Across the world, inflation and supply chain constraints are driving up prices for key goods — from food to steel, gas, and fertilizers. These trends have been especially acute for fossil gas, but the offshore wind sector has gained focus recently following the efforts of two U.S. offshore wind projects to renegotiate plans in light of rising commodity prices. Though the entire energy industry is grappling with macroeconomic headwinds, analysts say that the rough patch should be temporary for renewables. Meanwhile, fossil fuel prices may never recover, with natural gas prices hitting a 14-year high in 2022, oil and gas producers promising to temper any drilling expansion to maximize profits after a decade of losing money, and oil and gas producers claiming the era of inexpensive gas is over. Despite the short-term concerns, the offshore wind sector is well positioned to weather the challenges and come out delivering affordable, reliable energy along with myriad climate, health, and economic benefits as the U.S. industry matures.
While inflation is impacting the energy sector across the board, some of the recent challenges for U.S. offshore wind are rooted in issues unique to specific projects.
- Energy costs are expensive across the board right now due to inflation, supply chain constraints, and global market forces.
- Recent coverage of cost issues surrounding U.S. offshore wind development have been rooted in unique aspects of specific projects:
- Renegotiations around Dominion Energy’s Coastal Virginia Offshore Wind Project mostly centered on the details of a performance guarantee and responsibility for construction cost overruns, and have since been resolved.
- While Avangrid petitioned to re-bid on its Commonwealth Wind project in Massachusetts because it had locked in contract prices prior to the sudden spike in inflation, regulators rejected their claims and approved the existing contract, finding that the pricing terms were “reasonable” and the project is “viable.”
- New Jersey’s Public Service Enterprise Group has considered selling its stake in the Ocean Wind I project in favor of building offshore wind transmission systems instead.
- Industry officials say the recent cost concerns mostly come down to bad timing, and that the overall outlook for offshore wind remains strong as more projects are looking to build inflation adjusters into their contracts. The 10 year trend for offshore wind has seen prices steadily declining.
Renewable energy technologies are expected to weather macroeconomic headwinds, but fossil fuels may never recover.
- Analysts have affirmed that, “these cost hikes mark a rough patch for renewables, but not an inflection point.” Renewable energy prices are expected to resume their declining trajectory as supply chain pressures relax and production capacity increases.
- Clean energy like offshore wind power also provides deflationary effects across the economy, because once it’s installed, it generates clean energy at minimal cost for years, unlike fossil fuel as an energy source which requires continual mining or drilling.
- Analysis shows that investing in renewable energy like offshore wind is an important strategy for lowering electricity prices and combating inflation in the long run.
- Despite the temporary cost increases, renewable energies remain the cheapest sources of power, and the gap between renewables and fossil fuels is widening.
- Meanwhile, fossil gas has quadrupled in price since 2020 and those costs may never go down, unlike the cost of iron, aluminum and other metals used in construction of wind turbines that have seen significant price drops over the past year.
As inflation subsides, supply chains scale up, and the industry matures, offshore wind is well positioned to deliver major cost reductions, climate benefits, and economic growth.
- Offshore wind is a mature technology but it is not a mature industry in the United States — yet. The early projects in development now will lay the groundwork for the industry to scale up, and international examples show that costs will come down as the industry matures.
- As it scales up, the offshore wind industry is poised to create a homegrown manufacturing and labor force, creating hundreds of thousands of jobs.
- The long-term benefits and cost savings–in terms of energy rates as well as carbon pollution reduction and all its associated climate, environmental, and health costs—far outweigh the status quo or building more fossil fuel infrastructure.
- In Delaware, the state could purchase power generated by offshore wind at half the cost of fossil fuel generated power it gets today.
- A new report out of Maryland projects $5 billion in savings for the state’s ratepayers over the next decade as offshore wind gets added to the energy mix.
- In the UK, the price of procuring power from offshore wind dropped to its cheapest cost yet, tempering energy cost spikes due to Russia’s invasion of Ukraine.