The news broke on Halloween night and it was hardly a treat for anyone: Ørsted was announcing it was pulling out of its Ocean Wind 1 and Ocean Wind 2 projects — a major blow to the state’s green energy plans and to Ørsted, which had invested hundreds of millions of dollars into the state.
ROI-NJ spoke with a number of insiders — both in the offshore wind industry and state government — to get a bigger-picture response. All of the people requested anonymity, due to the sensitive nature of the issue.
And all of the people agreed on one thing: Ørsted, despite inflammatory comments to the contrary, has not received a single penny of incentives.
The talk about the “billion-dollar bailout” from the state? Completely false.
For one, the bill the governor signed this summer was related to the ability to access federal (not state) incentive programs that had been increased significantly since Ørsted had reached its initial deal with the state. And those incentives were based on revenue that would come after the project was built — not before.
“Ørsted has not received a penny from anyone” was a common response.
The other responses were not as uniform.
In the interest of presenting the information clearly, while protecting the identity of the sources, ROI-NJ offers this question-and-answer format.
ROI-NJ: Why did Ørsted decide to pull out of New Jersey — and is it pulling out of the U.S. altogether?
Source: The decision was made in context of a whole portfolio review — and there was some positive news related to projects in Connecticut and New York.
Ocean Wind 1 and 2 were different. They were severely impacted by the macroeconomics — the interest rates, inflation and supply chain, which had become a major bottleneck, leaving the project significantly behind schedule. There also was a significant delay in getting the installation vessels that would do the monopile installation.
These delays could have pushed the project out even further — not a month, potentially a year. And, the farther it got pushed out, combined with the economics, made it get to a point where a publicly traded company with fiduciary responsibility could not continue investment in the project.
ROI: Gov. Phil Murphy spoke in unusually strong terms against Ørsted — saying the decision calls into question the ‘credibility and competence’ of the company. Was Ørsted surprised by the immediate backlash?
Source: The governor is super-passionate about clean energy and offshore wind — and he’s willing to share his passion.
This decision certainly was made with eyes wide open toward the impact it would have within the state. It was not taken lightly. And this decision was not about New Jersey, which has been a great partner. This is something that has played out in a variety of markets in the U.S. and globally.
Markets have had to make adjustments to how they move forward — and New Jersey has really stepped up and been responsive. Unfortunately, in the case of Ocean Wind 1, there were so many external factors that contributed to making it something that could not have continued investment.
ROI: If a global company pulls out of a project it has invested hundreds of millions of dollars in — and does it knowing there will be a huge backlash — the economics must be pretty bad, yes?
Source: It’s hard to argue with that framing, but it also tells you something about the company’s strategy and business acumen. If I were a shareholder, I’d be pretty curious as to why they were walking away and turning all the sunk costs that they have into losses, as opposed to trying to make the best of it.
I understand why they would want to restructure their deal with the state — and I understand why they want to revisit the terms with their suppliers, but to just unilaterally take their toys and go home is short-sighted in a variety of ways. That’s obviously their decision, and they have to live with it — but, now, they’re in a bad place with their suppliers and with New Jersey.
ROI: Is the offshore wind industry/push toward clean energy dead in the state — as some have been quick to speculate/celebrate this morning?
Source: It’s strange to me that there are people celebrating the fact that there are folks who would have been working on the project that are no longer going to — and aren’t going to get a paycheck. That’s an odd thing to celebrate. That impact is real.
Ørsted was going to create a bunch of jobs that they’re now not going to. But, ultimately, I think that the overall offshore wind ambition of creating tens of thousands of good family-sustaining jobs goes on.
Offshore wind remains a huge economic opportunity. It’s incredibly important for the energy and environmental framework of the state. This is a sizeable setback, but we’re going to push forward because there’s cause for optimism. We’re going to see this through.
Read more from ROI-NJ:
- UPDATED: Ørsted kills Ocean Wind 1 and 2 projects; Ocean Wind 1 was to be N.J.’s 1st offshore wind farm
- As political winds blow, Ørsted decision not likely to have impact on elections
- Murphy: Ørsted’s decision to pull out of N.J. calls into question its ‘credibility and competence’
- O’Scanlon, District 13 leaders: Ørsted pullout is ‘I-told-you-so’ moment
ROI: Let’s talk about the future. Next up is the Atlantic Shores Project 1, which hopes to begin construction in 2024. Is that still on schedule?
Response from Atlantic Shores CEO Joris Veldhoven, who issued a statement to ROI-NJ: Atlantic Shores remains committed to delivering safe, reliable, renewable power and establishing a thriving domestic offshore wind industry anchored in New Jersey. This means supporting New Jersey in meeting its clean energy goals and driving economic growth. Our first project alone will power more than 700,000 New Jersey homes, generate nearly $2 billion of in-state economic activity and create thousands of good-paying jobs in New Jersey’s thriving clean energy economy.
Despite the extraordinary challenges driven by supply chain constraints, the cumulative impacts of inflation and higher financing charges associated with building critical infrastructure projects, we are actively engaging in conversations with the administration, regulators and elected leaders across New Jersey to identify viable solutions that will not only preserve the progress made thus far, but also facilitate the successful execution of Atlantic Shores Project 1.
ROI: This being said, the economic issues around offshore wind are real. Is there any reason to think other companies are going to jump in after seeing Ørsted pull out?
Source: There are two types of projects: Those born before the pandemic (as Ocean Wind 1 was) and those born after. Ocean Wind had compounding problems of the war in Ukraine, supply chain challenges, inflation and interest rates going up 3x. Ultimately, it was just too much for the project and it tipped over. The new crop of projects that are being conceived and developed in the wake of all are more resilient.
ROI: Let’s get back to the immediate: How many employees does Ørsted have in the state — and what will happen to them?
Source: There are more than 30 — and no decision has been made, but nothing is going to happen in the near future or by the end of the year.
ROI: Will this be the moment that changes the trajectory of not only offshore wind, but the state’s push for more clean energy?
Source: As long as there’s a U.S. wind industry, New Jersey is really well-positioned. Things like our Wind Port are going to be an incredibly important piece of infrastructure for the region. Every sector is going to have some ups and some downs. This is a down, but there’s legitimate cause for optimism across the sector — once we get through some of these short-term challenges.
Source: There always are setbacks on projects. There are setbacks in life. When they happen, you take a moment to regroup — and, if you believe in the issue and in the industry, then you move forward in a different way.
When we look back at this a few years from now, I think that’s what we’ll see will have happened. This is not the end of offshore wind in New Jersey, and anyone who thinks it is, is mistaken.