Key Takeaways
Inflation, high interest rates, and supply chain problems have combined to make offshore wind’s already-expensive energy even more expensive, forcing companies to negotiate for higher rates or cancel projects.
A leading Norwegian company recently withdrew from projects in Vietnam, Spain, and Portugal, pointing to unsustainable costs.
Shell and Danish wind developer Ørsted have canceled their wind projects off the coast of New Jersey despite the Biden administration’s repeated efforts at lowering royalties, easing permitting, streamlining environmental documentation, and providing generous wind subsidies.
In the U.K., where offshore wind is well-established, it has become apparent that China’s worldwide dominance in the offshore wind supply chain may compromise its national security.
While the United States lags behind Europe in deploying offshore wind energy, its growing list of problems indicates this may be prudent, especially given the huge natural resource wealth in the United States.
President Trump’s executive order on offshore wind, “Temporary Withdrawal of All Areas on the Outer Continental Shelf from Offshore Wind Leasing and Review of the Federal Government’s Leasing and Permitting Practices for Wind Projects,” is just one part of offshore wind’s troubles. According to Carboncredits.com: “over the past two years, the average cost of offshore wind projects has risen by 30% to 40%, reaching $230 per megawatt hour.” While it was already one of the most expensive technologies being considered, its costs have grown even higher than the increase in inflation due to high interest rates and supply chain problems. Unless companies can get higher-priced contracts for their wind energy, they are canceling projects. Norway’s Equinor, a leading developer in renewable energy, recently withdrew from offshore wind projects in Vietnam, Spain, and Portugal, citing unsustainable costs. Similarly, Shell has sold its stakes in projects across Massachusetts, South Korea, Ireland, and France. It has also announced the cancellation of its $1 billion stake in a wind farm off the New Jersey shore.
In its recent quarterly earnings report, Shell disclosed a $996 million write-off related to an offshore wind farm called Atlantic Shores, for which it no longer sees fruitful returns. The company has been developing the project in a joint venture with the renewables part of the utility company Electricite de France SA (EDF). The joint venture agreed to pay around $780 million to lease an area in a federal offshore wind auction in 2022. Since then, rising interest rates and supply-chain issues have driven up industry costs, making investing harder. While Shell is no longer active in the project, EDF expects the Atlantic Shores project to continue. President Trump wants the New Jersey wind farm to be “dead and gone,” as he sees its power as being expensive and unreliable since it is based on the wind blowing and taxpayer subsidies. The president worked with New Jersey Congressman Jeff Van Drew to draft the executive orders that targeted the offshore wind industry on his first day in office.
Over a year ago, Danish wind developer Ørsted canceled its Ocean Wind 1 and Ocean Wind 2 projects off the New Jersey shore, citing rising interest rates, high inflation, and supply chain bottlenecks. The projects would have added about 2.2 gigawatts of intermittent power to the New Jersey grid. Besides being expensive, offshore wind is also unreliable and needs backup power in the form of expensive batteries or through coal, natural gas, or nuclear generators. Either way, the cost of electricity would escalate. Ørsted was able to write off $4 billion, primarily due to the cancellation of these two large offshore wind projects.
Dominion Energy’s gigantic 2.6-gigawatt, 176 turbine, Coastal Virginia Offshore Wind project is about halfway to its planned completion expected for year-end 2026. The project’s costs have risen by about $900 million (9%) to $10.7 billion.
Chinese Dominance in Wind Energy Manufacture
Another problem for wind energy, as in other parts of a green energy transition, is China’s growing dominance in its manufacturing. China is a global leader in the manufacturing of wind turbines, and European countries are heavily reliant on Chinese-made parts. By the end of 2023, China controlled 43.2% of the world’s installed wind energy capacity, making it a dominant player in the market. The U.K.’s dependence on China for offshore wind supplies has become a growing national security concern for the country, as its former MI6 Director pointed out. Rare earth permanent magnets are a critical component in offshore wind turbine generators. These rare earth magnets are predominantly produced in China, putting Europe’s energy infrastructure and national security at risk. Without a significant shift toward domestic production, which will not be easy as substantial processing is needed to obtain the minerals, Europe’s energy future will be beholden to China. The dependency on China creates a national security challenge as geopolitical tensions over resources could disrupt supply chains. For example, in 2010, China placed a two-month embargo on rare earth metal exports to Japan during a territorial dispute between the two nations, and recently, it banned exports of “dual-use items” related to gallium, germanium, antimony, and superhard materials to the United States.
The United States is Also Dependent on China’s Critical Minerals
China’s dominance in critical minerals is also a problem for the United States as President Biden revoked leases, delayed permits, and labeled fauna and flora endangered, which canceled and slowed the development of critical mineral mines in the United States. For example, the Biden administration revoked the federal leases for the Twin Metals mine in Minnesota that contains copper, nickel, cobalt, and platinum-group elements and followed that decision by withdrawing more than 225,000 acres of the Superior National Forest from consideration for mining operations for 20 years, thereby ensuring the Twin Metals project’s demise for the foreseeable future.
Another example is that the Biden administration blocked the State of Alaska’s application to build a 211-mile road through northwestern Alaska to reach an area known for its mineral richness. The road-building project is needed to access major copper and zinc deposits needed for transmission lines, wind turbines, and photovoltaic cells. The proposed 211-mile-long Ambler Road was initially approved under the Trump administration, which issued a 50-year right-of-way permit to build the road just days before President Trump left office during his first term. Biden’s action also broke commitments made at statehood in 1959 by denying Alaskans access to resources.
Conclusion
Offshore wind energy is expensive and is getting even more expensive due to supply chain issues and high interest rates. Wind development companies are canceling projects not only in the United States but also around the world. President Trump is not enamored with offshore wind energy due to its cost and unreliability, as it produces energy only when the wind blows. The refrain of intermittent renewable energy supporters that wind facilities are cheaper ignores that they are usually unavailable, requiring backup power to be built and paid for by consumers to accommodate their intermittency. The result is higher prices for consumers and businesses trying to compete globally.
Concerns are also raised as China has become a dominant force in manufacturing wind energy components, which leads to energy security and national security concerns for nations that rely on it. China does not have the oil and gas resource base that the United States has, so it has used the green energy transition to become dominant in supplying the energy needs of Western countries that want to stop using fossil fuels because they supposedly cause climate change.
