Just a ‘Bump in the Road’ for Offshore Wind?

Three years ago, New Jersey Gov. Phil Murphy announced plans to build a $250 million offshore wind facility at a marine terminal in Paulsboro, N.J., a small community just across the Delaware River from Philadelphia International Airport. The site was meant to manufacture monopiles, giant steel tubes that form the foundation for offshore wind turbines. Along with the New Jersey Wind Port, a new manufacturing and assembly site about 40 miles downriver from Paulsboro, Murphy said the investment would help “cement New Jersey as the leader in offshore wind in the United States.”

But a few weeks after two of the state’s biggest offshore wind projects were abruptly canceled by the developer, development of the site is in question. Giant steel monopiles dot the property, part of a larger complex of port facilities wedged between the river and blocks of residential homes. Activity at the site has been slowing down for months, says Paulsboro Mayor Gary Stevenson, as Ørsted, a Danish energy company building two wind projects off the New Jersey coast, has been struggling with cost inflation and supply chain disruptions.

Three weeks ago, the company announced it was abandoning both projects altogether. Murphy responded angrily, publicly questioning the company’s competence while insisting that the cancellation is a “bump in the road” for the broader offshore wind industry in the state. But for Paulsboro, where the marine terminal facility was funded largely by Ørsted, even a delay could bring new economic challenges.

“This could be catastrophic for our town,” Stevenson says.

New Challenges to the Industry

It’s been mostly full-steam ahead for offshore wind in New Jersey since Murphy took office in 2018. His administration has set a target, through a series of master plans and executive orders, of generating 11,000 megawatts of electricity from wind projects by 2040. The state has issued two solicitations for offshore wind projects so far, selecting Ørsted and a joint venture between Shell New Energies and EDF-RE Offshore Development to develop wind farms. It opened a third solicitation in the spring.

But more recently, the nascent industry has faced stumbling blocks. Ørsted shares dropped in August after the company announced it would write down its value by about $2 billion because of supply chain problems and high interest rates. In September, the governors of six coastal states with offshore wind programs wrote a letter to President Joe Biden saying that “inflationary pressures, Russia’s invasion of Ukraine and the lingering supply chain disruptions resulting from the COVID-19 pandemic have created extraordinary economic challenges that threaten to reverse” gains the industry has made during his term in office.

Announcing the company’s decision to pull out of New Jersey, Ørsted Americas CEO David Hardy said, “Macroeconomic factors have changed dramatically over a short period of time, with high inflation, rising interest rates and supply chain bottlenecks impacting our long-term capital investments.”

The cancellation was the most dramatic recent setback for offshore wind, but other challenges and risks linger. In October, New York Gov. Kathy Hochul vetoed a bill that would have streamlined an offshore wind project near Long Island. Wind developers in New Jersey and elsewhere face lawsuits from local opponents of their projects. Developers consistently cite inflation and supply chain issues when explaining delays.

It’s unclear why Ørsted pulled out of its New Jersey projects while still pursuing others. Murphy said in a radio interview the week after the company’s announcement that the offshore wind industry is still “alive and well” despite the challenges.

“We had a bump in the road last week, but we’re still going to have the biggest offshore wind program in America when it’s said and done,” he said.

It’s challenging for developers to carry out big wind projects not just because of high inflation and interest rates, but because there’s no real road map for offshore wind in the U.S., says Nathanael Greene, a senior advocate at the Natural Resources Defense Council. The industry is expected to deliver on a lot of promises, from clean energy to job growth, but there are still only two small offshore wind farms operating in the U.S.

“Without a doubt the cancellation of the Ørsted projects is frustrating and I think it represents some of the inherent uncertainty in the first projects,” Greene says. “Getting the economics right is hard when there’s no models to work from.”

Proponents point to dozens of offshore wind projects under development still despite the recent cancellation. It’s “a period of highs and lows for offshore wind,” says Frank Macchiarola, chief policy officer at American Clean Power, an industry group.

“When you step back from individual announcements about one particular project or another, I think the picture is that we have more than 30 projects in development in the U.S. We’ve had 11 states set targets for offshore wind totaling more than 84,000 megawatts,” Macchiarola says. “There’s a significant amount of development that’s taking place.”

Expectations and Skepticism

Opposition to offshore wind has grown over the last year, particularly among a string of coastal communities. Many opposition groups have ties to the fossil fuel industry. But some beach residents simply don’t want to see wind turbines in the water. Some groups have sought to link a rash of whale deaths to the development of offshore wind, though scientists say there’s no evidence of a connection. One recent poll showed plummeting public support for offshore wind expansion, from nearly 80 percent approval in 2019 to just about half today; opposition increased during the same period, according to the poll.

How much does that matter? A Murphy administration spokesman noted that neither Ørsted nor other wind developers have cited localized opposition as a challenge to their projects. There’s still broad public support for clean energy development, says Greene. But if communities that have been promised benefits from the projects don’t see them materialize relatively quickly, support could erode more.
“What we’ve seen in polls across the country around renewable energy, wind and solar, is that most people that are not right next to these projects support these projects. And I don’t think that’s likely to change,” Greene says. “I do think the question of — are these benefits really going to show up? — that is a question we hear all the time. It’s really on the industry to follow through and show that they’re going to make these commitments and they’re really going to be there.”

The Murphy administration is dealing with the fallout from the Ørsted announcement. It’s not clear whether the projects can be taken over by another developer, but an administration spokesman said there was an influx of interest from other developers after the announcement was made. Murphy is fighting to get a $300 million guarantee that the administration says the company owes. And more hangs in the balance, including jobs at the Paulsboro marine terminal. The future of the site is in question.

In response to an interview request, Lee Laurendeau, the CEO of EEW American Offshore Structures, the company behind the monopile facility, said, “We are not in a position yet to discuss this publicly, and still working out the details with Ørsted.”

Stevenson, the mayor of Paulsboro, says his biggest worry is the loss of potential jobs at the site and the economic spinoff effect they could have on the town. Paulsboro has already lost a string of drugstores after locally run pharmacies were bought up by national corporations over the last decade, he said.

“It’s catastrophic when these big companies leave. They promise you everything and then they just up and leave,” he says.

Ørsted was footing the bill for much of the Paulsboro project, Stevenson says, but public investments and utility work went into establishing it too.

“There’s been multiple millions from the county, state and local [governments] that have been invested into this thing and now Ørsted just says, ‘We’re outta here.’ It’s bullshit to me, to be honest. But did I see this coming? I did.”

As work slowed down over the last year, Stevenson says he had a feeling the project was going to fall apart. He told a reporter for the Financial Times in September that his biggest fear was that the company would walk away from its projects.

“I hate to say that I was right,” Stevenson says. “But I was right.”