Factbox: US offshore wind projects facing inflation headwinds

Public Service Enterprise

11/09/2023 21:55

Sept 11 (Reuters) - The U.S. has no large-scale
commercial wind farms in operation today, but President Joe
Biden's administration aims to have 30 gigawatt (GW) installed
by 2030 to help decarbonize the power sector and revitalize
domestic manufacturing.
    The federal government has already approved several
large-scale projects so far, with the first two - Vineyard Wind
1 and South Fork - expected to deliver first power by the end of
this year, and about a few dozen projects are in different
stages of development. 
    Some 27 power offtake contracts totaling more than 17 GW had
been signed by the end of May, according to a U.S. Department of
Energy report published on Aug. 24. 
    However, inflation, supply bottlenecks and higher financing
costs have eroded profitability of many projects, forcing some
to cancel the offtake agreements, while others are still seeking
to renegotiate the terms, the report said.
    Some developers told Reuters they were also pressing
officials to ease requirements for subsidies under the year-old
Inflation Reduction Act.
    While wind power costs had fallen by about 50% since 2014, a
recent industry survey showed costs rose by 11%-20% over 2022,
and in some cases by 30%, the report said.
    Levelized cost of energy (LCOE), which compare the total
lifetime cost of building and running a plant to lifetime
output, stood at between $72 and $140 per megawatt hour (MWh) in
the U.S., an analysis by investment bank Lazard showed in April.
    That compared with $24 to $96 for utility-scale solar, $24
for onshore wind and $39 to $101 for combined cycle gas.  
    To compare, in 2022, wholesale electricity prices averaged
about $92 in New England  EL-PK-NPMS-SNL , $90 in New York and
$83 in the PJM West Hub  EL-PK-PJMW-SNL , which runs from
western Pennsylvania to Washington, D.C., according to U.S.
Energy Information Administration (EIA) data.
    One megawatt (MW) can power about 1,000 U.S. homes but since
wind is an intermittent resource - 1 MW of offshore wind can
power about 500 U.S. homes, according to offshore wind
developers.
    The following is a list of major U.S. offshore wind
projects:
    
    VINEYARD WIND 1
    The 800-MW project off the coast of Martha's Vineyard plans
to start operations by the end of this year. When fully
operational in 2024, it is expected to supply enough clean
energy for 400,000 homes in New England. The project is owned by
Avangrid  AGR.N , a part of Spanish Iberdrola  IBE.MC , and
Danish green energy investor Copenhagen Infrastructure Partners
(CIP).
        
    SOUTH FORK
    Denmark's Orsted  ORSTED.CO , the world's largest offshore
wind power developer, is building the 132-MW project off Rhode
Island and Massachusetts. It also aims to become operational by
the end of this year, reaching full capacity to power 70,000
homes in 2024.
                
        OCEAN WIND 1&2
    In January, Orsted became the sole owner of the project off
southern New Jersey by acquiring the remaining stake from Public
Service Enterprise Group  PEG.N .
    In June, the state's legislators agreed to let Orsted to
keep any federal tax credit benefits the project gets instead of
passing the benefits to customers.
    Orsted said on Aug. 29 it planned to take the final
investment decision (FID) on the project's first stage towards
the end of 2023 or in early 2024. 
    Pending FID, it now expects to commission Ocean Wind 1 in
2026. The project's second stage, the 1,148-MW Ocean Wind 2, is
expected to start commercial operations in 2029.
                
    REVOLUTION WIND
    The 704-MW project owned by Orsted and New England utility
Eversource Energy  ES.N  is expected to deliver 400 MW power to
Rhode Island and 304 MW to Connecticut from 2025-2026. 
    Orsted said on Aug. 29 it planned to take the FID on the
project's first stage towards the end of 2023 or in early 2024. 
    In March, Orsted and Eversource proposed to build a second
stage, 884-MW Revolution Wind 2, in Rhode Island's latest wind
solicitation. 
    The state's utility Rhode Island Energy, however, decided
against signing a power purchase contract with the project,
citing too high costs for consumers.
    
