- President Joe Biden’s climate agenda and the Inflation Reduction Act (IRA) appeared poised to help Orsted, a Danish offshore wind developer, become a leader in the burgeoning American industry, but the past several years’ mounting economic problems has forced the company to cancel two of its signature East Coast projects.
- Orsted has cited inflationary pressure, high interest rates and considerable logistical and supply chain challenges as key reasons behind the cancellations.
- “It’s now becoming clear to everyone that there have been unforeseen issues with these approaches,” Kevin Dayaratna, chief statistician and a senior research fellow for the Heritage Foundation, told the Daily Caller News Foundation.
President Joe Biden’s sweeping climate agenda once pumped up a major offshore wind developer, but the state of his economy has forced the company to cancel two of its signature projects.
The Inflation Reduction Act (IRA), the legislative cornerstone of the administration’s push to transition the American economy away from fossil fuels, included robust tax credit provisions to incentivize companies like Orsted, a Danish offshore wind developer with a North American subsidiary, to invest in and build major projects. Analysts and investors had high hopes for the company when Biden first assumed office promising to pass a major green energy subsidy bill, which eventually manifested as the IRA in the summer of 2022, but the inflation, rising interest rates and supply chain backups that have largely defined the Biden economy have forced the company to walk away from two of its key East Coast projects.
“Macroeconomic factors have changed dramatically over a short period of time, with high inflation, rising interest rates, and supply chain bottlenecks impacting our long-term capital investments,” David Hardy, the CEO of Orsted North America, said when the company announced the cancellations. The state of the economy left the company “no choice” but to pull the plug, he said. (RELATED: Biden Admin Greenlights Biggest Offshore Wind Farm Yet As Industry Flounders)
Not much interest in the offshore wind leaseshttps://t.co/EeKTqG90vw
— Daily Caller (@DailyCaller) August 30, 2023
The IRA included numerous provisions designed to incentivize offshore wind investment, including a 30% tax credit for companies that comply with prevailing wage requirements and meet certain domestic sourcing criteria, according to the Congressional Research Service. With the help of these IRA tax credits, it was thought that offshore wind developers like Orsted could offset the higher costs of building out and providing wind energy and still be profitable enough to appeal to investors.
The Biden administration has established a goal for the industry to provide enough power to provide electricity for 10 million American homes by 2030, but the financial problems that are hurting Orsted and other developers are jeopardizing that goal. The two canceled projects would have accounted for more than 6% of the overall 2030 generation target.
“It’s now becoming clear to everyone that there have been unforeseen issues with these approaches,” Kevin Dayaratna, chief statistician and a senior research fellow for the Heritage Foundation, told the Daily Caller News Foundation.”Furthermore, it’s also becoming apparent that if the goal is to avert climate change, then these policies will have next to no impact in doing so.”
Orsted’s stock price reached a peak of about $75 per share in early January 2021, just prior to Biden’s inauguration, according to data available on Google Finance. The company’s shares were trading at about $13 per share on Thursday, and they are down by about 60% over the course of 2023 alone. Meanwhile, S&P has indicated that it is considering decreasing the company’s credit rating in light of the massive losses, according to the Financial Times. (RELATED: Blue State Taxpayers May Pay The Price For Dems’ Wind Power Gamble)
Orsted has ended the day down 25.7%, cutting its market valuation to a 7-year under $15 billion. At its peak in 2021, it had a market cap of ~$95 billion.
— Javier Blas (@JavierBlas) November 1, 2023
Inflation has dogged the U.S. economy since Biden took office, which some analysts attribute in part to his robust spending on executive programs and legislative packages like the IRA and bipartisan infrastructure law. Inflation, often referred to as a “hidden tax,” has driven prices up for almost everything across the U.S. economy, from energy to Halloween candy to the component parts needed to construct enormous wind turbines.
The company recognized that inflation threatened its projects by eating into profit margins that are based on agreed-upon rates set in contracts with utility companies, known as power purchase agreements (PPAs). Orsted, along with other green energy developers, petitioned the New York Public Service Commission (NYPSC) for permission to renegotiate its PPA prices to account for the inflationary pressure, a move which would have resulted in significant increases for ratepayers covered by the agreement. The NYPSC rejected the request, a decision which Democratic New York Gov. Kathy Hochul suggested was motivated by concern for the ratepayers.
However, inflation was not the only macroeconomic trend to contribute to Orsted’s serious troubles. Just after Biden took office in January 2021, the Federal Reserve’s interest rates were almost at 0%; as of Friday, the rate has soared above 5%.
The rate hikes are in response to the rampant inflation, intending to cool down an economy that is running too hot by making credit more expensive. In Orsted’s case, the higher rates made refinancing its obligations too costly to be a sensible escape from its mounting financial difficulties.
On top of the monetary issues, the company also cited considerable supply chain and logistical issues as reasons for the cancellations. Mads Nipper, CEO of Orsted, told financial analysts on Wednesday that a shortage of specialized vessels needed for the construction process would have imposed multiyear delays, especially to Ocean Wind 1.
“The most fundamental issue is that what the administration is trying to do is artificially get the wind industry going when it is not ready yet,” Dayaratna previously told the DCNF. “When you try to do that, things cost more and keep getting even more expensive.”
Neither Orsted nor the White House responded immediately to requests for comment.
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