New York state unanimously rejected requests from offshore wind developers including Equinor ASA and Orsted A/S for higher rates that the state concluded would add as much as $12 billion in costs.
(Bloomberg) — New York state unanimously rejected requests from offshore wind developers including Equinor ASA and Orsted A/S for higher rates that the state concluded would add as much as $12 billion in costs.
Developers planning more than 4 gigawatts of offshore wind projects alongside Long Island must abide by the terms of existing contracts to deliver power, the New York Public Service Commission ruled during a meeting Thursday. The regulators refused to entertain requests to increase rates after inflation and supply-chain issues drove up costs in a decision the companies said could impact their projects’ futures.
“We are reviewing the PSC’s order, but Sunrise Wind’s viability and therefore ability to be constructed are extremely challenged without this adjustment,” David Hardy, Orsted’s CEO of the Americas, said in an emailed statement. “We will evaluate our next steps and communicate the status of the project as soon as possible as our joint venture and board consider the best options going forward.”
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Shares of some of the largest offshore wind companies tumbled during the meeting. Orsted dropped as much as 3.3% in Copenhagen as commissioners began to share their views. Eversource Energy, the utility that’s co-developing the Sunrise project, slipped as much as 8.2%. The company took a $331 million after-tax impairment charge in the second quarter for its offshore wind operations. Even offshore wind companies not planning New York sites saw movement in their share prices. Avangrid Inc., which has already agreed to pay $64 million to exit offshore wind deals in other states but wasn’t involved in Thursday’s New York meeting, tumbled as much as 4.7%.
The New York decision is a blow to developers that have said they may not be able to complete projects under the current terms. Many proposed US projects were modeled years ago, before a run-up in interest rates and material costs. While the move may threaten the state’s clean-energy goals, the commission said that revising the contracts would set a dangerous precedent and undermine its competitive process for procuring power.
“To developers: We have a deal,” Rory Christian, chairman of the commission, said during the meeting. “Developers should stand by the terms of their contracts.”
Developers with projects alongside other states are already paying tens of millions in penalties to exit contracts they say no longer make financial sense. The commission said the companies could exit the deals and bid again in future procurement processes.
Equinor, along with BP Plc, is planning the Empire and Beacon offshore projects, with a combined total capacity of 3.3 gigawatts that could together power around 2 million New York homes. The companies in June told the state that “adverse economic impacts have imposed unprecedented and escalating cost increases on the projects.” To remain viable, they asked the state to approve a 54% price increase.
“Equinor and BP are disappointed at the New York Public Service Commission’s rejection of Empire Wind and Beacon Wind’s petition for support to help offset the unforeseen challenges facing our industry today stemming from inflation, supply chain disruptions and high interest rates,” Molly Morris, president of Equinor Renewables Americas, said in an emailed statement. “These projects must be financially sustainable to proceed. Equinor and BP will assess the impact of the state’s decision on these projects.”
Danish wind giant Orsted has several projects in the works off the US East Coast including the 924-megawatt Sunrise project east of Long Island, enough to provide power to around 600,000 customers. Orsted Chief Executive Officer Mads Nipper has said that the company is prepared to walk away from its US projects if it doesn’t receive more government aid. Orsted’s request to New York state was for a 27% bump.
Commission staff members concluded that the higher prices sought by the developers would increase electricity rates for commercial and industrial customers by as much as 10.5% and consumer rates by as much as 6.7%.
“The level of relief requested here is jaw-dropping,” Diane Burman, a commissioner, said during the meeting.
(Adds Orsted comment in third paragraph)
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