Offshore wind projects are facing an economic crisis that wiped out billions of US dollars in planned spending this week—just as the world needs clean energy more than ever.
A unit of Spain’s Iberdrola SA has agreed to cancel a contract to sell electricity 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 utility Vattenfall AB has scrapped plans for a wind farm off the coast of Britain, citing inflation.
Rising costs have derailed offshore wind projects even as demand for renewable energy rises. Extreme heat caused by climate change is straining electric 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 also given a boost to clean energy projects.
“The energy coming from these projects is very much needed,” Helene Bistrom, the head of Vattenfall’s wind business, said in an earnings call this week. “With the new market conditions, it doesn’t make 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 as their developers want to renegotiate or exit contracts to sell power at prices they say are currently too low to make the investments worth it, according to BloombergNEF.
The jettisoned projects are the latest signs of stress for offshore wind farms that use turbines larger than skyscrapers to harvest power from offshore wind, where the wind is strongest and most consistent. Rising costs of materials, especially for steel, have forced turbine makers to raise prices. The costs of other important services, such as specialized vessels to install turbines, also jumped. And rising interest rates mean it’s more expensive to get a loan.
That does not mean that investment has come to a complete halt. Some projects in the US and UK are still going ahead, despite rising costs. And earlier this month, oil majors BP Plc and TotalEnergies SE bid €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 are committed to offshore wind, they will have to pay more to get it.
Capital costs and prices for turbines, cables and other equipment “have increased significantly,” Mads Nipper, Orsted’s chief executive officer, said in a LinkedIn post. “This means that the price of renewable energy will unfortunately have to rise temporarily after years of sharp declines.”
While some of the projects may continue in the future, they will need to get higher electricity prices to make the investments viable. Any delays mean more reliance on fossil-fuel generators that contribute to climate change, putting emissions-cutting goals out of reach.
Offshore wind is essential to decarbonization goals. The large size of marine turbines makes them one of the most efficient ways to generate renewable electricity. In the US, each megawatt of installed capacity in offshore wind farms produces triple what a solar park can generate, according to data from BloombergNEF. In cloudy Britain, wind farms can produce five times more electricity than a similarly sized solar farm.
That has led governments around the world to set ambitious targets to scale up deployment. President Joe Biden aims to have 30 gigawatts of offshore wind farms installed in the US by the end of the decade, up from nothing today. In Europe, countries including the UK, Germany and the Netherlands pledged earlier this year to reach a combined 120 gigawatts of wind power by 2030, more than four times the current capacity.
But since governments are still looking to see their green goals deliver cost reductions for consumers, it’s unclear how they’ll achieve that kind of expansion.
“The announcement from Vattenfall to halt development of the Norfolk Boreas wind farm heralds the start of what could be a real crisis,” said Megan Smith, associate director of offshore wind at the Carbon Trust. “Lawmakers need to take notice and act quickly to ensure that additional developers and wind farms do not follow the same path.”
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