Subscribe today to the Washington Examiner magazine and get Washington Briefing: politics and policy stories that will keep you up to date with what’s going on in Washington. SUBSCRIBE NOW: Just $1.00 an issue!
GOOD NEWS AND BAD NEWS FOR WIND: The nation’s first commercial-scale offshore wind project inched closer to completion last week and finally has “steel in the water” after crews commenced installation of monopiles to support its dozens of gargantuan turbines.
Progress near Martha’s Vineyard is being overshadowed, however, as project developers elsewhere in the Outer Continental Shelf deal with intractable inflation and seek to revisit or even cancel contracts for power due to diminishing economic conditions, threatening the Biden administration’s offshore wind targets.
Vineyard Wind construction is underway: Crews began work last week to install foundations for the project’s 62 turbines, located some 14 miles southeast of Martha’s Vineyard.
The fully permitted Vineyard Wind project has been in the works since 2018, and it’s expected to begin generating electricity by year’s end. Vineyard Wind’s 800 megawatts will count toward the Biden administration’s target of installing 30 gigawatts of offshore wind by 2030.
But other projects are under duress: Developers often blame permitting delays for crimping and threatening projects. Not so much in this case, with the half dozen wind projects in the Atlantic seeking to restructure their power purchase agreements with utilities because inflation and other cost increases have made them uneconomical.
SouthCoast Wind, which the Bureau of Land Management advanced in February with a draft environmental analysis, announced its intention earlier this month to terminate its PPAs.
Terminating the contracts and bearing the associated penalty was deemed to be the “prudent commercial course,” SouthCoast Wind CEO Francis Slingsby said, “due to material and unforeseen supply chain and financing cost increases affecting the whole offshore wind industry.”
Slingsby said developers are not giving up and that SouthCoast Wind is committed to developing the full capacity of its lease area but can’t do so under the current contracts, even with tax incentives, showing the Inflation Reduction Act’s limits in making offshore wind more viable.
Developers behind the 1,200-megawatt Commonwealth Wind project, a neighbor to SouthCoast off the coast of Massachusetts, are also seeking to withdraw from their contracts and have gone to court with the state over the matter.
Separately, developers of four offshore wind projects that have contracted to sell their power to New York utilities want to revisit the agreements due to rising costs, according to regulatory documents filed last week.
These include the Equinor- and BP-backed Empire Wind 1&2 and Beacon Wind 1 projects, as well as Sunrise Wind.
More on the cost increases: Cost challenges for the wind sector have persisted as part of the larger, economywide post-COVID inflation surge, and developers have yet to see the same kind of relief the solar sector has enjoyed.
The costs of construction and operation of offshore wind farms increased “well above 20%” since 2019, according to an analysis commissioned by SouthCoast Wind and included in its regulatory filing announcing its intent to cancel contracts.
Shipping costs have soared, financing is more expensive, and Chinese lockdown policies for COVID-19 containment limited the production and export of iron and steel, the analysis also said.
“Like all industries, offshore wind was and is still being impacted by economic pressures, necessitating flexibility to help ensure projects are economically viable and able to achieve state and national targets,” Sam Salustro, vice president of strategic communications for the Business Network for Offshore Wind, told Jeremy.
Salustro said the sector is doing what it can to correct the issues with an estimated $17 billion in investment in the offshore wind supply chain.
Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Jeremy Beaman (@jeremywbeaman) and Breanne Deppisch (@breanne_dep). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.
EUROPEAN UNION LOOKS TO UKRAINE TO STORE NATURAL GAS OVERFLOW: The European Union is looking to Ukraine to potentially store its natural gas this winter—an unlikely move that comes as the bloc races to fill its reserves ahead of its second heating season with Russia throttling energy exports.
Unlike last year, EU storage tanks are quickly nearing capacity as leaders capitalize on low spot market prices, filling tanks to around 70% capacity and leaving the bloc with limited choices to store up additional supplies ahead of winter.
That’s where Ukraine could come in: Its Bilche-Volytsko-Uherske storage facility, located some 60 miles from the Ukrainian-Polish border, is the largest natural gas storage facility in all of Europe, and can store roughly four times as much as Germany’s largest sites.
The facility is a lucrative option—it connects easily to EU grids, since Ukraine has long been a wayfare for Russian natural gas supplies sent to the bloc—and operator Ukrtransgaz has made available 2 bcm of capacity, or 10% of EU’s demand, which could help avert any looming supply shortages this winter. It could also be a key source of revenue for Ukraine at a key time in the war.
