Ørsted, the world’s largest developer of offshore wind, announced late last year that it was cancelling both of the Ocean Wind projects it had planned to build off the New Jersey coast. Earlier in 2023, the developers of Pilgrim Wind and Mayflower Wind, two prospective wind farms off the Massachusetts coast, paid that state’s electric utilities millions of dollars to cancel their contracts. And in New York, BP and Equinor recently announced cancellation of the contract for Empire Wind 2. But while the offshore-wind industry may have lost these recent battles, the battle against this inefficient and high-cost technology is far from over.
Last October, New York’s Public Service Commission (PSC) rejected offshore-wind developers’ effort to hike their contract prices, which would have saddled New Yorkers with an extra $38 billion in electric-bill costs. The developers responsible for the Beacon Wind, Sunrise Wind, and Empire Wind 1 and 2 projects had requested a 50 percent price increase under their current long-term contracts. They claimed that the price hikes were needed to offset unanticipated costs related to Covid-19, supply-chain constraints, and inflation. The regulators disagreed, calling the developers’ proposal “inconsistent with Commission policy favoring competition in generation procurement.”
The developers have themselves to blame. They bid their projects as far back as 2018, when the Federal Reserve and European central banks were holding interest rates near zero. Back then, raw-material prices had not yet skyrocketed, as they did post-2020. Developers also believed their own hype that their construction costs would fall as new turbines grew in size, which has not occurred, and they likely succumbed to what economists call “winner’s curse”—or a winning bidder’s tendency to overestimate the auctioned item’s worth.
While the PSC’s rejection was hailed as a win for consumers, the move is less momentous than it seems. New York is proceeding apace to meet former governor Andrew Cuomo’s goal of producing 9,000 megawatts of offshore wind by 2035. The New York State Energy Research and Development Authority has announced the three winners for its most recent auction: the 1,404 MW Attentive Energy project, and the 1,314 MW Community Offshore Wind and Excelsior Wind projects, all to be developed by European companies.
Those three winners’ contracts come with an average price of $145 per megawatt-hour—much higher than the prices bid by Beacon Wind, Sunrise Wind, and Empire Wind I and II, and made worse by New York’s having added an inflation-adjustment mechanism to the developers’ contracts. The inflation-adjustment clause will allow developers to transfer the risks of higher materials costs and of connecting to the state’s high-voltage transmission system onto captive electric ratepayers. Connecticut has adopted a similar mechanism that insulates developers from cost rises and transfers the risks of those increases onto ratepayers, resulting in predictable price hikes.
Though the PSC is charged with ensuring that electric rates remain “just and reasonable,” the latest prices for the three newest wind projects signal that New York will not abandon the offshore-wind mandate, regardless of cost. To abandon that mandate would be to admit that offshore wind, despite former Governor Cuomo’s lofty promises, is a high-cost boondoggle. The reality of offshore wind, however, won’t change. The technology on which it relies is inefficient, and like other forms of intermittent generation, requires 100 percent backup to compensate for the hours when it is unavailable.
The real question is how much pain New York and New England politicians will impose before ratepayer and taxpayer pushback becomes too much for them to ignore.