WEBVTT - US Offshore Wind Blows Cold as Interest Rates Heat Up 0:00:00.240 --> 0:00:03.160 This is Dana Perkins and you're listening to Switched on 0:00:03.400 --> 0:00:07.400 the BNEF podcast. Recently we talked about what's happening in 0:00:07.440 --> 0:00:10.240 the solar industry, So today we're going to pivot to 0:00:10.280 --> 0:00:14.440 another popular clean power solution, that's wind. We're going to 0:00:14.480 --> 0:00:17.079 have a specific focus today on what's happening in the 0:00:17.239 --> 0:00:20.599 United States, and that's because the Biden administration has set 0:00:20.640 --> 0:00:24.440 out an ambitious target of thirty gigawatts of installed offshore 0:00:24.480 --> 0:00:28.640 wind capacity by twenty thirty. While onshore wind has historically 0:00:28.640 --> 0:00:32.520 done well in the US, embracing offshore is relatively new, 0:00:32.720 --> 0:00:36.000 but with a quarter of all US offshore wind deals 0:00:36.120 --> 0:00:39.200 canceled in twenty twenty three, this ambitious goal is looking 0:00:39.320 --> 0:00:43.360 increasingly out of reach. So what lies behind these cancelations 0:00:43.760 --> 0:00:47.159 and is this an issue only facing the offshore sector 0:00:47.400 --> 0:00:50.159 or is the US onshore wind sector in an equally 0:00:50.200 --> 0:00:54.000 precarious position. To find out more, today I'm joined by 0:00:54.000 --> 0:00:57.760 two members of BNF's WIN Team, both based in New York, Chelsea, 0:00:57.960 --> 0:01:01.240 Jean Michel and Atten Jane, and they discuss some of 0:01:01.280 --> 0:01:06.320 their findings from bnfs recently published BNF Onshore and Offshore 0:01:06.520 --> 0:01:09.679 Wind outlooks for twenty twenty three. They share the impacts 0:01:09.680 --> 0:01:12.920 of the two eyes, interest rates and inflation on US 0:01:12.920 --> 0:01:16.399 offshore wind projects, and when a developer cancels one of 0:01:16.440 --> 0:01:19.800 these offshore wind contracts, what actually happens. In many other 0:01:19.880 --> 0:01:22.480 parts of the world, you can't immediately rebid on the 0:01:22.520 --> 0:01:25.120 same project. But in the US, well, we're going to 0:01:25.120 --> 0:01:27.520 find this isn't necessarily the case, and they're going to 0:01:27.520 --> 0:01:30.280 give us a little more color under what circumstances. We 0:01:30.360 --> 0:01:33.640 also return once again to a pod favorite urcut the 0:01:33.720 --> 0:01:37.320 Texas grid, where onshore wind developments have been rolled out 0:01:37.319 --> 0:01:40.000 with far less friction and grid connection wait times are 0:01:40.040 --> 0:01:43.520 significantly shorter than in other parts of the States. So 0:01:43.880 --> 0:01:46.280 what should other parts of the country be learning both 0:01:46.280 --> 0:01:48.720 good and bad from the lone Star state. We'll talk 0:01:48.720 --> 0:01:52.360 about that too. To access are onshore and offshore wind 0:01:52.400 --> 0:01:55.720 outlooks and other related insights and reports. B and EF 0:01:55.760 --> 0:01:59.040 subscribers will be able to find them on BNF dot com, 0:01:59.080 --> 0:02:01.920 on BNF Go on the Bloomberg terminal, or on BNF's 0:02:01.920 --> 0:02:05.200 mobile app. If you like this podcast, make sure to subscribe, 0:02:05.240 --> 0:02:07.000 and if you'd like to share it with others, make 0:02:07.000 --> 0:02:08.839 sure to give us a review, But right now, let's 0:02:08.919 --> 0:02:22.519 jump straight into our conversation with Chelsea and Aton. Chelsea, 0:02:22.600 --> 0:02:24.400 thank you very much for joining the show today. 