The only thing dumber than onshore wind energy is offshore wind energy. The good news for ratepayers, taxpayers, birds, bats, landscapes, viewsheds, and the critically endangered North Atlantic Right Whale, is that both sectors are getting hammered by market forces that make their projects uneconomic.
On Monday, Avangrid, a subsidiary of the Spanish utility Iberdrola, announced that it was abandoning the 804-megawatt Park City Wind project offshore Connecticut because the project was “unfinanceable.” In a statement that includes a marvelous but unintended pun, the company blamed:
Unprecedented economic headwinds facing the industry including record inflation, supply chain disruptions, and sharp interest rate hikes, the aggregate impact of which rendered the Park City Wind project unfinanceable under its existing contracts.
Avangrid will pay a $16 million penalty to cancel the contract to sell electricity from the offshore wind project to Connecticut. The move is the latest blow to the Biden Administration’s plans to construct 30,000 megawatts of offshore wind on the East Coast over the next several years. In August, Shell and Ocean Winds North America agreed to pay $60 million to cancel contracts to sell power to Massachusetts from the proposed 2,400-megawatt SouthCoast Wind project. In July, Avangrid agreed to pay $48 million to cancel its contract with Massachusetts to sell power from the proposed 1,200-megawatt Commonwealth Wind project. Also in July, Rhode Island Energy announced it was canceling a power purchase agreement with Ørsted and Eversource on the 884-megawatt Revolution Wind project because the power from the offshore facility was too “too expensive for customers to bear.”
This news shouldn’t be surprising. Offshore wind energy has always been insanely expensive. Indeed, the only method of generating power that’s more expensive than offshore wind is by burning currency in a power plant’s boiler. One of the main reasons offshore wind is so expensive (aside from the corrosive effects of salt water) is its high resource intensity. As I noted in my August 13 Substack, “The Power Of Power Density,” offshore wind requires vast amounts of copper, manganese, zinc, and other critical metals and minerals.
Although the companies developing offshore wind on the East Coast claim that they will rebid the projects sometime in the future, that’s not certain. In August, Bloomberg New Energy Finance reported that the cost of producing electricity from offshore wind has soared over the past two years:
The levelized cost of electricity of a subsidized US offshore wind project has increased to $114.20 per megawatt-hour in 2023, up almost 50% from 2021 levels in nominal terms, according to BloombergNEF calculations. Increases in capex and opex have added $16.90/MWh to the LCOE. The higher cost of capital, thanks to interest rate hikes, has increased levelized costs by another $27.20/MWh, assuming project owners continue to expect to make a 5-percentage-point premium over their cost of debt.
Further, BNEF pointed out that even “a 40% investment tax credit benefit” due to the Inflation Reduction Act will only help “offset a minor share of these cost increases.” The article included the graphic below on the soaring cost of capital.
Read the rest of this piece at Robert Bryce Substack.
Robert Bryce is a Texas-based author, journalist, film producer, and podcaster. His articles have appeared in a myriad of publications including the Wall Street Journal, New York Times, Forbes, Time, Austin Chronicle, and Sydney Morning Herald.
Photo: A critically endangered North Atlantic Right Whale and calf, by NOAA, in Public Domain.
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