    COASTAL VIRGINIA OFFSHORE WIND (CVOW)
    The 2,600-MW project owned by U.S. utility Dominion Energy
 D.N  is scheduled to start construction off the coast of
Virginia Beach in 2024, pending the federal approval, and to be
completed in late 2026. Dominion built the first phase of the
project - a two-turbine, 12-MW pilot in 2020.
    SUNRISE WIND
    The project's first stage, the 924-MW Sunrise Wind 1, was
expected to start operations in 2025-2026, but its owner Orsted
warned in June that it would not be able to make the final
investment decision unless the price agreed in 2019 is adjusted
for inflation.
    The New York's energy agency NYSERDA said meeting Orsted's
request would mean increasing the strike price by 27%, and the
New York states regulator has yet to rule on the request.
    Orsted said on Aug. 29 it planned to take the final
investment decision (FID) on the project towards the end of 2023
or in early 2024.
        
    EMPIRE WIND 1&2
    Two projects owned by Norway's Equinor  EQNR.OL  and British
oil major BP  BP.L  south of Long Island are also seeking to
renegotiate the previously agreed strike price to adjust it for
inflation and other cost increases.
    The owners said the adjustments were needed to maintain the
current project schedule with the 816-MW Empire Wind 1 and
1,260-MW Empire Wind 2 aiming to start operations in 2027-2028. 
    NYSERDA estimated that the request would translate to strike
prices increasing for the two projects by 35% and 66% to $159.64
per MWh and $177.84, respectively.
                
    BEACON WIND 1
        Equinor and BP are also seeking to renegotiate the
previously agreed agreement for supplying power from their
1,230-MW Beacon Wind 1 project in east of Montauk Point. 
    NYSERDA estimated that the request would result in the
strike price increasing by 62% to $190.82.
    Beacon Wind 1 is expected to start operations in 2028-2029,
delivering enough power to about 600,000 homes. A second part of
the Beacon Wind lease area, Beacon Wind 2, is similar in size to
Beacon Wind 1 and will be developed in the future.
    SOUTHCOAST WIND
        The project off Massachusetts, previously known as
Mayflower Wind, is owned by oil major Shell  SHELL.L  and Ocean
Winds, a joint venture of French ENGIE  ENGIE.PA  and a
renewable arm of Portuguese energy group EDP  EDP.LS .
    The project, which was previously scheduled to deliver first
power in 2027, is facing potential delays as the owners have
canceled the previously signed power purchase agreements blaming
supply chain bottlenecks and rising financing costs.
    They paid local utilities about $60 million to get out of
contracts, but said they planned to re-bid in the state's next
offshore wind solicitation. 
        
    COMMONWEALTH WIND
    The 1,232-MW project off Massachusetts, which was formerly a
part of the larger New England Wind project, is also facing
potential delays. Its owner Avangrid  AGR.N , a part of Spanish
energy company Iberdrola  IBE.MC , has agreed to pay about $48
million to local utilities to get out of its previously signed
agreement. Avangrid, however, also said it planned to re-bid in
the next offshore win solicitation to continue the project.
   
    PARK CITY WIND
    Avangrid owns the 800-MW project off the coast of
Massachusetts, which was formerly a part of the larger New
England Wind project. 
    In July, Avangrid said it was working to address the
economic viability of the previously signed power purchase
agreement with regulators and electric distribution companies.  
    The project plans to start operations in 2025-2027.
         
    ATLANTIC SHORES OFFSHORE WIND SOUTH
    The joint venture between Shell and French EDF  EDF.PA  is
developing a large offshore wind park off New Jersey. 
    They plan to begin constructing its first 1,510-MW capacity
stage in 2024 with the aim to deliver first power in 2027.  
    In July, Atlantic Shores said it was in touch with state
officials about additional support for the project, following
the state's decision to grant tax relief for Orsted's Ocean Wind
1 project.
       
    MARWIN    
    Maryland's first offshore wind project is expected to start
operations in 2025-2026. The 270-MW project is owned by US Wind,
a subsidiary of Italy's Renexia SpA. 
    
    MOMENTUM WIND
    The 808-MW project also owned by US Wind off Maryland is
also expected to start operations in 2026-2028, producing enough
clean energy to power more than 250,000 homes. 
       
    SKIPJACK 1&2
    The project off Maryland is owned by Orsted and consists of
two parts. The 120-MW Skipjack 1 project is expected to start
delivering power in 2026-2027, and the 846-MW Skipjack 2 project
one year later.

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U.S. offshore wind costs    https://tmsnrt.rs/45JyuMN
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 (Reporting by Nerijus Adomaitis, Nichola Groom and Scott
DiSavino
Editing by Marguerita Choy)
 ((nerijus.adomaitis@thomsonreuters.com; +47 9027 6699; Reuters
Messaging: nerijus.adomaitis.thomsonreuters@reuters.net))