Stormy times for offshore wind An analysis by Financial Times

The Financial Times has examined the circumstances surrounding the world's largest offshore wind developer facing a sharp decline in its shares as it abandoned two significant US projects due to various challenges, including supply chain delays, increased interest rates, construction permit issues, and alterations to assumptions regarding tax credits under the US Inflation Reduction Act. This development highlights the difficulties faced by the offshore wind industry, which is considered a crucial component in transitioning to more sustainable energy. Caliber.Az reprints this article.

"Shares in Ørsted, the world’s largest offshore wind developer, nosedived today as it ditched two key US projects and announced a higher than expected writedown of its portfolio, highlighting the fragile situation of an industry that is meant to be a key element in the switch to more sustainable energy.

The Danish company blamed supply chain delays, higher interest rates and problems with construction permits as well as changes to its assumptions around the tax credits available under US president Joe Biden’s Inflation Reduction Act. Offshore projects have also been coming under heavy fire from residents on the Jersey Shore, citing concerns for marine life and fisheries as well as having their ocean views spoiled by giant spinning turbines.
BP’s head of low carbon energy told a Financial Times conference today that the US offshore wind industry was 'fundamentally broken' and would not grow without a 'fundamental reset'.

The sector faces multiple challenges as governments around the world set ambitious targets to tackle climate change but balk at the potential rise in power prices that might entail.

'Offshore wind projects around the world have faced a triple whammy of high supply chain inflation, rising interest rates and a reluctance on the part of governments to adjust auction parameters to respond to these new market conditions as they prioritise keeping costs to consumers down', says Simon Virley, UK head of energy at KPMG.

The sector has grown rapidly since the world’s first offshore wind farm was built off Denmark in 1991, aided by increases in turbine sizes and ultra-low interest rates helping to push down costs of construction and operation 60 per cent between 2010 and 2021.

Ørsted is not the only European offshore turbine cluster operator buffeted by strong headwinds. Sweden’s Vattenfall in the summer halted a project in the North Sea off England’s coast — one of the most attractive areas in the world for wind farm developers — as surging costs made it unviable given the low price locked in for its electricity. Spain’s Iberdrola has also cancelled or sought to renegotiate power contracts for offshore projects after costs surged.

Turbine manufacturers have also been hit: Siemens Energy, one of the world’s biggest, is in talks with the German government to secure guarantees for long-term projects after warning turbine losses would be higher than forecast. The EU meanwhile is considering an anti-subsidy probe into Chinese turbines amid concerns that Europe was simply swapping its dependency on Russian gas for one reliant on Chinese clean energy equipment.

Other policy problems abound. In the UK, the failure to attract any bids from offshore developers in its recent annual renewable energy auction, despite the North Sea’s huge potential, was, as the FT editorial board noted, both worrying and embarrassing.

On the positive side, others argue that some of the doom-mongering around the still-young renewables industry, and wind in particular, is overdone. 'Fair winds will prevail again, sooner or later, as pressure to decarbonise reasserts itself', it concludes.