A Cause for Uncertainty
New York State’s ambitious offshore wind energy plans hang in the balance following its rejection of appeals by larger developers to review their power purchase contracts to correspond with current market conditions. This decision echoes comparable circumstances in Massachusetts and Connecticut, which are also jeopardizing projects while authorities in New York and New Jersey persist in their endeavors for offshore wind energy. The New York State Public Service Commission’s (NYSPSC) decision last Thursday sounded a new alarm in the industry.
Market Repercussions
Alarmingly, the share prices of developers Ørsted and Equinor fell markedly following the news, heightening concerns about certain projects. Ørsted’s stock price plummeted over half from its 52-week peak, shedding nearly an extra nine percent for its U.S.-based depository receipts on Friday. While the sector generally suffered downturns, Equinor regained ground, concluding the day with over a two percent rise.
The concern ignited when the NYSPSC announced the denial of petitions from Empire Offshore Wind and Beacon Wind, spearheaded by Equinor and BP, and Sunrise Wind, that Ørsted is developing. Each proposal requested the commission’s order, instructing the New York power regulator, the New York State Energy Research and Development Authority, to integrate an adjustment mechanism into existing Renewable Energy Credit and offshore wind power purchase agreements.
Appeal Denied
The developers argued that inflation and cost increases due to supply chain problems and other factors were detrimentally altering the financial feasibility of the projects. Intriguingly, developers in Massachusetts employed similar arguments approximately a year ago, with their requests also denied by the local regulators. However, Massachusetts had to concede this summer for developers Eversource and Avangrid to purchase their way out of their contracts. Their projects are at a standstill while they seek to renegotiate power agreements. The developers may ultimately abandon them completely.
Governor’s Response
New York State’s Governor Kathy Hochul swiftly responded with a dynamic 10-point plan to extend and strengthen the renewable energy industry. Asserting that the state will surge ahead with an expedited renewable energy procurement process. She pledged cooperation with the federal government on issue resolution, suggesting potential schemes such as a loan program to aid in accessing low-cost financing. Also, the state confirmed its commitment to continuous investments to enhance the transmission infrastructure.
A Glimmer of Hope
Despite the predicament in New York, neighboring New Jersey brought Ørsted some relief on Wednesday with a new agreement that permits the company to retain federal tax credits. The firm committed $100 million to proceed with its Ocean Wind offshore wind farm by placing the funds in an escrow account. The project’s 2024 milestones are now secured by a guarantee that it will be operational by December 2025 or the company will forfeit the $100 million. In addition, Ørsted persists with a smaller New York wind farm currently under construction. All considered, uncertainties loom over these offshore wind energy initiatives, painting a picture of a tumultuous landscape and economic viability under question.
