Atlantic Shores CEO: Offshore wind industry needs new deals (soon) for new economic reality

Veldhoven: Supply-chain, inflationary and supply-and-demand issues caused by pandemic and war in Ukraine have had dramatic impact on sector

Joris Veldhoven. (File photo)

Atlantic Shores Offshore Wind CEO Joris Veldhoven said he remains bullish about the future of the offshore wind industry in New Jersey and the U.S. He knows its importance to climate change.

He talks optimistically about how Atlantic Shores Project 1, the first of potentially three projects for the company in the coming years, aims to begin construction in the second half of 2024 and to be sending energy to the grid as soon as 2028 — helping New Jersey begin to meet its ambitious clean-energy goals.

He easily rattles off the economic and workforce development benefits that come from essentially starting such a massive industry from scratch.

But, while Veldhoven sees the long-term benefits of offshore wind, he is faced with the short-term reality.

The industry is at a precarious point, he said. Supply-chain, inflationary and supply-and-demand issues caused by a combination of the pandemic and an unexpected war in the Ukraine have upended the business model in a complicated way — one that cannot be fixed simply by legislation or a tax credit, he said.

Structural changes are needed — and fast — Veldhoven said, in a wide-ranging interview with ROI-NJ last week. In order for Atlantic Shores to proceed as it would like in 2024, adjustments need to be made by the end of the year, he said.

“As it stands, we cannot compete for financing and provide continued shareholder investment if we don’t adjust our deal to a changed world,” he said.

“That’s just the reality. And that’s not a New Jersey issue. That’s not a U.S. issue. That’s a global issue that is plaguing offshore wind and many other industries at the moment.”

What these adjustments need to be is not as easy to define — and not as simple as passing legislation, as the state recently did, enabling Ørsted’s Ocean Wind 1 project to benefit more from potential federal tax credits.

Not wanting to reveal specific details of any conversations, Veldhoven would only say Atlantic Shores has been meeting with various government and nongovernment organizations to find a path forward. A path forward, he said, that is for everyone.

“We have been vocal, and we will stay vocal, that what we think needs to happen is an industry solution — it’s not about picking one of the offshore wind projects that your state has, it’s about finding a structural solution for things that plague all of us,” he said.

The reason for a solution — and the need to have it in place by Dec. 31 — is easier to explain.

Simply put, there needs to be time to vet and get approvals of all deals and contracts involved in Atlantic Shores 1 to make the financial investment decision timeline, Veldhoven said.

“It’s not just a month that we pointed to on the calendar,” he said. “We are aiming for an FID in the second half of 2024. In order to do that, we need to give our suppliers certainty that we’re going to go ahead.

“We need to make final deals — often with suppliers that are renegotiating with us. We need to give them that certainty by the end of the year, in order to go through all the various checks with banks and with shareholders, making sure those contracts see the light of day. All the terms need to get reviewed to keep our FID time.

“That’s the spiral or the loop that we want to avoid. If we start to slip in our schedule, the economic gap in our business case becomes even greater. So, we are working toward the end of the year. That is the timeline against which we need that certainty.”

There’s too much at stake to wait, Veldhoven said.

“We are fighting a climate crisis that doesn’t simply pause because there’s supply-chain bottlenecks and inflation and a war in Ukraine,” he said. “We have to keep moving forward.”

Veldhoven talked at length about the challenges facing Atlantic Shores (which is a 50-50 joint venture between Shell New Energies US LLC and EDF Renewables), the state of the industry and doing business in New Jersey. Here is more of the interview, edited briefly for space and clarity.

A heartfelt tribute

Atlantic Shores Offshore Wind CEO Joris Veldhoven said he was devastated by the recent passing of New Jersey Board of Public Utilities President Joe Fiordaliso. He offered him the ultimate praise.

“I think of the phrase: Societies grow great when older people plant trees for shade they know they will never sit in,” Veldhoven said. “President Fiordaliso was one of those people. He was the first to talk about wanting to see those turbines in the water for his kids and his grandkids, knowing the benefits of cleaner air and combating climate change was something they would benefit from.

