a more significant long-term risk."
About the writer
To read how Newsweek uses AI as a newsroom tool, Click here.