“Ukrainian storage can help to balance supply and demand during the second half of the summer 2023, given their excellent connection to EU gas markets,” German utility RWE AG told Bloomberg in a statement.
Meanwhile, German Economy Minister Robert Habeck told reporters today that Germany could be forced to halt industrial capacity through winter if the Russia-Ukraine gas transit agreement is not extended after it expires late next year.
“We’re not yet out of the woods,” he said. “The favorable situation mustn’t lead to us making the same mistake again of forgetting what the threat is.”
IN OTHER NATURAL GAS NEWS: Shell is seeking to expand its role in LNG markets and is weighing investments in new export facilities and long-term supply deals in target nations, such as India and China, as part of the company’s broader shift in strategy.
Shell CEO Wael Sawan is expected to announce the plans to investors Wednesday at a Capital Markets Day, according to Bloomberg, citing several people familiar with the plans.
“We have always known that gas is crucial for the energy transition, but our new strategy is built around a new belief — that gas will continue to play a key role in the energy mix,” Shell’s vice president of LNG, Cederic Cremers, said in a memo. Shell is also offering higher bonuses for deals struck on LNG in target nations, according to Bloomberg.
Shell’s gas profits have soared in wake of Russia’s invasion of Ukraine, prompting many oil majors to reassess the pace at which they will transition off of fossil fuels and toward renewable energy. Last week, Reuters reported that Shell will keep its oil production steady or slightly higher into 2030 — scrapping annual production cuts of 1%-2% per year amid poor returns from renewable energy sources.
ICYMI: DOE AWARDS CONTRACTS FOR FIRST SPR BUYBACK: The Department of Energy announced awards Friday to initiate its first buyback to begin refilling the Strategic Petroleum Reserve after its record drawdowns last year.
DOE will receive the first 3 million barrels in August, paying an average $73 per barrel. Awardees include Atlantic Trading & Marketing, Inc., ExxonMobil, Gunvor, Macquarie Commodities Trading, and Sunoco Partners Marketing & Terminals.
The department also announced another solicitation for another 3 million barrels for delivery in September.
Refilling at a trickle: DOE is remaining conservative with the size of its buybacks. Its unsuccessful first attempt in December sought to “pilot” its new fixed-price buyback scheme with 3 million barrels.
Fixed prices still untested: The fixed-price pilot was unsuccessful, and DOE has turned back to its more familiar index-priced method, yet it has still kept the solicitations at 3 million barrels per.
“The DOE seems to be looking to replenish the Reserve in a series of small nibbles rather than big bites, perhaps to minimize upside pressure on crude in the summer driving season,” ClearView Energy Partners said in a note to clients.
CAPITO-MILLER BILL WOULD BLOCK EPA POWER PLANT RULES: West Virginia Republicans want to block EPA’s draft power plant regulations with new legislation that would expressly prohibit the administrator from finalizing the rules.
The Protect Our Power Plants Act from Sen. Shelley Moore Capito and Rep. Carol Miller would declare the proposal to run contrary to West Virginia v. EPA’s “major questions” findings and would also deem carbon capture and hydrogen to be not yet adequately demonstrated technologies.
HAALAND PROTESTED AT CHACO CANYON CELEBRATION: Navajo gathered to block a road in Chaco Culture National Historical Park yesterday ahead of a planned ceremony featuring Secretary Deb Haaland to celebrate the recent 20-year land withdrawal around the park.
Protesters held signs reading “go home” and “no trespassing on allottee lands,” upset with the new limitations on oil and gas development in the 10-mile buffer zone around the park.
Haaland said she was saddened by the incident: “We can disagree on policy. But we must be united in the protection of our children, our culture, our shared sacred spaces,” Haaland said.
Navajo leaders, whose constituents are allottees of the affected land, sought a smaller buffer zone and have complained that the Biden administration didn’t consult them satisfactorily.
“The financial and economic losses that are impacting many Navajo families as a result of the secretary’s recent land withdrawal are nothing to celebrate,” Navajo President Buu Nygren said last week.
BLM DELAYS LARGE WYOMING OIL AND GAS LEASE SALE: The Bureau of Land Management announced a one-week delay of its sizeable oil and gas lease sale for acreage in Wyoming later this month.
The lease sale, which will offer 127,015 acres, will now be held on June 28 and 29.
BLM said that necessary computer system maintenance would interfere with the originally planned dates of the online sale.
The Rundown
Wall Street Journal Executives dial back sustainability talk. Is it ‘Green-Hushing’?
Reuters Rich US subsidies may hobble Canada’s clean-fuel efforts
