Doug Sheridan
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Fortune writes, soaring costs are derailing offshore wind projects even as demand for renewable energy soars. The timing couldn't be worse.
Extreme heat driven by climate change is straining electric grids all over the world, underscoring the need for more power generation—and adding urgency to calls for a faster transition away from fossil fuels. In Europe, the move to reduce reliance on Russian oil and gas has also given clean-energy projects momentum.
“Energy coming from these projects is desperately needed,” Helene Bistrom, the head of Vattenfall’s wind business, said on an earnings call this week. “[But] With new market conditions, it doesn’t make sense to continue.”
Together, just last week, the three projects that would have provided 3.5 GW of power—more than 11% of the total offshore wind fleet currently deployed in the waters of the US and Europe—were abandoned
The numbers could soon expand. At least 9.7 GW of other US projects are at risk because their developers want to renegotiate or exit contracts to sell power at prices that they say are now too low to make the investments worth It.
Soaring materials costs, particularly for steel, forced turbine makers to raise prices. Costs of other key services, like specialized vessels to install the turbines, have jumped sharply as well. And rising interest rates mean that it’s more expensive to take on debt.
That doesn’t mean investment has ground to a complete halt. Some projects in the US and the UK are still going ahead, despite cost increases. And earlier this month, bp and TotalEnergies bid €12.6 billion to develop offshore wind farms in Germany’s North Sea.
While some of the projects could still go ahead in the future, they would need to be able to secure higher power prices to make investments viable. Any delays mean more reliance on fossil-fuel generators that contribute to climate change, putting goals to cut emissions further out of reach.
Offshore wind is critical to decarbonization goals. The massive size of turbines at sea make them one of the most efficient ways to generate renewable electricity. In the US, each MW of installed capacity of offshore wind farms could produce as much as triple what a solar park would generate. In cloudy Britain, wind farms produce five times more electricity than a similar-sized solar farm.
That’s led governments around the globe to set ambitious targets to scale up deployment. Joe Biden aims to have 30 GW of offshore wind capacity installed in the US by the end of the decade, up from basically nothing today. In Europe, nations including the UK, Germany and the Netherlands vowed earlier this year to reach a combined 120 GE of wind power by 2030, more than quadruple the current capacity.
Bottom Line: With governments still intent on seeing their green goals deliver cost reductions for consumers, it’s not clear how they can achieve that kind of expansion.
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