State contracts for three major offshore wind farms fell apart late last week because a turbine manufacturer scaled back plans to build equipment the projects relied on. The cancellations underscore the supply chain pressures that plague the nascent industry.
The New York State Energy Research and Development Authority announced Friday that it could not reach a final deal with three offshore wind projects: Attentive Energy One, Community Offshore Wind and Excelsior Wind. In October, NYSERDA had provisionally awarded the contracts to the developments.
All three efforts planned to rely on massive new turbines built by General Electric Vernova, but in February the Massachusetts-based company said that it would downsize its plans to a smaller model. The change “caused technical and commercial complexities between provisional awardees and their partners, resulting in the provisionally awarded parties’ inability to come to terms,” NYSERDA wrote in a Friday announcement.
The decision is an undeniable blow to New York’s ambition to generate 70% of its electricity from renewable sources by 2030 and create billions of dollars in economic development to grow the city and state’s green economy. Offshore wind is critical for New York to hit its renewable energy targets, including nine gigawatts of offshore wind by 2035; Friday’s decision left New York with just 1.7 gigawatts of offshore wind projects in the pipeline.
“It’s obviously a setback,” said Fred Zalcman, director of the New York Offshore Wind Alliance. “Together, these projects represented close to five gigawatts of offshore wind, so I’m not going to sugarcoat it, at a minimum it will result in some delay.”
Zalcman pointed to “some important lessons to be learned” from the state’s latest solicitation for offshore wind projects, namely, that the state energy authority should look to “decouple its procurement of offshore wind facilities from its play for manufacturing.”
For instance, the developers behind the three projects decided to make GE Vernova’s supersized turbines integral to their projects after the company said — three days before project bids were due to New York — that it had submitted plans to build two new upstate factories if the company received sufficient orders from the developers that were bidding.
As a result, New York in October provisionally awarded GE Vernova and LM Wind Power $300 million in state funds to build the upstate manufacturing facilities. GE Vernova is now pivoting away from a hulking 18-megawatt turbine platform in favor of a smaller, 15.5- to 16.5-megawatt version. NYSERDA said the grant dollars will be made available in future solicitations.
“Those procurements were just so intertwined that it creates enormous leverage for the suppliers but also creates enormous risks for project developers,” said Zalcman.
Andrew Doba, a spokesperson for Vineyard Offshore, the developer behind Excelsior Wind, said in a statement that New York’s decision to back out of the contracts was “warranted given GE Vernova’s failure to follow through on their commitment to deliver an 18MW machine.”
GE Vernova, meanwhile, said the company is committed to working with its public and private partners to support New York’s offshore wind future.
Bigger isn’t always better
The philosophy behind the giant turbines is that larger equipment would deliver greater power at reduced costs. But the enormous equipment comes with equally extensive requirements. More port space is needed for assembly, and bigger boats are required to transport them.
Morten Dyrholm, an executive at one of GE Vernova’s competitor’s, Vestas Wind Systems, said during an April 16 panel discussion at the BloombergNEF Summit in New York that the turbine industry is “stuck in a technology arms race” to continually push out bigger and better products. That competition, he said, has added pressure on an already-delicate supply chain.
“It’s really time to industrialize and standardize our supply chains and our products,” said Dyrholm. “If we were to go out tomorrow and change [our suppliers’] entire setup, that adds costs and adds time and complexity, and that’s not what we need right now.”
Atin Jain, a BloombergNEF analyst who focuses on offshore wind, said using lower-capacity turbines means that each developer would need to buy more than a dozen additional turbines to build a project of the same capacity. It also means a slew of other mounting costs to erect new foundations, additional cables, more days of hiring specialized installation vessels and so on.
“In the absence of a tariff adjustment, developers’ profit expectations would have suffered,” Jain said in an email. That said, Jain noted that Gov. Kathy Hochul’s administration has raced in recent months to head off contractual challenges faced by NYSERDA’s two surviving offshore wind projects, Ørsted’s Sunrise Wind and Equinor’s Empire Wind 1, and said a similar situation could unfold in the coming weeks.
On Tuesday, Hochul sought to again bolster confidence by announcing the launch of a $200 million “Supportive Manufacturing and Logistics Request for Proposals” to support infrastructure investments in the offshore wind supply chain. The state also said it will soon issue a request for information to inform New York’s fifth offshore wind farm solicitation, along with the design of a $300 million request for proposals for “major component offshore wind supply chain investments,” such as turbines.
Jeremy McDiarmid, managing director and general counsel at Advanced Energy United, an advocacy organization, described the setback as “very typical for construction projects of this size, particularly with the lasting impacts the pandemic had on supply chains, financing, and leasing.”
“When a building construction project doesn’t move forward, we don’t treat it as an indictment of the building construction industry,” McDiarmid added, “and it should be the same for offshore wind.”
Caroline Spivack , 2024-04-24 16:03:04
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