Land-based wind turbines spin in Atlantic City, N.J. on Nov. 3, 2023. On Jan. 24, 2024, New Jersey utilities regulators approved two additional offshore wind farms, bringing the state’s number to three. (AP Photo/Wayne Parry)
The cost to consumers of two offshore wind projects expected to support New York’s self-imposed climate goals has more than doubled from their original estimates, which were high to begin with. Developers had threatened to cancel their offshore wind projects without higher prices, citing inflation, supply chain challenges and rising costs driven by the pandemic, Bidenomics and Russia’s invasion of Ukraine. The agreements, which still need to be finalized, are expected to keep 1,700 megawatts of offshore wind on schedule for 2026.
New York wants to reach 70 percent renewable energy by 2030, but to reach that goal—the highest renewable goal in the nation for 2030, the state will need to dump huge costs on its utility customers. The estimated impact to consumer bills for the two projects will be 2 percent, or about $2 per month for the new 25-year agreements—more than double what was expected in the 2019 agreements.
The 2019 agreements, which were canceled, were projected to increase bills between 0.49 percent and 0.9 percent or 73 cents per month. Despite having pre-existing contracts with the state, both projects were able to bid into a November 2023 solicitation under New York state rules that allow bids from wind projects that need new contractual terms to remain financially viable. New York state government officials are walking away from protection of consumers in order to claim they are “leaders” in climate policies.
The two NY projects are the 810-megawatt Empire Wind 1 developed by Norwegian company Equinor and the 924-megawatt Sunrise Wind, slightly larger than the original 880 megawatts expected, developed by Orsted and Eversource.
Empire Wind, located about 15 miles south of Long Island has received final federal approval, and Sunrise Wind, located more than 30 miles east of the eastern point of Long Island, expects final approval later this year. The projects are both expected to begin providing power by late 2026.
The average development cost of the projects over 25 years is about $150 per megawatt-hour, the “strike price” for offshore renewable energy credits, for energy that is intermittent and weather driven with capacity factors less than 50 percent. In contrast, geothermal energy producers are using hydraulic fracturing to ultimately get costs down to $100 per megawatt hour for renewable energy that performs 24/7 and is reliable and carbon dioxide free.
The new offshore wind contracts are expected to include new economic benefit commitments beyond those agreed to by the developers in their 2019 contracts: $188 million in purchases of U.S. iron and steel; $32 million for disadvantaged communities; $16.5 million for wildlife and fisheries monitoring and a labor peace agreement for operations and maintenance.
The agreements also maintain commitments by Empire Wind to utilize and support the South Brooklyn Marine Terminal as an assembly and staging port for offshore wind construction and for Sunrise Wind to use the Port of Coeymans near Albany for some foundation components. Both developers, Equinor and Orsted, are European companies.
The earlier awards for the projects had a net present value of $2.2 billion, but the current value is not yet available from the Governor’s office. The strike prices in nominal dollars (not adjusted for inflation) for the original agreements were $110.37 per megawatt hour for Sunrise Wind and $118.38 per megawatt hour for Empire Wind 1.
Sunrise Wind sought a requested increase to their average strike price of 27 percent while Empire Wind 1 sought a 35 percent increase. The increase in strike price from the previous contracts averaged about 30 percent. According to a New York government agency, the new cost estimates were “not directly comparable” since they are based on forecast energy prices and other factors.
A third bidder, the 1.3-gigawatt Community Offshore Wind 2 project, is “waitlisted” and may be awarded in the future. Two other large offshore wind projects have canceled their contracts, hurting the state’s ability to reach its 2030 renewable target. Equinor opted not to rebid its second offshore wind project, the 1,260-megawatt Empire Wind 2 facility, after canceling its existing contract in January.
Instead, Empire Wind 2 will be “matured for future solicitation rounds,” according to the company. Its former partner, BP, did not indicate that it planned to rebid the Beacon Wind offshore wind facilities in the latest auction. New York plans a public webinar on the two re-awards on March 19, where the public may learn more about their decision to make consumers pay so much more for energy than the original prices.
New York is not the first or only state to allow financially distressed offshore wind facilities to re-bid their contracts after several project cancelations over the past few years. Other states, including New Jersey, Massachusetts, Rhode Island and Connecticut, have allowed similar actions. New Jersey, for example, agreed to contracts with three developers that included prices similar to those in New York’s new agreements.
These solicitations have allowed projects that were nearing construction to continue as their governments seem unconcerned about higher costs for consumers in their states. Other offshore wind development projects remain locked into contracts that they will either need to cancel or rebid in order to remain financially viable.
Nationwide Goals
Nationwide, the Biden administration has set a goal of installing 30 gigawatts of offshore wind by the end of this decade. Current estimates are that half of that are likely to be built. As of February, the United States had installed over 240 megawatts of offshore wind capacity off the coasts of New York, Massachusetts, Rhode Island and Virginia — up from just 42 megawatts a year ago. Biden’s offshore wind targets were thrown into jeopardy after financial hardships and logistical challenges hit project developers as inflation skyrocketed and supply chains were broken.
Supply-chain constraints, rising material costs, higher interest rates and permitting delays made it more expensive and less profitable to develop these massive and complex offshore wind projects. The developers most affected by these conditions were the ones that had already signed agreements with utilities or public agencies—agreements that were not flexible in renegotiating costs.
Companies signed the long-term agreements early in the planning process to specify the rate customers will pay for the electricity and how much of the energy they will use. Last year, developers with contracts signed before the pandemic found it impossible to turn a profit under their existing terms. In 2023, developers canceled contracts to sell 5.5 gigawatts of offshore wind power from projects in New Jersey, Connecticut and Massachusetts, incurring billions of dollars in penalties. These experiences cast doubt on Biden’s belief that wind and solar are the cheapest forms of energy.
Conclusion
Last June, offshore wind developers petitioned New York State’s Public Service Commission for increased payments under their contracts. Those petitions were denied and new solicitations were made in November. Two of those are about to be awarded, covering development cost increases of about 30 percent.
Under the new agreements for the 25-year contracts, consumers will be paying more than double the bill increase that was set under the original contract agreements in 2019. New York is aiming to build 9,000 megawatts of offshore wind capacity by 2035, and this solicitation will cover 1,700 megawatts with a late 2026 operational date.
Other states are also offering new solicitations to keep their offshore wind projects viable. Despite that, a number of offshore wind projects have been canceled with developers paying penalties. President Biden wants 30,000 megawatts of offshore wind by 2030—only half that amount is expected, which is good for consumers, who will be paying heavily for the privilege of receiving electricity generated by offshore wind that is more expensive than electricity generated from natural gas.
#OffshoreWind #WindEnergy #Consumers #NewYork #Biden
Source: Energysecurityfreedom.substack.com
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