What a difference a year or two can make. Two years ago, the Trump administration extended the existing moratorium on oil drilling on parts off the East Coast along Florida's, Georgia's, and South Carolina's coasts to wind farm development, leading to serious uncertainties around the federal offshore wind permitting process. Previously, Trump had gone on a bizarre tirade, essentially labeling wind turbines as the biggest bird slayers, so his stance on wind energy might not have come as a complete surprise.
But offshore wind has now come full circle, with the Biden administration ready to lend its full support.
Two weeks ago, the Biden administration outlined a range of clean energy initiatives, key among them plans to hold the largest-ever sale of offshore wind leases in U.S. history and accelerate the deployment of new power lines to transmit renewable electricity across the country.
The centerpiece of the announcement is the planned sale of six commercial leases in the New York Bight between Long Island and New Jersey in February, which are projected to eventually generate as much as 7 GW of electricity. Also, the Department of Energy is launching a Building a Better Grid initiative that will tap billions of dollars in funding from the $1T infrastructure law passed in November to finance new lines and grid upgrades.
The announcement is aligned with Biden's pledge to take an "all-of-government" approach to fighting global warming and decarbonizing the U.S. electricity grid by 2035, with the White House declaring it's "continuing to pursue this agenda every way we know how."
Offshore Capex Hits $136B
According to the Maritime Professional, as of the end of January 2022, there were over 45 offshore wind projects in development in the United States, representing $136 billion in capital expenditure and $4.4 billion annual OPEX opportunity. Maritime estimates that 46 offshore wind projects will install 43 GW of capacity in this and the next decade, with the projects forecast to be brought on-stream within this and early in the next decade.
The publication says that 17.5 GW of project capacity has already secured offtake commitments, while 16.5 GW of new federal offshore leasing activity in the northeast, South Atlantic, and California is underway.
The U.S. Department of Energy has reported that the U.S. offshore wind pipeline grew 24% Y/Y in 2021, with 35,324 MW now in various stages of development thanks to falling offshore wind prices, federal action, and state-level commitments. That's impressive, considering it happened at the height of the Covid-19 pandemic. Overall, the U.S. installed 17 GW of wind power in 2020, bringing the total installed capacity to 122GW.
China is the world leader in wind energy, with an installed capacity of 288 GW.
Falling costs are a big reason for the rapid adoption of clean energy. BNEF has forecast that by 2030, the global average LCOE--levelized cost of energy--for offshore wind farms will drop 41%. Another big advantage: in contrast to onshore wind and solar, offshore facilities can be built on very large scales to directly offset closures of major coal and nuclear plants.
Leading non-US offshore wind companies Denmark-based Ørsted A/S (OTCPK: DNNGY), Canada's Northland Power (OTCPK: NPIFF) and to a lesser extent, Denmark's leading offshore wind turbine manufacturer, Vestas Wind Systems (OCTPK: VWDRY), have clearly benefited from the offshore boom.
However, Vestas has lately come under pressure, with the stock crashing 80% last year as the company continues struggling with supply chain woes. The world's largest maker of wind turbines has reported preliminary full-year revenues of €15.6B ($17.61B), at the lower end of prior guidance of €15.5B-€16.5B, while EBIT before special items fell 38% to €461M, indicating an EBIT margin of 3% vs. guidance of ~4%.
For FY 2022, Vestas has forecast revenues of €15B-€16.5B, below €16.57B analyst consensus, and EBIT margin before special items of 0%-4%, reflecting the "increased impact from cost inflation within raw materials, wind turbine components and energy prices."
Here are four U.S. offshore wind companies to watch.
#1. Dominion Energy
Berkshire Hathaway has always operated on Buffett's famous ethos of buying when the market is fearful and selling when it gets greedy. It, therefore, came as a huge surprise that the giant conglomerate remained muted when the market crashed in April despite sitting in a massive $137 billion cash hoard.
Buffett's rationale was simple: They had not done anything because they had not seen anything that attractive to do.
However, in July 2020, Berkshire finally pulled the trigger and bought natural gas transmission and storage assets of Dominion Energy Inc. (NYSE:D), paying $4 billion in cash for the assets, and assuming $5.7 billion in debt.
