Rising costs associated with wind power development in the US are now slamming the profitability of many offshore projects in the pipeline, and resulting in the total cancellation of some. Tax benefits from the US Inflation Reduction Act (IRA) have helped to offset some cost pressures, but incentives tied to the procurement of US-made components are blocking several key wind developers from further government assistance.
The two largest manufacturers of wind turbine blades are each headquartered in Europe and only a small portion of their production capabilities are located in the US. These firms are also coming under pressure as efforts to raise prices on their goods could become impossible without further threatening the viability of US wind projects already in jeopardy.
Related ETFs: First Trust Global Wind Energy ETF (FAN), iShares Global Clean Energy ETF (ICLN)
Wind power continues to face significant challenges in the US, with key developers threatening to call off planned projects if more public support is not doled out. Ørsted, the world’s largest offshore wind-farm developer, warned last week that it may take impairments of up to $2.3 billion on its US projects, cutting the price of its shares by a third. Days later, Moody’s shifted their outlook on Ørsted from stable to negative, citing the impairments and other headwinds that are likely to “lead to its credit metrics being weakly positioned at least until the end of 2025”. Early this year, MRP highlighted a slowdown in the completions of US wind power stations and noted that Ørsted said returns on its US projects were “not where we want it to be”.
There are significant multi-million dollar fines that firms must pay when abandoning their US projects, but that hasn’t stopped some energy firms like Shell and Avangrid from doing so recently. Avangrid’s penalties were worth $48 million, while Shell and Ocean Winds North America, joint developers behind a Massachusetts project, will face fines of $60 million. Those are hefty cancellation fees, but apparently more affordable than the losses the companies would have to swallow to complete projects that became unviable. BP and Norway’s Equinor, which are jointly developing 810 megawatt (MW) projects off the coast of New York, as well as…
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