“That sort of intergenerational wisdom was definitely very special to witness — and will personally always stay with me.”

ROI-NJ: First, get us up to date on your projects?

Joris Veldhoven: We are delivering a portfolio of projects across three lease areas. The southern and northern part of the original lease area (acquired in 2018) and in the area we acquired last year in the New York-New Jersey bight, which is a bit further out. All of these projects are maturing on a different timeline.

We are very actively developing Project 1 on the southern part of the lease area. We have had an OREC (Offshore Wind Renewable Energy Certificate) order in place for two years. This is the project that has an FID target in 2024, which was always our target, and it could be delivering power in 2028.

Project 2 also sits in the southern part of the original lease area.

Project 3 and beyond are projects to be defined from the northern part of the area.

ROI: We’ve heard a lot of about supply chain and war in Ukraine. Piece it together for us. How is it having that great an impact?

JV: Everyone has seen the severe increases in raw material prices and shipping and labor — and in inflation overall — that has been driven by a war in Ukraine, one that is still continuing, further increasing prices and supply of raw materials.

And then, on top of that, to make it even more complex, we’ve seen significant and hefty cost of money increases with banks trying to calm down global economies everywhere. That, of course, affects financing costs and supplier commitment costs.

What you haven’t seen is that countries that have relied on Russian gas, particularly European countries, are working hard to create energy independence for national security reasons. They are working overtime to deploy renewable offshore wind power, because it is a domestically produced electron that can be deployed at scale.

So, a lot of supply-chain pressures are not just directly a result of the war, but the result of this increased ambition of many European countries to deploy offshore wind. And a lot of countries are planning additional rounds of offshore wind tenders, making additional areas available for offshore wind.

ROI: It sounds like this is creating an even greater supply-and-demand issue than most people realize?

JV: Yes. For some of the suppliers that had long been eyeing the U.S. market as a key market for them for further growth, it’s simple: There’s a lot of growth in the European market, so, they don’t need that U.S. work — and it seems complicated over here anyway. So, they think, why set up a new facility in, say, New Jersey, when they can have more than enough work over there.

ROI: You mention the U.S. can seem ‘complicated’ to European companies. How big a deal is that?

JV: Suppliers often are coming to us to saying: ‘How certain is it? What’s your business climate in New Jersey? Do you have support for this product to come through? What’s the state of your permits? Are they advancing?’ Etc, etc.

We are, in many ways, ambassadors of all of the good work that is happening in New Jersey. It’s our job to convey that message to the supply chain. Many of them have direct links into the state and to the state leadership as well, but definitely not all of them. If you’re a cable supplier that supplies cables globally, your first point of contact is to talk with Atlantic Shores and get a sense for the U.S. business climate.

ROI: Let’s talk about that business climate.

JV: To put it simply, there’s a lot happening in offshore wind. There’s a lot of costs that have increased significantly in the last 18 months. And I think all the suppliers are feeling that and then pushing those costs on to the developers. As a result of that, a lot of offshore businesses that have locked in firm prices for 20-25 years, and Atlantic Shores 1 is a good example, are struggling with their business cases.

All that said, the benefits of offshore wind are still there. This can lead to so much economic growth in the state of New Jersey. We want to stay the course and we want to keep delivering. We already have spent tens of millions of dollars in the state and we’re still hiring. We’re setting up and we’re planning for success. But, we need to adapt to the change. The payoff can be so great.

Atlantic Shores Project 1 alone avoids nearly 4 million tons of greenhouse gas emissions every year. So, in year one, it’s 4. By year two, it’s 8. By year three, it’s 12. Those are massive numbers in terms of greenhouse gases. It shows that offshore wind is one of those technologies that can be deployed at scale, but it comes with its unique dimensions and challenges.

ROI: Are you confident you can solve them?

JV: We want to stay competitive for financing and shareholder investment. We want to provide a fair deal to the New Jersey ratepayers. There’s no one, fixed dramatic path that we want to follow. But we are in touch with many of the elected and also non-elected individuals in New Jersey to find a path forward for Project 1.

We know the benefits offshore wind can offer. We know the economic development it can bring, even at increased prices. We remain optimistic.