Wind Industry in Crisis as Problems Mount

After months of warnings about rising prices and logistical hiccups, developers and would-be buyers of wind power are scrapping contracts, putting off projects and postponing investment decisions. The setbacks are piling up for both onshore and offshore projects, but the latter’s problems are more acute.

In recent weeks, at least 10 offshore projects totaling around $33 billion in planned spending have been delayed or otherwise hit the doldrums across the U.S. and Europe.

“At the moment, we are seeing the industry’s first crisis,” said Anders Opedal, chief executive of Equinor EQNR -0.18%decrease; red down pointing triangle, in an interview.

The Norwegian energy major and BP BP -0.20%decrease; red down pointing triangle are developing three wind farms off the coast of New York to power around two million homes but told the state in June that it will need to renegotiate power prices or else the projects won’t get financing.

The holdup of projects that could generate 11.7 gigawatts—enough to power roughly all Texas households and then some—likely pushes 2030 offshore wind targets out of reach for the Biden administration and European governments. The technology is considered vital in the energy transition toward cleaner electricity supplies and away from fossil fuels.

The U.S. has the largest onshore wind market outside of China but just seven turbines producing electricity offshore. President Biden hopes to jump-start the offshore industry and targets 30 gigawatts of offshore wind power this decade.

“You ain’t seen nothing yet,” Biden said last month about his administration’s plans to pursue more wind projects, including the first auction in the Gulf of Mexico later this month.

Europe’s strong winds and shallow waters have made offshore wind one of its fastest-growing renewable technologies. But a 40% cost increase recently halted a giant project in the U.K., a global leader in offshore wind, while developers delayed two investment decisions in the Baltic Sea.

Another three projects in the North Sea totaling about $19 billion in planned spending are potentially delayed or revising terms too, said Peter Lloyd-Williams, a senior analyst at Westwood Global Energy Group.

“If the soundest projects in the most mature markets start to sink, that is a major red flag,” he said.

The list of woes is long: inflation, supply-chain backlogs, rising interest rates, long permit and grid connection timelines. The increasing pace of the energy transition has created a loop of escalating costs.

Avangrid AGR -0.23%decrease; red down pointing triangle, a U.S. subsidiary of Spanish utility Iberdrola IBDRY 0.53%increase; green up pointing triangle, this month agreed to pay $48 million to back out of an offshore wind-power deal in Massachusetts that it bid in September 2021, when outlooks were rosier.

“What happened of course is that the world changed dramatically,” said Ken Kimmell, vice president of offshore wind development with Avangrid.

The war in Ukraine sent the price of steel and other supplies higher at the same time that European countries accelerated plans for offshore wind. A series of interest-rate increases has made borrowing more expensive, Kimmell said.

When Massachusetts launches another round of bidding for offshore wind energy in January, Kimmell expects contracts there—and in other states—to include clauses that account for possible cost increases or dips. He called the industry’s troubles a “speed bump, not a brick wall.”