BP and Equinor Cancel Offshore Wind Contract, Putting Clean Power Plans in Limbo

BP and Equinor have decided to cancel the Empire Wind 2 project, a major offshore wind contract near New York. This decision has left plans to provide clean power to hundreds of thousands of people in a state of uncertainty. The project, which had already obtained important permits, was set to be installed roughly 15 to 30 miles off the coast of Long Island.

The cancellation was primarily due to factors such as inflation, interest rates, and disruptions in the supply chain, as stated by Equinor. Over the past couple of years, the cost of materials like steel has significantly increased, affecting the profit margins that wind developers expect to achieve from these projects. BP and Equinor had initially signed the Empire Wind deal with the state and utilities before inflation dramatically escalated material prices.

Unfortunately, this isn’t the first project to be impacted by these challenges. Orsted, a wind power company operating in New Jersey, withdrew from two large-scale projects last year due to similar inflationary and supply chain pressures. As a consequence, Orsted’s stock dropped by 39% in 2023, and the company had to devalue its wind projects by billions of dollars. It had already cautioned investors regarding the deteriorating economics of offshore wind in the previous summer.

In recent Wednesday trading, BP and Equinor’s American depositary receipts experienced a 1.8% increase, while the S&P 500 saw a decline of 0.4%. It is worth noting that both of these companies still generate most of their profits from fossil fuels, and their stock prices tend to follow the movement of oil prices. On Wednesday, oil prices rose due to the unrest in the Middle East.

Furthermore, the cancellation of the wind contract didn’t come as a surprise. Both BP and Equinor have faced impairments related to their New York projects, following the state’s rejection of their request to raise the rates they would receive for the power generated by the turbines.

Setback for America’s Clean Power Goals

Wednesday’s news represents another setback for America’s clean power goals, as renewable energy stocks slumped in 2023. President Joe Biden had set a target in 2021 to install 30 gigawatts of offshore wind power by 2030, which would be enough to power approximately 10 million homes. One of the projects contributing to this goal is Empire Wind 2, which was anticipated to add 1.26 gigawatts of capacity. Another project, Empire Wind 1, still remains but also faces similar cost pressures and is expected to add 0.8 gigawatts of capacity.

Uncertainty Surrounding the Empire Wind 2 Project

Although the recent announcement does not necessarily mean the end of the Empire Wind 2 project, it does introduce uncertainty. The companies still hold federal leases on thousands of acres of ocean bedrock and possess certain permits. However, to continue with the project, they would need to secure financing by finding a party willing to pay for the power generated by the turbines.

Seeking Alternative “Offtake” Agreements

Equinor, one of the companies involved in the project, stated that they are now actively seeking alternative “offtake” agreements. However, specific details regarding these agreements have not been disclosed, and the company did not provide any further comments. Media requests concerning this project should be directed to Equinor.

New York’s Renewable Energy Plans

In light of these developments, New York is currently accepting new bids to fulfill its offshore wind power requirements, potentially replacing the power that was expected to be provided by BP and Equinor. The state has also recently entered into agreements with various companies, including French oil major TotalEnergies, for new offshore wind projects. These new contracts offer better economic terms, supported by taxes and higher electricity bills, which could revitalize the industry. However, it is expected to take a few more years to fully develop these projects.