Ørsted says it is not walking away from the Ocean Wind 1 project.
The Inflation Reduction Act, federal legislation which came on the books in 2021, had, as one of its goals, the promotion of renewable energy projects such as offshore wind. But then something funny happened on the way toward achieving that goal—inflation itself, in the form of increased supply costs and interest rates.
Those increases, together with anticipated supply delays, led Ørsted, the developer of the largest offshore wind farm approved to date in the United States, the Ocean Wind 1 project in New Jersey, to announce it might have to write off $2.3 billion on its U.S. operations. The company’s CEO acknowledged that Ørsted was considering walking away from some projects.
Changes in economic conditions also pushed Ørsted to lobby the New Jersey legislature, which is controlled by Democrats, for largesse. That relief came to the tune of $1 billion, when Trenton enacted legislation in July that allowed the company to harvest federal tax credits that were originally meant for New Jersey ratepayers. Earlier legislation also benefited Ørsted, removing the authority of counties and municipalities from overseeing offshore wind projects. The apparent special treatment wind developers enjoy under New Jersey law has prompted lawsuits and protests.
Ocean Wind 1
Ocean Wind 1, the New Jersey project currently under development, received final approval from the Bureau of Ocean Energy Management in July. The project will have the capacity to generate 1,100 megawatts of electricity, enough to power 380,000 homes. Another BOEM approval is required for the work to start, which, according to a spokesperson, should be forthcoming soon. Construction on Ocean Wind 1 is anticipated to ramp up in 2024, with final commissioning expected in the first quarter of 2026.
In New Jersey, opposition to offshore wind is growing, by some because electricity costs to consumers are going to be higher than originally anticipated, by some on the grounds that the towers are going to mar local seascapes, and by others who contend that the projects will compromise the ocean ecology—as evidenced by the increasing mortality among whales.
Skeptics say that the ecological contention is a mere pretext. The National Oceanic and Atmospheric Administration declared an Unusual Mortality Event for humpback whales from Maine to Florida in April 2017, way before large-scale offshore wind activities started off the East Coast. The whale deaths have likely been caused by rising ocean temperatures, which are driving the fish that whales prey on into shipping lanes. Whale postmortems “often show evidence of boat strikes or entanglements with fishing equipment,” according to a report released by Rowan University, a public research institution located in Glassboro, N.J. On the other side of the argument, the Save the Right Whales Coalition, released a study showing that offshore wind survey vessels often exceed approved decibel levels and use non-approved devices.
New Jersey’s action allowing Ørsted to benefit some $1 billion in federal tax credits originally earmarked under New Jersey law to provide rate relief to utility customers provided additional fodder to opponents. The issue has now moved into the arena of partisan politics, where opponents of offshore wind are making hay of the corporate welfare ostensibly being provided to a successful company.
New Jersey’s Republican Senate Leader Anthony Bucco termed the legislation “a $1 billion bailout of a foreign wind developer.” He was particularly incensed considering that “the company indicated strong first-half profits in their offshore wind business.”
Reporting on Ørsted’s first-half 2023 performance, CEO Mads Nipper noted that “our offshore business is back with strong earnings.” But he denied that the New Jersey tax-credit legislation was instrumental in the company’s decision making. “It is not the credit that is driving our investment decisions,” he said. “It’s the value creation of the projects. We see no positive value creation impact by walking away from projects and made the commitments financially this year as well.”
Nipper noted that a lawsuit was filed “around the pass-back,” but added, “We continue to advance the project.” The lawsuit in question was filed in late July by local residents and environmentalists, claiming that the tax-credit legislation violates the New Jersey Constitution because it benefits a single company.
In another lawsuit, a local judge sided with Ørsted and ordered the Cape May County clerk to file an easement transferring county property interests to Ørsted as required by the Offshore Wind Economic Development Act, the 2021 legislation which removed counties and municipalities from the permitting equation. The county has announced it will appeal, and its counsel has predicted the case will eventually land in the state Supreme Court. The county has also announced it is exploring federal and state litigation against multiple agencies on the grounds that the offshore projects will cause environmental and economic damage.
Other Projects at Risk?
While denying the New Jersey project is in jeopardy, Nipper did not rule out the possibility that the company could walk away from other projects, absent government support. It is “vital,” he told an August conference of analysts and investors, “that governments and decision-makers around the world address and reduce the industry risks facing the renewables sector. The contracted power prices must reflect the realities of the inflationary environment. Otherwise, the necessary investments in renewable energy are at risk of either slowing down or simply not happening.”
When New Jersey Governor Phil Murphy, a Democrat, signed the tax-credit legislation in July, he did so symbolically in Paulsboro, a port city on the Delaware River and the site of a functioning factory for producing monopiles, an offshore wind component. At the time, Murphy said the legislation would be judged by “our long-term economic vision for New Jersey” and “by the concrete steps we took to create good-paying jobs for workers here and now.”
But that high-minded rhetoric has not stemmed the opposition. In mid-September, Senate Republicans called for a moratorium on offshore wind projects and asked for a special legislative session to consider prohibiting further tax breaks for offshore wind companies. The same week protesters blocked a road in Ocean City, N.J., on the route proposed for cabling to link the Ørsted offshore project to the electrical grid and were arrested.
