Wind energy faces setback as rising costs jeopardize new projects

Wind energy is facing a multi-billion dollar setback that some in the sector are calling the “industry’s first crisis.” New reports from The Wall Street Journal and The Washington Post point to problems with public approval and financing.

These issues have resulted in 10 planned offshore wind projects spanning along the coasts of the United States and Europe to either be delayed or encounter major hurdles, threatening to put over $33 billion in planned investments on hold.

The delays have been attributed to escalating costs and supply chain backlogs, forcing energy companies to reconsider their involvement in these offshore wind ventures. The financial strain has become so pronounced that some companies are choosing to pay substantial sums, often in the tens of millions, to exit their offshore wind power agreements rather than proceed with increasingly expensive projects.

“Offshore wind developers are not going to invest if project economics don’t work,” said Rebecca Williams, head of offshore wind at the Global Wind Energy Council trade group.

Among the projects in jeopardy are three proposed wind farms off the coast of New York, which have the potential to generate enough energy to power upwards of 9 million homes. These projects, comprising more than a third of President Joe Biden’s 2030 offshore wind energy goals, now face calls from their financial backers for contract renegotiations to make them economically viable.

In Europe, a major wind project based off the coast of the United Kingdom has been halted after development costs surged by 40%. Similarly, several projects in the North Sea with an estimated cost of around $19 billion are experiencing delays as contract terms are revisited.

“If the soundest projects in the most mature markets start to sink, that is a major red flag,” Peter Lloyd-Williams, a senior analyst at Westwood Global Energy Group, said about the challenges in offshore wind farm construction that European nations have faced. 

Wind energy installations on land have also encountered difficulties. It has not solely been construction costs that pose challenges; experts point out that the frequent expenses associated with turbine maintenance have impacted profitability, a problem that has become prevalent for onshore wind farms. The American Clean Power Association has reported that onshore wind projects experienced their slowest growth quarter since 2019 this year.

“We have problems both offshore and onshore,” said Tim Proll-Gerwe, spokesman with Siemens Energy, which has forecasted that it expects to lose about $5 billion this year.

The ongoing conflict in Ukraine has further exacerbated the situation by driving up the price of critical building materials such as steel. However, energy executives are optimistic that these challenges will abate over time. Major companies like BP and Total Energies are continuing to invest in Europe’s offshore wind industry, with investments totaling approximately $14 billion.

Meanwhile, in the U.S., new locations for bidding on offshore wind developments are being opened up. The Biden administration is taking steps to support the industry by providing over a trillion dollars in federal tax incentives and loans for green energy industrialization through the Inflation Reduction Act. A recent study conducted by the University of California, Berkeley, revealed that despite these recent setbacks, offshore wind may eventually supply up to a quarter of American power needs by 2050.