Targets fixed by bureaucratic fiat are unrealistic? Say it ain’t so.
Writing for the Financial Times, Amanda Chu surveys the mess in which the wind-power sector now finds itself:
The Biden administration’s plan to increase offshore wind generation capacity by 2030 will not be met, executives at the world’s biggest turbine manufacturers have said, warning that the sector needed a reset to become economically viable.
“Reset” means repriced. And that will not be good for consumers, taxpayers, or both.
Chu:
The White House has set a goal of installing 30 gigawatts of offshore wind capacity by 2030 — enough to power 10mn homes — and has made the target central to its plans to slash carbon pollution. But recent project cancellations, including Danish developer Ørsted’s decision to pull two offshore projects in New Jersey, and soaring costs had thrown the entire strategy into peril, said executives.
The 2030 target was “widely and regretfully acknowledged” to be unrealistic, said Josh Irwin, senior vice-president of offshore wind at Vestas, the world’s largest offshore wind manufacturer.
Targets fixed by bureaucratic fiat are unrealistic? Say it ain’t so.
Chu:
“These cancellations and delays go beyond growing pains,” Irwin told the Financial Times, adding that Vestas lacked the certainty needed to move forward with plans to build a US factory. “The US industry is in the middle of a fundamental reset to restore economic viability.”
Richard Voorberg, chief executive of Siemens Energy North America, made similar comments this week, saying the administration’s 2030 offshore wind target was now a “tall order”.
“The market’s got a problem. You look at Siemens Energy, you look at GE, you look at Vestas, the big players, we’re all losing money. . . . That’s not a sustainable model,” Voorberg told the FT’s Investing in America summit on Tuesday.
The warnings from the largest wind manufacturers came as developers move to cancel or renegotiate contracts after suffering steep losses. Aside from Ørsted, Avangrid and Shell have cancelled projects, and BP and Equinor reported $840mn in impairments last quarter from their two New York projects after the state rejected their requests to renegotiate contracts. Just one offshore wind project is in full operation in the US, generating 30 megawatts of electricity per year off the coast of the state of Rhode Island. . . .
The administration’s landmark Inflation Reduction Act, which passed Congress last year, included about $370bn worth of sweeteners to stimulate domestic cleantech manufacturing. At least 10 offshore wind ports and five projects to build vessels and structures for offshore wind have been announced since the IRA passed.
But rising project costs and expectations that interest rates will remain higher for longer are hurting the sector’s prospects, analysts have said.
Vestas has agreed to supply offshore wind projects in New Jersey and New York and plans to build a nacelle [the ‘container’ for all the generating equipment in a wind turbine] factory. But the facility — for which the planned capital expenditure has not been announced — could be shelved if the Atlantic Shores, a project planned by Shell and EDF Renewables offshore New Jersey, does not go ahead. The developers have called on the state for “immediate action”, warning that “tens of thousands of real, well-paid and unionised jobs are at risk”.
The developers clearly know which buttons to press.
Chu:
More than half of US offshore wind contracts have been cancelled this year or are at risk of cancellation, according to consultancy BloombergNEF, which says the US 2030 offshore wind targets are “impossible” at this time.
Still, some people are doing well out of this fiasco.
Hedge funds are profiting after a series of well-timed bets against wind energy stocks, with some wagering there is further pain to come for the troubled sector.
Marshall Wace and quantitative trading firm Qube Research & Technologies are among those to have made millions of pounds in profits from sharp falls this year in the share prices of wind industry stocks such as Siemens Energy and Ørsted.
The short bets reflect a broader loss of enthusiasm for green energy stocks, despite huge tax credits and subsidies offered by governments to renewables companies in the US and Europe.
Wind companies generally agree long-term contracts that fix the price at which they sell energy. However, high inflation has pushed up their costs, while high interest rates have made it more expensive to raise money for their often-expensive new projects.
Some might say that all the handouts operated as an incentive to companies to ignore or misprice the risks that they were taking on. That would, of course, be wrong. Who could possibly have thought that there was a decent chance that interest rates would move up fairly sharply after hitting (on some estimates) 4,000-year lows?
The Financial Times again:
The S&P Global Clean Energy index, which is made up of 100 of the biggest renewables stocks, soared in the early stages of the coronavirus pandemic to hit a peak in early 2021. But it fell sharply later that year and, after losing further ground in 2022, has dropped another 35 per cent this year.
Perhaps the S in ESG should stand for short.