0:02:24.880 --> 0:02:26.240 Hi Dana, thanks for having me. 0:02:26.600 --> 0:02:28.079 And Aton nice to have you. 0:02:28.040 --> 0:02:29.480 Here as well. Thank you, Dana. 0:02:29.840 --> 0:02:32.799 So we're going to talk about onshore and offshore when 0:02:32.880 --> 0:02:35.640 today and I like to actually think of this particular 0:02:35.639 --> 0:02:39.040 industry as one of the darlings of renewable energy. There's 0:02:39.080 --> 0:02:43.799 been so much positive conversation historically around wind and its 0:02:43.840 --> 0:02:48.960 capacity factors. Why do you think wind has historically had 0:02:49.040 --> 0:02:51.880 such a strong reputation within renewables. 0:02:52.200 --> 0:02:54.079 If you look at the story of the last two 0:02:54.120 --> 0:02:57.679 decades for renewables in the US, wind part actually has 0:02:58.000 --> 0:03:01.639 been the dominant force of clean energy transition in the country. 0:03:01.720 --> 0:03:05.000 And that's because wind has been able to enjoy a 0:03:05.040 --> 0:03:07.120 lot of subsidies in the US in the form of 0:03:07.160 --> 0:03:10.600 production tax credits. Those subsidies started way back in nineteen 0:03:10.639 --> 0:03:14.200 ninety two and continues till today and are going to 0:03:14.200 --> 0:03:16.560 continue at least for another ten years, and there are 0:03:16.560 --> 0:03:19.080 some estimates that maybe it can go all the way 0:03:19.160 --> 0:03:22.880 up to twenty fifty these subsidies. So wind power delivers 0:03:22.960 --> 0:03:26.320 cheap form of eleccity in the country. Developers enjoy the 0:03:26.400 --> 0:03:30.680 subsidy benefits, which means they enjoy a handsome returns. There 0:03:30.720 --> 0:03:34.440 is some concern with the macroeconomic situation today, but overall 0:03:34.560 --> 0:03:37.680 wind has been a profitable business for the developers. We 0:03:37.920 --> 0:03:41.480 have enjoyed a local supply chain for onshore wind in 0:03:41.520 --> 0:03:45.800 the country. That means wind generates jobs. So everyone actually 0:03:45.840 --> 0:03:47.040 loves wind and. 0:03:46.960 --> 0:03:51.120 That's onshore wind. But what is the history in US's 0:03:51.200 --> 0:03:53.160 relationship with offshore. 0:03:52.720 --> 0:03:55.320 Wind bin Yeah, thanks Tina, and I guess if I 0:03:55.360 --> 0:03:57.600 could also add on a little bit more as well 0:03:57.640 --> 0:04:00.680 on the wind side of things. For being alling child, 0:04:00.760 --> 0:04:03.240 I think that if you compare the generation profile of 0:04:03.280 --> 0:04:06.120 a wind farm to a solar farm, right, wind's not 0:04:06.200 --> 0:04:08.400 going to cut out at night. When you're looking at 0:04:08.440 --> 0:04:10.840 the capacity factor of a wind farm, So a capacity 0:04:10.840 --> 0:04:14.040 factor being essentially you know how efficiently that wind farm 0:04:14.080 --> 0:04:16.160 works over the course of a year, Basically how much 0:04:16.200 --> 0:04:18.760 does it generate versus how much is possible for it 0:04:18.839 --> 0:04:21.640 to generate. Wind farm capacity factors tend to be closer 0:04:21.680 --> 0:04:24.480 to around thirty percent versus for solar when you're looking 0:04:24.520 --> 0:04:26.960 at closer to twenty percent, and so you're basically able 0:04:27.040 --> 0:04:29.680 to generate a lot more renewable electricity with the same 0:04:29.720 --> 0:04:33.520 installed capacity. Also, what wind has is it has scale, 0:04:33.680 --> 0:04:36.200 and so for onshure wind you might see projects in 0:04:36.360 --> 0:04:38.800 you know, the hundred megawat side of things, whereas for 0:04:38.839 --> 0:04:41.720 solar they're usually a lot smaller. If you go offshore, 0:04:41.800 --> 0:04:44.760 then you start