The recent revelation of a potential $2.3 billion impairment by Orsted A/S on its US projects adds to a series of stumbling blocks for the fledgling US offshore wind sector, which is grappling with the task of meeting the ambitious targets set by President Joe Biden.
A trifecta of supply chain disruptions, elevated interest rates, and a stalled pursuit of federal tax credits is casting shadows on three slated projects off the eastern coast of the United States. Orsted, a Danish energy company, delivered this sobering assessment on Tuesday, leading to a precipitous 25% drop in its shares – a record plunge following its impairment alert.
The challenges facing Orsted are shared by other industry players. Avangrid Inc. and Shell New Energies, among others, are encountering delays due to cost escalations that have rendered certain initiatives economically unfeasible. This setback reverberates through Northeastern states that are banking on clean energy and aligns with President Biden’s commitment to install 30 gigawatts of offshore wind capacity by the decade’s end.
Benjamin Salisbury, the Director of Research at Height Capital Markets, commented, “The massive attention for offshore wind, including ambitious state and federal goals, are running into the hard realities of energy infrastructure. I think there’s a tendency for developers to think of themselves as the ‘good guys’ and be surprised when there are hurdles.”
Furthermore, a recent wind lease auction in the Gulf of Mexico underscored the challenges. Only two companies participated, raising concerns for advocates of renewable energy development in the region. Ultimately, the government managed to sell just one tract, fetching $5.6 million.
Energy companies appear to be recalibrating their bidding strategies after years of paying premium prices for prime real estate near major northeastern cities. Last year, the US government raked in an unprecedented $4.4 billion through an auction for offshore wind leases adjacent to New York and New Jersey.
Currently, the US boasts just two ongoing offshore projects, both situated south of Martha’s Vineyard in Massachusetts. These projects were able to secure supply agreements prior to the surge in inflation that has inflated costs.
