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BP
and
Equinor
have canceled a major offshore wind contract near New York, leaving plans to provide hundreds of thousands of people with clean power in limbo. The project, known as Empire Wind 2, was expected to be installed 15 to 30 miles off the coast of Long Island and had already received important permits.
The cancellation was caused by “inflation, interest rates and supply chain disruptions,”
Equinor
said in a statement. The cost of materials like steel has soared over the past two years, cutting into the margins that wind developers expect to make on these projects. BP and Equinor had signed the Empire Wind deal with the state and utilities before inflation caused material prices to jump.
It isn’t the first project derailed by those forces. In New Jersey, wind power company
Orsted
pulled out of two large projects last year because of similar inflationary and supply chain pressures. Orsted stock fell 39% in 2023 and the company wrote down the value of its wind projects by billions of dollars. Barron’s had warned investors last summer that offshore wind’s economics were deteriorating fast.
BP and Equinor’s American depositary receipts were up 1.8% in recent Wednesday trading, while the
S&P 500
fell 0.4%. Both companies still make most of their money from fossil fuels, and the stocks have been moving with oil, which rose Wednesday because of violence in the Middle East.
Also, the wind announcement wasn’t a big surprise. Both companies have taken impairments related to their New York projects, after the state denied their request last year to increase the rates they would receive for the power produced by the turbines.
But Wednesday’s news does represent another setback for America’s clean power goals, after renewable energy stocks slumped in 2023. President Joe Biden had announced in 2021 a goal to install 30 gigawatts of offshore wind power by 2030, enough to power about 10 million homes. The Empire Wind 2 project was expected to add 1.26 gigawatts of capacity. Empire Wind 1, which hasn’t been canceled but faces similar cost pressures, is expected to add 0.8 gigawatts of capacity.
The announcement doesn’t necessarily mean the Empire Wind 2 project is dead. The companies still hold federal leases on thousands of acres of ocean bedrock, as well as some permits. They could still finance turbines as long as they can find someone to pay for the power.
Equinor said it is now looking for other “offtake” agreements, though the company didn’t specify what those agreements could look like and didn’t respond to a request for comment. A BP representative said Equinor handles media requests about this project.
New York state will retain $6.3 million in ”contract security” that the companies paid, and use the money to lower electricity costs for consumers. The state is also soliciting new bids to provide offshore wind power that could replace the power that BP and Equinor were expected to provide. New York already signed deals late last year with several companies, including French oil major
TotalEnergies,
for new offshore wind projects that paid more than the Empire Wind contracts. The enhanced economics—financed by taxes and higher electricity bills—could reinvigorate the industry, though it’s likely to take several more years to develop these projects.
Write to Avi Salzman at avi.salzman@barrons.com
Read the full article here