to look at gigawatt scale, And for context, 0:04:44.880 --> 0:04:48.400 in the US, one gigawat project offshore can power around 0:04:48.400 --> 0:04:50.760 three hundred and fifty thousand homes. So that's a lot 0:04:50.760 --> 0:04:53.640 of renewable electricity that you're generating at a large scale 0:04:53.760 --> 0:04:56.120 at higher efficiencies. Now, if we take a look at 0:04:56.160 --> 0:04:59.240 the history of offshore wind in the US, it has 0:04:59.320 --> 0:05:02.240 been a series of stop go stop, go, stop, go, 0:05:02.320 --> 0:05:05.640 stop go, basically a lot of false starts. For context, 0:05:05.720 --> 0:05:09.120 today there are only seven turbines operating in the waters. 0:05:09.240 --> 0:05:11.920 So there's thirty megawats off the coast of Rhode Island 0:05:11.960 --> 0:05:14.680 and there's twelve megawats off the coast of Virginia. That 0:05:14.800 --> 0:05:17.800 being said, there are also two projects currently under construction 0:05:17.920 --> 0:05:21.080 right now that's over nine hundred megawats, almost a gigawatt 0:05:21.120 --> 0:05:23.200 that's going to be commissioning all next year into twenty 0:05:23.240 --> 0:05:25.440 twenty four, and so we started to see kind of 0:05:25.520 --> 0:05:28.320 the first really good signs of the US offshore wind 0:05:28.360 --> 0:05:31.800 industry to start kicking off when the Biden administration began 0:05:31.880 --> 0:05:34.680 to take over. So we saw lots of federal approvals 0:05:34.680 --> 0:05:38.000 come through. The first large scale offshore wind farm in 0:05:38.040 --> 0:05:41.000 the US was approved by the Biden administration. And we've 0:05:41.080 --> 0:05:44.000 also seen I mentioned that the first few projects start 0:05:44.040 --> 0:05:47.320 to get constructed. So that's kind of the overall history 0:05:47.360 --> 0:05:49.920 of the US about lots of false starts, but now 0:05:49.920 --> 0:05:52.160 we're starting to see some construction. And Atton hinted a 0:05:52.160 --> 0:05:54.640 little bit more about like the macroeconomic environment that we're 0:05:54.680 --> 0:05:56.320 in right now, which is meant that we've started to 0:05:56.320 --> 0:05:58.279 see a lot more struggles in the industry. 0:05:58.680 --> 0:06:01.719 Well, let's go into that, go into the macroeconomic environment. 0:06:01.760 --> 0:06:04.840 I think everyone is very used to thinking about inflation 0:06:05.360 --> 0:06:07.440 and higher interest rates at the moment, but this is 0:06:07.520 --> 0:06:10.359 hitting the wind industry in particular in the US quite hard. 0:06:10.720 --> 0:06:15.080 What are some of the obstacles that currently granted winners 0:06:15.080 --> 0:06:18.360 of auctions are being faced with and really questioning whether 0:06:18.400 --> 0:06:20.440 or not to move forward with some of the projects. 0:06:20.440 --> 0:06:22.719 That they have been granted the rights to do and 0:06:22.760 --> 0:06:23.200 to build. 0:06:23.560 --> 0:06:25.560 Yeah, I guess there are the two eyes which are 0:06:25.600 --> 0:06:28.479 the big problems right now for the project developers, the 0:06:28.520 --> 0:06:31.280 inflation and the interest rates. The inflation has come down 0:06:31.320 --> 0:06:33.480 from the peaks that we saw last year, but the 0:06:33.480 --> 0:06:36.039 interest rates are still very high. At the time of 0:06:36.160 --> 0:06:38.800 the recording of this podcast, I just had a quick 0:06:38.920 --> 0:06:43.160 check and the secured overnight financing rate the SOFA, which 0:06:43.200 --> 0:06:45.799 is like a benchmark to price loans in this country, 0:06:45.920 --> 0:06:48.440 that was at about five point