How war in Ukraine has upended wind energy business plans

Business in Europe means less need to grow in U.S.

Everyone understands how the war in Ukraine has impacted the supply chain for many industries — including offshore wind — causing big markups in prices.

Here’s another way the war is impacting the industry, especially in the U.S.: The war has made more European countries understand how connected they were to natural gas from Russia — and the need to find alternative sources of energy.

As a matter of national security and economic health, they are looking to expand their efforts in a number of areas, including offshore wind. This increased interest has brought increased business for suppliers — making their need to expand to the U.S. less pressing.

Joris Veldhoven. (File photo)

Atlantic Shores CEO Joris Veldhoven, in an interview with ROI-NJ, said that’s one of the reasons the industry is facing severe financial challenges in the U.S.

“Countries that have relied on Russian gas, particularly European countries, are working hard to create energy independence for national security reasons,” he said. “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.”

The need for alternative energy solutions including offshore wind is growing globally, too.

All of this means the impact on the business case for suppliers to grow their offshore wind business in the U.S. is very real, Veldhoven said.

“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,” he said. “So, they think, why set up a new facility in, say, New Jersey, when they can have more than enough work over there?”

The fact that offshore wind has become a contentious issue here is having an impact, too, Veldhoven said.

Suppliers often are coming to us to say: ‘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,” he said.

All of this has put the industry in the U.S. at a precarious point, Veldhoven said.

In addition to supply-and-demand issues, inflationary pressures caused by a combination of the war and the pandemic have had great impact one that cannot be fixed simply by legislation or a tax credit, he said.

Structural changes are needed — and fast — Veldhoven said.

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.”

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