Energy Musings contains articles and analyses dealing with important issues and developments within the energy industry, including historical perspective, with potentially significant implications for executives planning their companies’ future.
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June 29, 2023
Body Blows To Wind Energy And Net Zero
Turmoil has engulfed the offshore wind industry and its extent has become evident in the past several weeks. More dead whales washed ashore only days after foundations to support offshore wind turbines began being hammered into the ocean floor off Martha’s Vineyard. The leading offshore wind developer told financial analysts its U.S. offshore wind portfolio was not profitable, which was forcing the company to redesign, shrink, and terminate contracts. Ørsted has cut its 2030 offshore wind installed capacity target by 7%, and its actions impact its developments in Europe, too. Most telling was the CEO announcing a new U.S. project would go forward after the state agreed to give the company its 80% share of federal government tax credits.
Compounding the industry’s problems was the announcement by Siemens Gamsea, the leading wind turbine manufacturer, that it would wipe out 40% of its profits due to the cost of correcting component failures and failure to meet productivity goals. The full extent of its problems remains unknown. Lastly, the U.S. Government Accountability Office announced it would commence an extensive investigation of offshore wind and its impact on the military, air transportation, marine ecology, the commercial fishing industry, and the resiliency of the wind turbines. This investigation comes after other government agencies have rebuffed the need for deeper inquiries into these issues. READ MORE
Body Blows To Wind Energy And Net Zero
Recent weeks have not been kind to the offshore wind industry. The stretch of bad news was capped by the following Financial Times headline: “Siemens Energy shares plunge after wind turbine problems deepen.” Siemens Gamsea announced late last Thursday it was withdrawing its financial profit guidance for 2023. The move was in response to its need to reserve $1.1 billion for warranty claims and expenses arising from technical problems with many of its onshore wind turbines. The next day, Siemens Energy, owner of Siemens Gamsea, saw its share price drop 37%. The stock price slide continued Monday with the share price down 3%, bringing to $8 billion the market value wiped out. Analysts worry that all the bad news is not out.
Earlier, Ørsted, the Danish wind energy giant, told analysts at its annual capital day that it was scaling back its installed offshore wind goal for 2030 by redesigning, shrinking, and abandoning projects because they are uneconomic. Ørsted is terminating offshore wind project power purchase agreements in multiple U.S. states and pushing for higher subsidies in European wind markets. It presented a chart showing its U.S. offshore wind portfolio of projects will barely earn its weighted average cost of capital, an unacceptable financial return.
Economics is not the only challenge offshore wind faces. Two dead humpback whales washed ashore on Martha’s Vineyard only days after the first Vineyard Wind turbine foundation was hammered into the ocean floor. Are the two connected?
Because the whale carcasses remained in the surf, the National Oceanic and Atmospheric Administration (NOAA) announced it was abandoning plans to examine them in search of the cause of death. NOAA said such an investigation would be too difficult, despite NOAA being charged with protecting endangered marine mammals.
Three other dead whales washed ashore on Long Island bringing the total of known dead whales since last December to 46. Senior NOAA and Bureau of Ocean Energy Management (BOEM) officials have stated there is no connection between offshore wind construction activity and dead whales. Yet, their researchers acknowledge they do not have a full understanding of how underwater noise may impact the behavior of marine mammals, especially whales. They want to undertake more studies. Is that the science we are supposed to follow?