three percent compared to 0:06:48.680 --> 0:06:52.599 near zero levels we saw during the pandemic. So developers 0:06:52.600 --> 0:06:56.360 are really feeling the pinch of these interest rates and 0:06:56.720 --> 0:06:58.960 they all have their backs to the wall because there's 0:06:59.080 --> 0:07:02.200 very little they can really do around the inflation and 0:07:02.240 --> 0:07:06.080 the interestate situation. And we actually did some analysis earlier 0:07:06.080 --> 0:07:09.479 this year around what has been the impact of inflation 0:07:09.840 --> 0:07:13.400 and interest rates on the US offshore wind project lcoees, 0:07:13.600 --> 0:07:16.960 and what we found was there's a near fifty percent 0:07:17.080 --> 0:07:20.640 increase in the costs of the US offshore wind Elecxcity 0:07:20.840 --> 0:07:23.960 just because of these challenges we have seen. If I 0:07:24.000 --> 0:07:26.720 have to run you through the math around it, I 0:07:26.760 --> 0:07:29.080 would go about by asking you to first remember there 0:07:29.080 --> 0:07:31.600 are a lot of sevens involved here. Back in twenty 0:07:31.640 --> 0:07:35.520 twenty one, the levelized cost of flexity for a subsidized 0:07:35.680 --> 0:07:38.520 offshore wind farm basically a project that had access to 0:07:38.640 --> 0:07:41.679 the federal tax credits, that number was about seventy seven 0:07:41.720 --> 0:07:46.240 dollars per megawata. Now, what has happened is inflation resulted 0:07:46.360 --> 0:07:49.560 in an increase in the KPX and OPIX for these projects, 0:07:49.880 --> 0:07:53.000 and the levelized cost of elixity went up by about 0:07:53.080 --> 0:07:57.480 seventeen dollars per megawata, and then the interest rates led 0:07:57.520 --> 0:08:00.320 to another hike of twenty seven dollars per mait what 0:08:00.480 --> 0:08:03.800 are to that number? But between the interest rate hikes 0:08:03.840 --> 0:08:07.640 and the inflation, we also saw the federal government pass 0:08:07.720 --> 0:08:11.600 the Inflation Reduction Act last year, and the IRA has 0:08:11.800 --> 0:08:15.160 provisions for bonus tax credits. Now, if we have a 0:08:15.200 --> 0:08:19.840 conservative estimate on what bonuses these projects can qualify, we 0:08:19.920 --> 0:08:23.680 can actually see the impact. In a minor decline, the 0:08:23.840 --> 0:08:26.880 LCOE goes down by about seven dollars per megawatar, and 0:08:26.920 --> 0:08:30.360 so net and net, what you come to is one 0:08:30.440 --> 0:08:34.000 hundred and fourteen dollars per megawatar. Number in twenty twenty three, 0:08:34.160 --> 0:08:37.280 compared to the seventy seven dollar you had. So seventy 0:08:37.280 --> 0:08:40.880 seven goes up by seventeen because of the inflation, goes 0:08:40.960 --> 0:08:44.240 up by another twenty seven because of the interest rates, 0:08:44.559 --> 0:08:47.560 goes down by seven because of the bonus tax credits, 0:08:47.600 --> 0:08:49.720 and net you reach at about one hundred and fourteen 0:08:49.720 --> 0:08:50.720 dollars per macota. 0:08:50.800 --> 0:08:52.600 Now, to put this in context, and I want to 0:08:52.640 --> 0:08:55.120 keep this show about wind, I mean, that's that's what 0:08:55.160 --> 0:08:58.720 we're here to discuss. But if the LCOE for wind 0:08:58.800 --> 0:09:02.760 is worsening compare to other industries, does it remain competitive 0:09:02.920 --> 0:09:06.720 and does it remain lower? Is that one fourteen that 0:09:06.760 --> 0:09:09.760 you pointed out per megawat hour? Is that cost competitive 0:09:09.800 --> 0:09:13.200 with natural gas in the US or coal in the US? 0:09:13.720 --> 0:09:16.720 Yeah, it still is quite