Offshore wind developers are reevaluating some New York projects after regulators rejected higher rates by Equinor ASA, Orsted A/S and others that would have added as much as $12 billion in costs.
(Bloomberg) — Offshore wind developers are reevaluating some New York projects after regulators rejected higher rates by Equinor ASA, Orsted A/S and others that would have added as much as $12 billion in costs.
Developers planning to build more than 4 gigawatts of wind-power capacity off Long Island must abide by existing contracts to deliver power, the New York Public Service Commission unanimously ruled during a meeting Thursday.
The ruling is the latest blow to the US offshore wind industry already contending with inflation and supply-chain issues. The future of projects such as Orsted’s Sunrise Wind is now in question after Thursday’s decision.
“We are reviewing the PSC’s order, but Sunrise Wind’s viability and therefore ability to be constructed are extremely challenged without this adjustment,” David Hardy, Orsted’s chief executive officer for the Americas, wrote in an email. “We will evaluate our next steps and communicate the status of the project as soon as possible as our joint venture and board consider the best options going forward.”
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Shares of some of the largest offshore wind companies tumbled during the meeting. Orsted dropped 3.3% in Copenhagen as commissioners began to share their views. Eversource Energy, the utility that’s co-developing the Sunrise project, slipped 7.5%.
Eversource took a $331 million after-tax impairment charge in the second quarter for its offshore wind operations. Even wind developers with no plans for New York installations saw their shares battered.
Avangrid Inc., which has agreed to pay $64 million to exit offshore wind deals in other states but wasn’t involved in the New York rate request, tumbled 3.5%.
The New York decision is a blow to developers that have said they may not be able to complete projects under existing contract terms. Many of those projects were modeled years ago, before a run-up in interest rates and material costs. While the move may threaten the state’s clean-energy goals, the commission said that revising contracts would set a dangerous precedent and undermine its competitive process for procuring power.
“To developers: We have a deal,” Rory Christian, chairman of the commission, said during the meeting. “Developers should stand by the terms of their contracts.”
Commission staff calculated the sought-after adjustments would burden consumers with up to $12 billion in added costs. The commission said the companies could exit the deals and bid again in future procurement processes.
Equinor, along with BP Plc, is planning the Empire and Beacon offshore developments, with a combined total capacity of 3.3 gigawatts that could together power around 2 million New York homes. The companies in June told the state that “adverse economic impacts have imposed unprecedented and escalating cost increases on the projects.” To remain viable, they asked the state to approve a 54% price increase.
“Equinor and BP are disappointed at the New York Public Service Commission’s rejection of Empire Wind and Beacon Wind’s petition for support to help offset the unforeseen challenges facing our industry today stemming from inflation, supply chain disruptions and high interest rates,” Molly Morris, president of Equinor Renewables Americas, wrote in an email. “These projects must be financially sustainable to proceed. Equinor and BP will assess the impact of the state’s decision on these projects.”
Danish wind giant Orsted has several projects in the works off the US East Coast including the 924-megawatt Sunrise project east of Long Island, enough to provide power to around 600,000 customers. Orsted Chief Executive Officer Mads Nipper has said that the company is prepared to walk away from its US developments if it doesn’t receive more government aid. Orsted’s request to New York state was for a 27% bump.
Commission staff members concluded that the higher prices sought by the developers would increase electricity rates for commercial and industrial customers by as much as 10.5% and consumer rates by as much as 6.7%.
“The level of relief requested here is jaw-dropping,” Diane Burman, a commissioner, said during the meeting.
(Updates share prices in fifth paragraph.)
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