Ørsted pulls out of billion-dollar project to build wind turbines off New Jersey coast

The Danish energy company, Ørsted, announced Tuesday it would be pulling out of the billion-dollar project to build wind turbines off the New Jersey coast, a week before state elections in which offshore wind has been a controversial political topic.

The company will cease development of the Ocean Wind 1 and 2 projects, which were supposed to be built off the coast of Atlantic City, according to a press release. These offshore wind projects have been a cornerstone of Gov. Phil Murphy's energy plan, but has came under scrutiny as Republicans have launched attacks over the company's request for more state aid and promoted unfounded claims that projects like this are causing whale deaths.

The decision was “part of an ongoing review of Ørsted’s U.S. offshore wind portfolio," the release said.

The sudden news comes just weeks after Ørsted put up a $100 million guarantee to build the state's first offshore wind farm and received additional state aid this summer after narrowly getting approved through a 21-14 vote in the state Senate and 46-30 in the state Assembly.

Murphy called the Ørsteds decision "outrageous" and questioned the company's "credibility and competence," according to a statement released by the governor's office Tuesday night.

"In recognition of the challenges inherent in large and complex projects, my Administration in partnership with legislative leadership insisted upon important protections that ensure New Jersey will receive $300 million to support the offshore wind sector should Ørsted’s New Jersey projects fail to proceed," Murphy said in a press release. "I have directed my Administration to review all legal rights and remedies and to take all necessary steps to ensure that Ørsted fully and immediately honors its obligations."  

Ørsted, headquartered in Fredericia, Denmark, was contracted to build two 1,100-megawatt wind farms off New Jersey’s southeastern coast.

Ørsted cites supplier delays, interest rates

Reuters reported earlier this week that the world's largest offshore wind developer was expected to reduce stateside projects “due to supply chain problems, soaring interest rates and a lack of new tax credits.”

The decision to stop development in New Jersey is a “consequence of additional supplier delays further impacting the project schedule and leading to an additional significant project delay,” according to the company's release.

The company also said that it “updated its view on certain assumptions, including tax credit monetization and the timing and likelihood of final construction permits” and that “increases to long-dated U.S. interest rates have further deteriorated the business case.”

Work was originally slated to start in 2025 but was already delayed to 2026.

“We are extremely disappointed to announce that we are ceasing the development of Ocean Wind 1 and 2,” Group President and CEO of Ørsted, Mads Nipper said. “We firmly believe the U.S. needs offshore wind to achieve its carbon emissions reduction ambition… however, the significant adverse developments from supply chain challenges, leading to delays in the project schedule, and rising interest rates have led us to this decision, and we will now assess the best way to preserve value while we cease development of the projects.”

The company previously received tax incentives in a bill signed by Murphy this summer. It was expected to garner hundreds of millions of dollars that would have otherwise been passed on to ratepayers.

In return, Ørsted was required to hold $200 million in escrow for investments in wind facilities at the Salem Offshore Wind Terminal and the Paulsboro Marine Terminal.

The turbines have been under considerable scrutiny all year even though no actual work has been done yet.

The offshore wind surveying has been blamed for a series of whale deaths and strandings, making it an east target for Republicans during the election season. Many demanded that the offshore wind development to be called off.

A poll released by Monmouth University in late August showed that while 54% of New Jersey residents were in favor of wind farms off the state’s coast, down from 76% in 2019 and between 80% and 84% in polls taken from 2008 to 2011.

A similar situation unfolded in Connecticut in recent months. Avangrid, owned by a Spanish energy company, had agreed to a contract with Connecticut’s Department of Energy and Environmental Protection to build an 804-megawatt offshore wind project in 2019, but last year attempted to renegotiate the price per megawatt due to inflation and supply chain issues, according to the Connecticut Examiner. Unlike in New Jersey, Connecticut state officials would not renegotiate the contract. On Oct. 3, Avangrid announced it would cancel the project and pay a $16 million penalty.

Two other projects – one by Avangrid and another by SouthCoast, a joint venture of Shell and Ocean Winds North American – were also cancelled earlier this year in Massachusetts, forcing the companies to pay penalties of $48 million and $60 million, respectively. Wind project developers in other states, including New York, are also seeking rate increases above an agreed-upon contractual rate.