competitive. You have to also 0:09:16.760 --> 0:09:20.160 think about it from this perspective that wind really has 0:09:20.559 --> 0:09:24.600 zero variable costs. Some of the variable costs associated with 0:09:24.679 --> 0:09:29.400 operating a gas turbine is quite high. Sometimes the fuel 0:09:29.440 --> 0:09:31.760 cost could be as igh as just the energy costs 0:09:31.920 --> 0:09:34.920 from an offshobin project. If your fuel costs are very high, 0:09:35.160 --> 0:09:39.240 and there is volatility associated with fuel prices as well, 0:09:39.360 --> 0:09:42.880 so it's not really a likeful like comparison. To make 0:09:42.960 --> 0:09:45.680 with say a gas or a coal project. But I 0:09:45.720 --> 0:09:48.600 think that one hundred and fourteen dollars per megota number, 0:09:48.760 --> 0:09:51.760 put in the right context is still quite competitive. 0:09:52.040 --> 0:09:54.199 And I guess if I could also just add something 0:09:54.679 --> 0:09:56.640 that one hundred and fourteen dollars per megawat hour that 0:09:56.679 --> 0:09:59.760 attens talking about, that's for offshore wind. So for onsure wind, 0:09:59.800 --> 0:10:02.840 this is lower. For solar this is lower. And so 0:10:03.080 --> 0:10:04.720 you know, I kind of want to make that distinction 0:10:04.880 --> 0:10:08.560 that offshore wind and onshore wind. They are still wind generation, 0:10:08.760 --> 0:10:12.760 but offshore is significantly more expensive and also just has 0:10:12.760 --> 0:10:16.400 a different generation profile. It has significantly higher capacity factors. 0:10:16.440 --> 0:10:18.840 So I mentioned thirty percent earlier on in the podcast. 0:10:19.000 --> 0:10:21.319 Offshore in the US can reach as high as forty 0:10:21.320 --> 0:10:23.880 five percent forty eight percent in some cases, And so 0:10:24.360 --> 0:10:27.480 with that in mind, there is a distinction between the two. Also, 0:10:27.520 --> 0:10:29.720 I think it's important to clarify that what Atten has 0:10:29.720 --> 0:10:32.320 been saying about interest rates and inflation, this isn't just 0:10:32.440 --> 0:10:36.040 impacting wind. This has impacted renewables and other technologies, other 0:10:36.080 --> 0:10:39.480 industries across the board, and so yes, while the price 0:10:39.520 --> 0:10:41.360 of wind is going up, we've also seen the price 0:10:41.360 --> 0:10:43.440 of solar go up. We've seen the price of so 0:10:43.559 --> 0:10:46.440 many different technologies go up and the last few months 0:10:46.559 --> 0:10:48.800 or the last year or so, and so yes, it 0:10:48.880 --> 0:10:52.480 might not necessarily be as competitive now as it was 0:10:52.520 --> 0:10:55.280 in the past. But I guess the opposite of the 0:10:55.679 --> 0:10:59.640 idiom rising tide lifts ale boats, but rising interest rates 0:10:59.760 --> 0:11:02.080 raise the cost of capital for everyone. And then the 0:11:02.160 --> 0:11:04.880 last piece on offshore wind that I think is important 0:11:04.920 --> 0:11:07.440 to mention is that it has the highest levelized cost 0:11:07.480 --> 0:11:10.880 of electricity across renewable technologies. So if you compare it 0:11:10.880 --> 0:11:12.480 to on sure wind, and you compare it to on 0:11:12.600 --> 0:11:15.040 your solar, offshore wind's a lot higher. And if you 0:11:15.080 --> 0:11:17.600 take a look at why it is that states are 0:11:17.760 --> 0:11:20.680 building offshore wind, it's not because it's the cheapest source 0:11:20.679 --> 0:11:23.720 of power, right, It's because you see sometimes really high 0:11:23.800 --> 0:11:26.360 price spikes in the winter due to high gas prices 0:11:26.440 --> 0:11:29.120 or gas