Under the deal, Berkshire Hathaway Energy acquired 100% of Dominion Energy Transmission, Carolina Gas Transmission, and Questar Pipeline, as well as 50% of Iroquois Gas Transmission System. Berkshire also landed 25% of Cove Point LNG, one of just six export-import and storage facilities for liquefied natural gas in the United States.
But Dominion Energy has another important asset: an offshore wind farm.
Indeed, Dominion energy is the proud owner of the only operating U.S. offshore wind project at the moment.
Last year, Dominion Energy filed plans with the Virginia State Corporation Commission for approval to construct the 2.6 GW Coastal Virginia Offshore Wind (CVOW) commercial project, the largest offshore wind project in the United States. Dominion recently raised its capital spending guidance for CVOW to nearly $10B.
In 2020, Dominion Energy tapped leading wind turbine manufacturer Siemens Gamesa Renewable Energy S.A. (OTCPK:GCTAF) as the preferred turbine supplier for the 176 14.7-megawatt turbines to be installed in the 112,800-acre commercial lease area.
Dominion Energy has already received approval from the Virginia State Corporation Commission to proceed with its 10-year plan to transform the state's electric distribution grid. The SCC ruling approved more than $650M of investments in 2022-23 for Phase 2 of Dominion's Grid Transformation Plan, which will aim to integrate distributed energy resources, such as small-scale solar projects, energy storage facilities, and electric vehicles.
#2. Avangrid, Inc.
Orange, Connecticut-based Avangrid, Inc. (NYSE: AGR) is a subsidiary of Spain's wind energy giant Iberdrola, S.A. (OTCPK: IBDRY). Avangrid operates as an energy services holding company through two segments, Networks and Renewables.
Avangrid Renewables is developing Commonwealth Wind, a 1,232-MW offshore joint venture wind project in New England, the region's largest offshore wind project to date. Commonwealth Wind is expected to create 11,000 full-time equivalent jobs over its lifetime and generate enough energy to power 750,000 homes annually.
With the addition of Commonwealth Wind to Avangrid's existing portfolio of offshore wind development projects, the company will build, own and operate more than 2,400 MW of offshore clean energy once the joint venture restructuring with Copenhagen Infrastructure Partners and Avangrid Renewables closes.
#3. Public Service Enterprise Group
New Jersey-based Public Service Enterprise Group (NYSE: PEG) is an energy company that transmits and distributes electricity and gas to residential, commercial, and industrial customers.
Back in October, PSEG and Ørsted announced that the companies had submitted several joint proposals for offshore wind transmission that support New Jersey's ambitious clean energy goals. Submitted into the PJM State Agreement Approach Proposal Window, the joint proposals are collectively named Coastal Wind Link and are designed to deliver thousands of megawatts of offshore wind energy into New Jersey, drawing from PSEG's extensive transmission experience as well as Ørsted's expertise in offshore wind energy.
New Jersey has set a goal to integrate 7,500 megawatts of offshore wind energy by 2035 and achieve 100% clean energy by 2050.
Evercore ISI recently upgraded several utilities because the sector offers attractive relative valuation, though inflation and rising yields likely will remain headwinds in 2022 as utilities tend to underperform the market in periods of high inflation. PEG was upgraded to Outperform amid a growing appreciation for nuclear assets and a cleaner portfolio.
#4. EverSource Energy
Based in Springfield, Massachusetts, EverSource Energy Inc. (NYSE: ES) operates as a public utility holding company, engaging in the energy delivery business, including electric distribution, electric transmission, natural gas distribution, and water distribution.
Last year, EverSource Energy announced that it's joining forces with Dominion Energy and Orsted to charter a ship that will help the partner companies erect offshore wind farms along the East Coast. The Charybdis is expected to be sea-ready by late 2023.
Once completed, the 472-foot Charybdis will be deployed out of New London harbor to support the construction of two Eversource-Orsted projects—Revolution Wind and Sunrise Wind—off the coasts of Massachusetts and Long Island.
Revolution Wind is a 50/50 joint venture between EverSource and Orsted, with a capacity of 400 MW to Rhode Island and 304 MW to Connecticut.
Similarly, Sunrise Wind is a 50/50 joint venture between EverSource and Orsted, with a capacity of ~924 MW.
By Alex Kimani for Oilprice.com
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