Offshore Wind Developer Ørsted Eyes Challenges, Remains Optimistic

As Danish offshore wind developer Ørsted gears up to expand its pipeline of projects in the U.S. and abroad, CEO Mads Nipper sees more challenges ahead for the sector.

Speaking to analysts during Ørsted’s latest earning call Aug. 10, Nipper described the summer as eventful as some of the offshore wind industry’s projects were rejected or fell apart.

The company’s joint bid with Eversource for the Revolution Wind 2 project was rejected by Rhode Island Energy, which said the project didn’t meet all requirements in the Affordable Clean Energy Security Act. Regulators in Sweden shot down Swedish utility Vattenfall’s request to construct the Stora Middelgrund wind farm with about 50 turbines, citing potential negative impacts on shipping and sensitive natural values.

Though the push toward lower carbon energy sources has led to higher demand for clean energy such as wind, the sector has faced supply chain issues, inflationary pressure and rising cost of capital as it works to scale the global offshore market.

Citing high capex and finance costs, SouthCoast Wind—the 50-50 joint venture between Shell New Energies and Ocean Winds North America—began talks with Massachusetts to terminate and rebid its existing power purchase agreements. Ørsted was among those in June that requested inflation adjustments on existing contracts for projects offshore New York.

Also during the summer, price concerns—specifically record high concession prices and their potential to raise consumer prices—prompted Ørsted to exit Germany’s offshore wind auction.

Still, Nipper said Ørsted remains confident in the offshore market’s scalability, adding the industry and regulators must overcome challenges.

“We think it is good that the industry is showing financial discipline like, for example, … pulling a project because that is a very stark reminder, for example, in this case the U.K. authorities, that prices need to be different and the auction frameworks need to change,” Nipper said. “But we are generally confident that there will be a move that will advance offshore.”

Seeing value, despite challenges

Analysts on the call questioned whether the decision in Rhode Island, a lawsuit by New Jersey residents opposing a tax break that the state granted Ørsted for a wind farm and other concerns in U.S. offshore wind could lead the company to rethink some financial investment decisions in the U.S.

Nipper pointed out the good and potential for value creation.

“We have gotten the record of decision for Ocean Wind 1, so the permitting is moving along,” he said.

The 1.1-gigawatt (GW) Ocean Wind 1 offshore New Jersey was approved in July by the Bureau of Ocean Energy Management, and New Jersey passed legislation for the project to access and retain all federal tax credit.

 “And we continue to have good dialogues about the adjustment in New York for our Sunrise 1 project as well. … We are achieving some milestones,” he added. “We are still working towards the FID [final investment decision] as mentioned on Hornsea [in the North Sea]. So, given where we are, especially on the U.S. projects and the rest of our portfolio, we see no positive value creation impact by walking away from projects and pursuing new” ones.

Ørsted aims to install nearly 30 GW of offshore wind capacity by 2030. During second quarter 2023, it added 3 GW to its pipeline. That included 2 GW in the U.S. via an acquisition from Eversource.

Advancing projects

Progress is being made on projects in the U.S. and other parts of the world.

At the Greater Changhua 1 and 2a wind farms in Taiwan, all export cables, array cables and jacket foundations have been installed. More than 80 turbines are producing energy with 14 more remaining to be installed. “We aim to commission the project in the second half of this year,” Nipper said.

The 130-megawatt South Fork Wind offshore New York is expected to start operations this year.

“The team has reached a huge milestone by successfully installing the first-ever American built offshore wind substation as well as all foundations for the project,” Nipper said. “These fantastic achievements mean that the 130-megawatt project is on track to become the first completed utility-scale offshore wind farm in the U.S. with expected commissioning by the end of 2023.”

Ørsted is looking to win some of the up to 50 GW of offshore wind capacity expected to be auctioned in 2023 and 2024. The company submitted a proposal for development rights offshore New York, which intends to announce awards in fourth-quarter 2023.

Other upcoming auctions and tenders are set for offshore New Jersey, Norway and the U.K. this year, with more expected next year offshore Denmark, Germany, Ireland, the Netherlands, Taiwan and the U.S.

The tenders illustrate the “huge growth potential of the offshore wind industry,” Nipper said.

“Ørsted has an industry leading renewables pipeline of more than 100 gigawatts, and we will stay disciplined in our bidding approach for new tenders and select the most value creating opportunities.”