New Jersey utility Public Service Enterprise Group says it is exiting direct investment in the 1.1-GW Ocean Wind 1 offshore wind energy project set to be built off the state’s coast, inking a deal to sell its 25% equity stake in the multibillion-dollar project to its partner, Denmark-based developer Orsted and grant it full ownership.
The rumored move follows steps taken in recent weeks by two Massachusetts wind project owners to revise or cancel power supply contracts, claiming unforeseen rapid rises in development costs.
In a statement, PSEG Chief Commercial Officer Lathrop Craig said “a better positioned tax investor [should] join the project so it can proceed with an optimized tax structure.” David Hardy, Americas CEO of Orsted, which also plans a second New Jersey wind project, said Ocean Wind 1 is on track to deliver its first power by the end of 2024
The utility firm said it would invest in land-based infrastructure that would link to the state grid that project and other offshore wind facilities the state has committed to build.
New Jersey has already taken industry-leading steps to boost that infrastructure, including award of a $1-billion project late last year to connect wind projects to an existing power substation that could handle 6.4 GW and use existing rights of way.
In a report issued on Jan. 24, industry consultant Brattle Group says more proactive state and regional regional transmission planning now in northeast coast areas of major offshore wind development could save up to $20 billion in costs and reduce environmental and community impacts by 50%. But it also notes still uncertain rules in how tax credits under the new climate change law would apply in developing so-called offshore "backbone" transmission infrastructure investments.
Cost Bumps
Meanwhile, one Massachusetts developer, utility firm Avangrid, filed suit Jan. 19 in the state supreme court to appeal state regulators’ Dec. 30 approval of existing power contracts with three state utilities for its 1.2- GW Commonwealth Wind project.
Citing historic inflation, interest rates hikes and supply chain bottlenecks, power offtake contracts “do not allow the company to secure the significant financing needed to construct this critical project,” said an Avangrid spokesperson. It seeks to vacate the contracts and have their capacity included in an upcoming power solicitation by the state. The backers of the 800-MW Mayflower Wind project are asking Massachusetts regulators for more time to assess financial issues of its current power contracts.
In what may be seen as a controversial move, New York and New Jersey are considering inflation adjustment terms in their next offshore wind procurement rounds. The staff of New Jersey’s Board of Public Utilities has proposed a one-time adjustment for developers, to be capped at 15%, but the state ratepayer advocate is concerned about higher power prices as a result.
On a Jan. 20 earnings call, Orsted disclosed to investors and analysts that it is taking a $366-million writedown on its 920-MW Sunrise Wind project off Long Island, N.Y., citing “project-specific [capital expenditure] increases” last year, with the firm noting costs for installation vessels "and associated services." The project, also owned by Massachusetts utility Eversource, is set to begin operation in 2025.
Despite the setback, the firm projects a 7.8% rise in 2022 operating profit. On an earnings call, CEO Mads Nipper cited gains from global offshore wind asset sales and better than expected earnings from onshore wind and solar projects, as well as from work on power plants and gas facilities.
Investment Still 'Robust' in NY
But even with market bumps, offshore wind investments are proceeding are building.
The New York State Energy Research & Development Authority said Jan. 26 that it "received a robust response" to its third offshore wind solicitation seeking up to 4.6 GW, "with more than 100 total proposals for eight new projects from six offshore wind developers," adding that it was "a record-setting level of competition among East Coast states."
The state has a U.S. high of 4.3 GW under contract and a mandate of 9 GW by 2035.
Among the proposers are an Equinor-BP joint venture, which seeks to add to its 2.1 GW Empire Wind 1 & 2 and 1.2 GW Beacon Wind projects awarded earlier with the proposed 1.3 GW Beacon Wind 2.
The JV announced Feb. 7 it selected Skanska USA as construction manager for the $250-million upgrade of a Brooklyn, N.Y., marine terminal into an assembly port. The contract value was not disclosed. The JV also plans turbine production plants at the Port of Albany and said it recently purchased the site of the Astoria Gas Turbines in Queens, which would connect Beacon Wind directly to New York City.
