Øver for Ørsted

This Week's Trend In Brief:

• At the end of last month, Danish multinational energy company Ørsted canceled two major offshore wind projects in New Jersey, citing “high inflation, rising interest rates and supply chain bottlenecks” despite state and federal support for the projects.
   

• While state officials expressed anger and frustration, the projects’ cancelation shows how expensive delays and disruptions from project opponents can be.
   

• The economic environment changed rapidly since the New Jersey Board of Public Utilities selected Ørsted as the preferred bidder for the state’s first offshore wind farm in 2019, even as its signature project Ocean Wind 1 saw repeated delays in the regulatory process and courts thanks to activists and landowners opposed to offshore wind. 
   

• As more companies seek to take advantage of federal and state incentives to build green infrastructure, Ørsted’s challenges serve as a reminder that even generous subsidies cannot make up for shifts in the economic reality as projects navigate bureaucratic delays and opposition disruptions in the courts and even on the construction site.
   

• Companies aiming to build the infrastructure needed to meet state and federal climate goals will have to undertake deeper risk assessments than just the current economic incentives, understanding the forces likely to array against a project even if (some) government officials appear to favor its construction.

Digging Deeper:

 
In 2019, the New Jersey Board of Public Utilities selected Ørsted as the preferred bidder for New Jersey’s first offshore wind farm, Ocean Wind 1, to applause within the state. New Jersey Governor Phil Murphy declared the project would “revolutionize the offshore wind industry … along the entire East Coast.” A few months later, Murphy even increased the state’s offshore wind goal in expectation offshore wind would “generate billions of dollars in investments in New Jersey’s future, that will, in turn, create thousands of jobs.” Environment New Jersey, a local branch of the national environmental activist group Environment America, also celebrated Ocean Wind, contending “New Jersey just cemented its place as a national leader.”
 
Last month, however, Ørsted canceled both offshore wind projects it had planned in the state, citing “high inflation, rising interest rates and supply chain constraints.” Murphy immediately called the decision “outrageous” and announced his administration would “take all necessary steps to ensure that Ørsted fully and immediately honors its obligations.” While others in the state found themselves similarly frustrated with the announcement, Ørsted’s cancelations provide an important lesson for builders and investors seeking to leverage state and federal resources to get their projects built. 
 
Ørsted’s plans were repeatedly delayed and disrupted by community backlash, environmental activists, and subsequent lawsuits. Nearby residents argued the project would “keep tourists away, damage the coastal economy and erode property values,” and they continuously sought to block the project in local and state government proceedings. The community pushback became so great that New Jersey enacted legislation “to squash local opposition” to Ocean Wind 1 by stripping “coastal communities of the right to block buried power lines.” Local residents, however, then teamed up with activists to file legal challenges attempting to overturn state approvals for the project in a “maze of litigation.” Just weeks before the project’s October 2023 cancellation, environmental groups joined with seafood and fishing organizations to file an additional lawsuit alleging Ocean Wind 1 “sidestepped a dozen federal legal requirements” and “failed to adequately investigate” environmental impacts.
 
These project delays came at too steep a cost, as the economic environment changed dramatically in the ensuing four years, with interest rates, inflation, and supply chain woes all skyrocketing. When Ørsted announced it canceled the projects it had planned for New Jersey, the company pointed to “macroeconomic factors, including high inflation, rising interest rates and supply chain constraints” as the reason for the cancelations. Indeed, the rate of inflation was only 1.8% when the project was announced but last year averaged more than four times that rate. Interest rates followed a similar trend, while ongoing supply chain issues made securing materials difficult and far more expensive.
 
Even new state incentives “valued as high as $1 billion” were not sufficient “to keep the project moving forward” in this new economic reality – a warning sign for other renewable projects and their supporters in and out of government. Ørsted’s cancelations forced the company to write off as much as $5.6 billion on its two New Jersey projects and highlight how the current economic environment, coupled with regulatory delays and activist disruption, can become costly roadblocks for developers hoping to getting projects built. Even with the $370 billion in incentives to stimulate domestic clean technology manufacturing included in the Inflation Reduction Act (IRA), in addition to similar funding in the Infrastructure Investment and Jobs Act (IIJA), Ørsted’s cancelations are the latest example of the headwinds facing green energy projects, even when they have the support and funding from the federal government and state legislators.
 
The fate of the Ocean Wind projects is a reminder that government is not a uniform actor and generous subsidies and advocacy for projects do not remove regulatory hurdles or stop activist disruptions. Evan as builders and investors are eager to leverage the IRA, IIJA, and similar state incentives to deliver our energy future, public affairs professionals and the companies they represent will need a proven playbook to understand the key stakeholders and ensure they can stay two steps ahead of any regulatory and legal battles to successfully get their projects built before economic or other tides shift too far against their interests.

Trends in Energy is your weekly look at key trends affecting the energy industry, brought to you by the competitive intelligence experts at Delve. As the political and regulatory landscape continues to shift, reach out to learn how our insights can help you navigate these challenges.