Offshore wind projects are facing an economic crisis that has wiped out billions of dollars in planned spending this week — just as the world needs clean energy more than ever.
A unit of Spain’s Iberdrola has agreed to cancel a contract to sell power from a planned wind farm off the coast of Massachusetts. Danish developer Orsted A/S has lost a bid to provide offshore wind power to Rhode Island, whose main utility said rising costs made the proposal too expensive. Swedish state-owned company Vattenfall AB has aborted plans to build a wind farm off the British coast, due to inflation.
High costs are derailing offshore wind projects even as demand for renewable energy rises. Sweltering heat from climate change is straining electrical grids around the world, underscoring the need for more power generation — and adding urgency to calls for a faster transition away from fossil fuels. In Europe, the move to reduce dependence on Russian oil and gas has given impetus to clean energy projects.
“The energy coming from these projects is in great demand,” Helen Bystrom, Vattenfall’s head of wind business, said on an earnings call this week. “With the new market conditions, it makes no sense to continue.”
Together, the three affected projects would have provided 3.5 gigawatts of power – more than 11% of the total offshore wind fleet currently deployed in US and European waters. And the numbers could expand soon. At least 9.7 gigawatts of US projects are at risk because their developers want to renegotiate or get out of contracts to sell power at prices they say are now too low to make the investments worth it, according to BloombergNEF.
The scrapped projects are the latest signs of fatigue for offshore wind farms that use turbines larger than skyscrapers to harvest power from sea air, where the wind is stronger and more steady. High material costs, especially for steel, have forced turbine makers to raise prices. Costs for other major services, such as specialized vessels to install turbines, have also jumped sharply. Higher interest rates mean that borrowing is more expensive.
This does not mean that investment has stopped completely. Some projects in the US and UK are still ongoing, despite the rising costs. And earlier this month, oil giants BP Plc and TotalEnergies SE offered €12.6 billion ($14 million) to develop offshore wind farms in Germany’s North Sea. But the canceled and delayed projects show that if governments commit to offshore wind, they will have to pay more to get it.
Orsted CEO Mads Nepper said in a post on LinkedIn that capital costs and prices for turbines, cables and other equipment have “risen sharply”. “This means that unfortunately the price of renewable energy will have to go up temporarily after years of sharp declines.”
While some projects can survive into the future, they will need to be able to secure higher energy prices to make the investments viable. Any delay means more reliance on fossil fuel generators that contribute to climate change, putting emissions reduction targets out of reach.
Offshore wind is critical to carbon removal targets. The sheer size of offshore turbines makes it one of the most efficient ways to generate renewable electricity. In the United States, each megawatt of installed capacity of an offshore wind farm can produce up to three times as much as a solar park can generate, according to data from BloombergNEF. In cloudy Britain, wind farms produce five times more electricity than a solar farm of similar size.
This has led governments around the world to set ambitious targets for scaling up. President Joe Biden aims to have 30 gigawatts of offshore wind farms installed in the United States by the end of the decade, up from nothing today. In Europe, countries such as the UK, Germany and the Netherlands pledged earlier this year to reach 120 gigawatts of wind capacity by 2030, more than four times the current capacity.
But as governments continue to be determined to see their green goals deliver cost cuts to consumers, it’s not clear how they can achieve this kind of expansion.
“Vattenfall’s announcement to halt development of the Norfolk-Boris wind farm signals the beginning of what could become a real crisis,” said Megan Smith, associate director of offshore wind at the Carbon Trust. “Policy makers should take note and take swift action to ensure that more developers and wind farms do not follow the same path.”