America’s Bet on Wind Power Is Running Into a Big Problem
Higher costs and serious delays are plaguing offshore wind projects. Consumers, investors, and the environment will pay the price.
rane ships and construction barges have joined the pleasure boats floating off the coast of vacation hot spots Montauk and Martha’s Vineyard this summer. The hard hats working on them aren’t there to catch some rays. They’re driving steel cylinders deep into the seabed to build America’s first large-scale offshore wind farms, a milestone decades in the making. Both projects are set to start sending electricity to the shore by the end of the year.
Crane ships and construction barges have joined the pleasure boats floating off the coast of vacation hot spots Montauk and Martha’s Vineyard this summer. The hard hats working on them aren’t there to catch some rays. They’re driving steel cylinders deep into the seabed to build America’s first large-scale offshore wind farms, a milestone decades in the making. Both projects are set to start sending electricity to the shore by the end of the year.
Public officials in New York and Massachusetts toasted the news last month when the first turbine foundations were installed. “The windmills that will power hundreds of thousands of homes are beginning to emerge from the water,” said Massachusetts House Speaker Ronald Mariano. Offshore wind is a crucial technology to decarbonize large coastal population centers, including cities like Boston and New York that probably wouldn’t be able to go green without it. So, its arrival is a major milestone in the nation’s energy transition.
But behind the scenes, the news about wind power is more sobering. Financially, the industry is teetering, with a parade of companies planning to renegotiate or pull out of contracts, jeopardizing plans for projects that were expected to provide electricity for millions of homes. Inflation is erasing profits, causing some of the largest energy firms in the world to back away. “Returns on offshore wind are becoming more and more challenged,” Shell CEO Wael Sawan told Barron’s last month, just days after a Shell joint venture said it would pull out of a power contract in Massachusetts. Shell won’t build renewable projects that can’t earn initial returns of 6% to 8%, he said.
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At least eight multinational companies in three states have quietly started to back out of wind contracts, or ask to renegotiate deals in ways that will pass more costs to consumers. Beyond Shell (ticker: SHEL), they include BP BP 0.44% (BP), Denmark’s Orsted ORSTED 0.07% (DNNGY), Norway’s Equinor EQNR 0.68% (EQNR), Spain’s Iberdrola (IBDRY), Portugal’s Energias de Portugal (EDPFY), and France’s Engie ENGIY -0.06% (ENGIY) and state-owned Electricite de France. The projects those companies are building will collectively cost tens of billions of dollars to construct and connect to the grid. The cost problems they’re facing make offshore wind a dicey investment proposition today, with the potential for substantial write-downs ahead.
America’s pledge to decarbonize is at risk, too. President Joe Biden announced a goal in 2021 to have 30 gigawatts of offshore wind power installed by 2030, enough to power roughly 10 million homes, up from essentially zero today. “We’re going to make sure that the ocean is open for the clean energy of our future,” Biden said last year.
The White House didn’t respond to a request for comment, but other Biden administration officials dispute Freshney’s prediction. “The Biden-Harris administration remains committed to pursuing a goal of 30 GW of offshore wind by 2030, and we remain on track to meet that goal,” wrote a spokeswoman for the Bureau of Ocean Energy Management, which handles offshore leases. Combining two projects that are now under way and 16 other plans that it’s currently considering, the BOEM says there are 27 gigawatts of offshore wind projects that are in the pipeline. Most are along the East Coast from Maine to Virginia, but the government has also leased parcels off California and is preparing lease offerings in the Gulf of Mexico.
Offshore wind’s arrival in America has been a long time coming. Outside the U.S., 64 gigawatts of offshore wind had been installed as of the end of last year, a number expected to double by the end of 2025. While Europe started building farms in the 1990s, the U.S. has been much slower to adopt the technology, and some efforts have failed. A project off the coast of Cape Cod, Mass., announced in 2001, ended up snarled in litigation after local residents complained about the turbines spoiling their views. It died quietly in 2017. Today, there are only two operating offshore wind farms in the U.S.—one off Rhode Island and one off Virginia—generating a combined 42 megawatts, less than 0.1% of global offshore wind capacity.
The problems with launching offshore wind projects in the U.S. go beyond obstructed views. For years, the cost of installing the turbines was too high compared with the power that those turbines produced. Europeans have been less sensitive to higher prices because they already pay a premium for electricity compared with American consumers, who benefit from abundant coal and natural-gas reserves.
A decade ago, the U.S. government estimated the cost of electricity from a new offshore wind farm at more than $200 per megawatt-hour, twice as expensive as coal, and three times more than advanced natural-gas-fired plants. Since then, offshore wind costs have fallen dramatically—more than half, by most measures. The U.S. is also giving tax credits to qualifying projects that can be worth as much as $26 per megawatt-hour, bringing offshore wind costs to around $75—about $15 cheaper than a new coal plant.
One reason wind costs have declined is that turbines themselves are much larger and more efficient than they used to be. Turbines that companies were installing a decade ago were half as tall and about a quarter as powerful as today, says Christian Skakkebæk, senior partner at Copenhagen Infrastructure Partners, a renewable-energy fund manager that’s a half-owner of the Martha’s Vineyard project. That project’s turbines will rise 837 feet, almost three times as tall as the Statue of Liberty. And because the turbines will be 35 miles off the coast, they are barely visible from oceanfront property.
Those towering turbines point to the industry’s potential. Offshore wind can solve problems that other forms of renewable energy can’t. Land-based wind power is cheaper than offshore and already accounts for 10% of U.S. electricity production, but it isn’t feasible in many areas. Developers need to negotiate with private landowners for space and often face opposition because of visual impacts. The turbines can’t be nearly as tall and powerful as the ones in the water. Wind gusts off the coast are also much steadier than they are onshore.
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The East Coast is particularly appealing for offshore turbines. The water is shallow, and the ocean floor is sandy rather than rocky, allowing steel to be installed directly into the ground instead of having to rely on more-expensive floating platforms. The wind is consistently strong. “That combination of robust wind and shallow waters could make Massachusetts the Saudi Arabia of wind,” says Massachusetts State Rep. Jeff Roy, the chairman of the Joint Committee on Telecommunications, Utilities, and Energy.
Offshore wind isn’t going to be the main solution to decarbonizing the U.S. power grid, but it solves key problems that have kept high-population areas from going green, says Skakkebæk. New York, for instance, has said its electricity will be carbon-free by 2040. For now, natural-gas power plants account for nearly 60% of its generating capacity. The state is unlikely to reach its goal without offshore wind.