As offshore wind project-costs soar, developers seek 'flexibility' for increases

The rate New Yorkers will pay for offshore wind energy could rise from previously negotiated levels if state regulators approve new requests by project developers for “flexibility” in their contracts to cover soaring costs.

In filings with the state Public Service Commission Wednesday, developers for at least four projects slated for the New York and Long Island power grids are asking for changes in the scheme by which the mostly overseas companies get compensated for energy they deliver to the grids. One of the companies cited the “unanticipated, extraordinary economic events” around the COVID-19 pandemic and the war in Ukraine as drivers for soaring inflation and other increases.

The requests are significant as New York moves to shift the bulk of the state’s energy sources away from natural gas and oil-power plants to renewable energy and primarily offshore wind. The state has already contracted for more than 4,000 megawatts of offshore wind power, enough to power millions of homes, and plans to award more than that in coming years to lead the transition.

When New York state announced the first two offshore wind projects in 2019, it said average residential customers’ bills would increase by “less than a dollar per month,” or as low as 73 cents. It's unclear how any changes to the cost structure, if approved, would change that rate.

In its PSC filing, the developers of the Sunrise Wind project, which is scheduled to connect to Long Island at Smith Point by 2025, and two Empire Wind projects to be located off Nassau’s South Shore around the same time, asked for flexibility in their previously awarded contracts to help recover rising costs tied to inflation, rising materials costs and grid connection cost hikes.

“This proposal seeks to redress the impact of unforeseeable economic conditions on the projects and restore the ability to attract the capital required for them to move forward,” Norway-based Equinor said in its filing, with co-developer bp. The companies also were awarded a third project called Beacon Wind. 

Equinor, in a statement, said it has seen estimated costs of its projects “rise sharply due to inflation, supply chain disruptions, permitting and interconnection delays, rising interest rates, and other outside factors."

"While we have worked to manage these issues, given the unique moment in our global economy, this is an industrywide issue that cannot be overcome at the project level," said Teddy Muhlfelder, vice president for Equinor Renewables Americas. 

In a separate filing, Sunrise Wind noted its budget for the project had increased by an amount that was redacted in its filing, and said without the flexibility it’s requesting, its developers “would not be able to obtain a final investment decision allowing it to fully construct the project.”

James Denn, a spokesman for the PSC, said, "We are aware of the petitions that have been filed and they will be noticed for public comment shortly.” The New York State Energy Research and Development Authority, which awarded the original contracts, said it was "reviewing the petitions." 

Sunrise in a statement said its request would “help address unexpected and unprecedented macroeconomic challenges impacting Sunrise Wind" since the 2019 contract award. Since then, Orsted said, “costs have increased significantly due to high inflation, rising interest rates and supply-chain constraints, which are impacting all long-term capital projects, not just offshore wind energy and not just Sunrise Wind.” Orsted said the request won't impact economic development commitments it has made tied to Sunrise Wind, including support projects on Long Island. 

Orsted and its partner, Eversource, which recently disclosed it is selling its interests in the offshore wind sector, noted New York and other states have addressed the inflation questions in more recent offshore wind contract solicitations, noting projects will include adjusters for inflation and interconnection “cost-sharing mechanisms that more appropriately reflect today’s market conditions.”

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.