shortages in the Northeast. And so offshore wind 0:11:29.120 --> 0:11:32.000 as a technology, because it generates a lot during the winter, 0:11:32.200 --> 0:11:34.120 it can kind of offset that price spike, so that 0:11:34.160 --> 0:11:38.240 provides additional benefits. These are also massive billion dollar infrastructure projects, 0:11:38.240 --> 0:11:41.440 so there's a lot of economic development opportunities associated with it. Also, 0:11:41.520 --> 0:11:44.400 environmental benefits as well. I mentioned the scale that offshore 0:11:44.440 --> 0:11:46.960 wind has gigawatt scale that you can build, and so 0:11:47.240 --> 0:11:50.760 there's all of these other pieces that aren't necessarily contextualized 0:11:50.800 --> 0:11:53.559 within an LCOE that adds the benefits to offshore wind 0:11:53.600 --> 0:11:55.600 and can make it more competitive in certain respects. 0:11:55.920 --> 0:11:58.640 Now, these increased costs have led some developers to think 0:11:58.679 --> 0:12:01.480 about whether or not to proceed with certain projects, and 0:12:01.520 --> 0:12:04.640 my question really comes down to what happens then, What 0:12:04.760 --> 0:12:06.840 is the process of pulling out of a project, How 0:12:06.880 --> 0:12:10.959 prevalent is this across the different developers who have won auctions, 0:12:11.200 --> 0:12:13.880 and are they likely to then stay in the game 0:12:13.960 --> 0:12:14.600 for the future. 0:12:15.040 --> 0:12:17.400 Well, at the time of the recording of this podcast, 0:12:17.679 --> 0:12:21.040 we've just heard that the total projects that have been 0:12:21.040 --> 0:12:24.120 canceled so far this year is at about five point 0:12:24.120 --> 0:12:27.160 five gig awart, including the two point three gigawaut of 0:12:27.240 --> 0:12:30.959 projects that osted recently canceled. The other developers that have 0:12:31.080 --> 0:12:35.320 canceled some capacity include a Van Grade that have canceled 0:12:35.440 --> 0:12:37.680 I mean they have canceled around two gigaout of projects, 0:12:37.880 --> 0:12:40.960 and shall Ocean Winds they have canceled at another one 0:12:40.960 --> 0:12:44.559 point two gig awut so I think what essentially all 0:12:44.600 --> 0:12:47.680 these developers are now trying to look at is can 0:12:47.679 --> 0:12:51.200 they rebid in future auctions? And most states allow this 0:12:51.320 --> 0:12:53.640 levey for their developers essentially. 0:12:53.800 --> 0:12:57.440 So to contextualize, we've seen over twelve gigawatts of US 0:12:57.480 --> 0:13:01.600 offshore wind projects seek to either cancel or renegotiate their 0:13:01.600 --> 0:13:05.520 off take contracts. To put that into context, twelve gigawatts 0:13:05.559 --> 0:13:08.440 of offshore wind can power around four point two million homes, 0:13:08.640 --> 0:13:12.560 and that represents over half of all contracted US offshore 0:13:12.600 --> 0:13:16.359 wind capacity. Now what I mean when I say contracted capacity, 0:13:16.440 --> 0:13:19.680 So these are projects that have won contracts via a 0:13:19.760 --> 0:13:24.160 competitive solicitation in state auctions. So a state like New York, 0:13:24.160 --> 0:13:26.600 which has a target of nine gigawatts by twenty thirty five, 0:13:26.800 --> 0:13:30.880 will have these solicitations or these auctions to procure power, 0:13:31.080 --> 0:13:33.160 and developers will bid in and say, oh, I can 0:13:33.160 --> 0:13:34.760 provide it at this price, I can provide it at 0:13:34.760 --> 0:13:37.320 this lower price, and then usually some other elements like 0:13:37.360 --> 0:13:41.240 economic development, environmental benefits, et cetera, and