Inflation Begins to Chew for Offshore Wind Builders






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Nov 2, 2022 9:36 PM by

The Maritime Govt

Hovering inflation isn’t just an issue for customers. It seems to be taking a few of the wind out of the sails of the budding U.S. offshore wind business, regardless of a serious package deal of economic incentives simply handed by Congress.

Final week, Avangrid’s Commonwealth Wind undertaking – a 1,200 MW set up off the coast of Massachusetts – requested state regulators for a pause in its rate-approval proceedings as a result of building is “now not viable” with out revisions. Although Avangrid stays within the undertaking, the monetary construction will should be up to date to account for the brand new actuality of inflation, the corporate mentioned. 

“International commodity value will increase, partially resulting from ongoing conflict in Ukraine, sharp and sudden will increase in rates of interest, extended provide chain constraints, and chronic inflation have considerably elevated the anticipated value of establishing the undertaking,” warned the developer. “Because of this, the undertaking is now not viable and wouldn’t be capable to transfer ahead absent amendments to the [power purrchase agreements],” the contracts that assure long-term costs for the wind farm’s electrical energy output. 

In a supporting movement, the builders of a neighboring offshore wind undertaking – the Shell/EDP/Engie-backed Mayflower Wind – mentioned that they help Avangrid’s request “for a one-month suspension to permit all PPA events time to discover potential changes.” These changes may embrace value reductions, a rise in PPA pricing, and qualifying for the brand new tax incentives underneath the Inflation Discount Act. With out PPA changes, the “useful resource might now not be financial and financeable,” Mayflower Wind cautioned.

The state of Massachusetts chosen the Commonwealth and Mayflower Wind initiatives as suppliers final yr in its third spherical of wind power solicitiations. On the time, the 2 initiatives contracted to promote energy at $72 per MWh and $77 per MWh respectively; neither agency has talked about how massive any potential value improve might need to be in an effort to transfer ahead, however Avangrid advised that “modest” adjustments could be sufficient. 

This week, the New Jersey energy utility Public Service Enterprise Group (PSEG) mentioned that it would finish its participation in Ocean Wind 1, an 1,100 MW undertaking proposal off the state’s southern coast. PSEG holds a 25 p.c stake within the growth, and  Danish offshore wind heavyweight Orsted owns the remaining 75 p.c. 

Uncertainties about future value of building and energy pricing are additionally dragging down turbine orders as builders push again their undertaking timelines, in keeping with turbine OEMs. Trade affiliation WindEurope – which represents suppliers and undertaking builders – says that new turbine orders fell by about 36 p.c within the third quarter, reflecting the results of excessive inflation. 

The sample could also be intensifying, however it’s not strictly new. Inflation and provide points had been already a problem by the third quarter of 2021, at the very least for turbine maker Vestas, which diminished its best-case income steering for the yr by about $500 million on issues over inflation-driven challenges. 

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