Much like a flock of seagulls heading precariously in the direction of wind turbines, offshore wind-power projects are increasingly flocking towards an untimely demise.
As Andrew covered in Capital Matters over the weekend, the Danish energy company Ørsted is canceling its offshore wind-turbine-installation projects off the coast of New Jersey, costing the company up to $5.6 billion in write-offs.
Ørsted is not alone. Reuters reports that energy companies BP and Equinor are now “assessing their next steps” for their offshore wind projects off New York after recording a $540 million impairment (devaluation) for the projects. This past August, SouthCoast Wind — a joint operation by companies Shell and Ocean Winds — paid $60 million to scrap its plans of building offshore wind turbines off the coast of Massachusetts.
This is not coincidental, as Andrew aptly notes:
Central planning is what it is. And it is interesting to read that among the culprits are “escalating interest rates.” But if interest rates are “escalating,” they are only doing so from the ultra-low levels that were the result, in part, of heavy government intervention. That was never going to last forever, meaning that after a period in which, on some calculations, rates had hit four-thousand-year lows they would at some point begin to revert to the mean. In absolute terms rates are still not high, suggesting that some of these projects were based on fundamentally unrealistic assumptions (more on that below).
The [New York] Times is quoted as saying that “rekindling interest in developing offshore wind off the East Coast now depended on ‘a reset of what offshore power needs to cost.’”
One further fundamentally unrealistic assumption the companies had: that a suitable ship for installing the wind turbines would be readily available. It turned out for Ørsted that one was not, and won’t be anytime soon.
The Jones Act, a century-old maritime-shipping law, mandates that ships carrying cargo in U.S. waters must be constructed in the United States, operated by American owners and crew, and display the U.S. flag. How many wind-turbine-installation vessels (WTIVs) are currently in service that comply with the Jones Act? Zero.
This, unsurprisingly, makes installing offshore wind turbines extremely difficult. Prior successful offshore wind-energy projects — there have only been two in the U.S. — utilized a clever yet painfully inefficient loophole to the Jones Act for installation. A foreign WTIV ship would be stationed at the offshore site while materials would be transported a few dozen miles by a Jones Act–compliant barge ship before being transferred to the foreign WTIV ship. Naturally, this makes the installation of these projects more expensive, labor intensive, and time-consuming (never mind frustrating).
Thus, Ørsted did not want to go this route. Instead, the company had planned to use the first-ever Jones Act–compliant WTIV ship, which Dominion Energy had ordered in 2020. However, as pointed out by Colin Grabow of the Cato Institute in August, the ship, initially planned for delivery by the end of 2023 at a cost of $500 million, was delayed to late 2024 or early 2025, with an increased cost of $625 million.
Sure enough, in Ørsted’s statement regarding the canceled projects, the company explained its decision was particularly affected by a “vessel delay . . . that considerably impacted project timing.”
In early 2021, the Biden administration established a goal to install 30 gigawatts of offshore wind power by 2030, which wind-energy analysts are now deeming unattainable. Yet as recently as September, the White House proclaimed that designating this lofty goal “a key pillar of Bidenomics” will enable the administration achieve it.
Some in the wind-energy industry worry that the Biden administration’s promised use of “every tool available” to expand offshore wind will be insufficient absent serious structural changes. “Ultimately, offshore wind in the U.S. is fundamentally broken,” declared one executive in the wind-energy industry.
As challenges related to offshore-wind projects escalate, so too does the reliance on hope. A recent Reuters headline captures this sentiment well: “Down but not out: Equinor takes hit on U.S. offshore wind, but hope remains.” Similarly, “One turbine gives offshore wind hope amid bleak outlook,” reads a recent headline from E&E News.
It seems that offshore wind projects may need more than just hope to succeed. Repealing the Jones Act would be a good start.