USA - Is U.S Offshore Wind ‘Fundamentally Broken?’
The oil and gas industry and other minerals producers have complained for many years about the complexity and slow pace of obtaining permits for projects to develop their underground assets. Now, the offshore wind industry is joining the fray.
“There is a fundamental reset needed”
It was just one of several issues cited for the industry’s recent financial struggles, but seemingly intractable permitting issues were central to explanations offered for the industry’s rising financial struggles by developers of projects off the northeast Atlantic coast last week. Reuters reports that Anja-Isabel Dotzenrath, BP's head of gas and low carbon, described the industry as being “fundamentally broken” at an FT Energy Transition conference in London.
"Ultimately, offshore wind in the U.S. is fundamentally broken," Dotzenrath said. "There is a fundamental reset needed in the speed of permitting, security of permitting, etc..."
Dotzenrath’s comments came as BP said it would take a $540 million write-down on the value of its offshore wind developments in the United States. Norwegian oil company Equinor, BP’s partner in a pair of U.S. projects, announced its own impairment of $300 million.
BP paid Equinor $1.1 billion in 2020 to acquire its 50% share in the projects, and the companies announced in August 2023 they were renegotiating the terms of their agreement amid rapidly evolving market conditions. At that time, then-BP CEO Bernard Looney, who has since resigned, said the company “will not pursue projects” that don’t meet BP’s returns thresholds of 6% - 8%.
Attempt to stop offshore wind development in fishing ground fails, WGME / November 05, 2023
It is becoming increasingly evident that many if not all of the U.S. offshore wind projects promoted by the Biden administration are struggling to meet such returns levels. The write-downs by BP and Equinor pale in comparison to the announcement by Danish wind developer Orsted last week that it would take an impairment of its own of roughly $4 billion usd, at the same time cancelling two major projects offshore New Jersey, the Ocean Wind 1 and 2.
Real Reform Will Not Be Easy
All these wind developers cited an array of issues leading to their struggles, including chronic supply chain challenges, inflation, high interest rates, and the complexity and slowness of the permitting process. Dotzenrath said Biden administration regulators had recently presented developers with a 10-point plan to streamline the process, but said even with the offered improvements, it all would remain “challenging.”
Well, yes, the permitting process for energy projects of any kind is challenging. But as I’ve pointed out in the past, there are very valid reasons why this is the case. When pushing for streamlined and accelerated permitting of such projects, it is always key to keep in mind that the vast majority of the complications and delays stem from regulations tied to major U.S. environmental protection laws.
The Endangered Species Act (ESA) is a great example here. The ramp up of development of offshore wind projects along the northeast coast has corresponded with a noticeable rise in beachings of whale carcasses on the New Jersey shore, some of which are part of species listed under the ESA. While the Biden government says it has found no cause-and-effect relationship here, representatives of the fisheries industry and some activists dispute that claim. Regardless of which side is right, the controversy emphasizes the need for these protections to exist.
Energy developers also frequently complain about the Byzantine processes required under The National Environmental Policy Act, under which developers must compile various levels of environmental impact studies prior to proceeding with major projects. It is a process that often consumes years, but it is also a key planning tool for regulators at the Bureau of Land Management, the U.S. Forest Service, the Bureau of Ocean Energy Management, and other federal agencies.