“Equinor and BP are eager to build on the significant experience gained through our work in New York over the past five years to bring more offshore wind energy to the state,” said Molly Morris, president of Equinor Wind US.
A team of German developer RWE and National Grid proposed a1.3-GW project, which would be the first for an ocean tract leased in the New York Bight between New York City and New Jersey. The firms paid $1.1 billion for the lease in a federal auction last February, the event's highest. Investments include proposed wind turbine nacelle and blade manufacturing plants with GE Vernova, the U.S. manufacturer's renamed energy business, also in the Albany port area.
Sam Eaton, CEO of RWE Offshore Holdings, said the team proposal "aims to reestablish New York as an energy manufacturing hub ... while prioritizing disadvantaged communities, local content, and union labor," adding its proposal also includes possible steel fabrication in Orange County, N.Y.
The nacelle plant would be the first to produce its redesigned larger 14.7-MW Haliade-X, after GE lost a patent infringement court battle last year with rival manufacturer Siemens Gamesa that ordered a halt to use of the current design. GE contracts for 13-MW turbines on the now under construction 800-MW Vineyard Wind 1 project off Massacusetts and the planned 1.1-GW Ocean Winds 1 farm in New Jersey are exempt from the ruling.
But GE reported recently that it expects to lose $2 billion in revenue from onshore wind production for 2022, while CEOs of Siemens Gamesa and another manufacturing competitor, Denmark-based Vestas, also reported bottom-line squeezes for last year.
Siemens Gamesa on Feb. 1 reported an operating loss of close to $1 billion in its October to December 2022 latest quarter, said chief Jochern Eickholt, noting higher costs related to component warranty and service maintenance. But revenue rose 9.8% ro $2.2 billion. Vestas chief Henrik Andersen said that despite raised prices for equipment, it is still "challenged on profitability in 2023.”
Among other New York market contenders, US-based developer Invenergy, head of the only American-led team lease winner in the NY Bight that also won an offshore California tract in December, submitted a 2.1-GW proposal with partner firm energyRE, said CEO Michael Polsky. The firm said it plans an operations base at the Brooklyn Navy Yard and is set to take space at the planned Arthur Kill staging and assembly hub in Staten Island, N.Y., with an overhaul funded by private and state investment. The team has a memo of understanding with buildning trades unions, Polsky said.
Rise Light & Power LLC proposes what is says is the first U.S. repowering of a major fossil-fuel plant with clean energy from offshore wind—at its "core asset," the 60-year-old Ravenswood Generating Station that faces Manhattan in the Long Island City section of Queens. The plant is New York City’s largest power generator. The revamped 27-acre plant site would deliver more than 1 GW of power from its offshore wind array. The gas-powered facility now generates about 1.8 GW.
“The renewable repowering of Ravenswood will serve as a model of how to work with communities and repurpose transmission infrastructure to save ratepayers money,” said Clint Plummer, firm CEO, who said it would also retrain union workers who now operate the plant.
The Orsted-Eversource team also submitted multiple bids with different configurations, which would expand its New York footprint that also includes the 132-MW South Fork Wind, the second U.S. project to start construction, and planned land investments, said Hardy.
Copenhagen Infrastructure Partners, developer of Vineyard Wind, also submitted a proposal, it told industry publication Recharge.
NYSERDA said it would announce latest round contract winners in early spring.
Steel Coming to the Water
In another positive market development, Nucor Steel said that the first steel plate for offshore wind use was produced at its $1.9-billion state-of-the-art facility in western Kentucky. The Elcyon product is made using the firm's recycled scrap-based electric arc furnace manufacturing process, it said.
"As demand for alternative energy sources like offshore wind continues to grow and manufacturers push for larger turbines, Elcyon's larger and thicker plate sizes will help the U.S. become a leader in offshore wind production," said Leon Topalian, Nucor Corp. chair, president and CEO.