then these contracts 0:13:41.280 --> 0:13:43.360 will be awarded. Now what's been happening is a lot 0:13:43.360 --> 0:13:46.000 of these contracts have been awarded in twenty nineteen and 0:13:46.080 --> 0:13:49.640 twenty twenty, where developers were making assumptions on what interest 0:13:49.760 --> 0:13:52.280 rates would be like, what inflation would be like, and 0:13:52.320 --> 0:13:54.840 we've seen over the last year or so how this 0:13:55.000 --> 0:13:57.800 reality has shifted, and so when they bid at their 0:13:57.800 --> 0:14:00.800 contract prices. In the US, this is union because these 0:14:00.800 --> 0:14:03.959 contracts aren't indexed to inflation. So in the UK you 0:14:04.040 --> 0:14:06.600 might have a fifteen year off take contract and then 0:14:06.640 --> 0:14:09.040 it'll go up by inflation each year. This is also 0:14:09.040 --> 0:14:12.080 the case for Poland partially for Ireland. In the US 0:14:12.160 --> 0:14:14.040 this is not the case, so you'll receive a flat 0:14:14.040 --> 0:14:16.959 price over the entire contract term, be that twenty twenty 0:14:16.960 --> 0:14:19.640 five years, or you'll receive a flat escalator, so it 0:14:19.720 --> 0:14:22.280 might go up by like one percent, two percent, three percent, 0:14:22.320 --> 0:14:24.720 et cetera. And so what has happened is that developers 0:14:24.760 --> 0:14:27.960 baked in certain assumptions on what the macroeconomic environment would 0:14:28.000 --> 0:14:30.360 be like when they needed to reach financial close. So 0:14:30.440 --> 0:14:32.400 this is around now for a lot of these projects 0:14:32.400 --> 0:14:34.640 that bid in twenty nineteen and twenty twenty. But the 0:14:34.680 --> 0:14:37.320 reality has shifted so much that it's put the economic 0:14:37.400 --> 0:14:38.320 viability of their. 0:14:38.240 --> 0:14:39.400 Projects at risk. 0:14:39.600 --> 0:14:41.480 And so that's what Atten was talking about a little 0:14:41.480 --> 0:14:44.040 bit earlier in terms of the rise in LCOE. Now 0:14:44.080 --> 0:14:47.160 developers are you know, kind of doing the maths and saying, wait, 0:14:47.400 --> 0:14:49.240 this isn't checking out in this way. And so in 0:14:49.320 --> 0:14:51.720 terms of the penalties data that you asked about, like 0:14:51.760 --> 0:14:54.200 what exactly happens when you want to cancel, there might 0:14:54.280 --> 0:14:58.160 be requests to renegotiate. So this happened in the case 0:14:58.280 --> 0:15:01.600 of Orsted and VP Equinora in New York, where they 0:15:01.600 --> 0:15:04.600 ask for off take price increases of around twenty seven 0:15:04.640 --> 0:15:08.120 to sixty six percent. The New York Public Service Commission said, no, 0:15:08.280 --> 0:15:11.200 we will not increase your prices. And so now the 0:15:11.240 --> 0:15:13.520 developers are at a place where they need to decide 0:15:13.560 --> 0:15:16.400 if they're going to cancel their contracts or if they're 0:15:16.440 --> 0:15:18.880 going to try and figure out other pieces to make 0:15:18.920 --> 0:15:21.360 the projects work. New York has also come out and 0:15:21.400 --> 0:15:24.920 said that they are willing to put forward a backfill auction, 0:15:25.200 --> 0:15:27.680 So in the case that these contracts are canceled, they'll 0:15:27.680 --> 0:15:30.720 put forward another solicitation, say sooner than usual, in order 0:15:30.760 --> 0:15:32.800 to try and backfill those projects and make up for 0:15:32.840 --> 0:15:35.120 some of that lost capacity. That's around four point three 0:15:35.160 --> 0:15:38.440 kigwats in New York in the case of Massachusetts Avon 0:15:38.520 --> 0:15:42.280 Grid and Shell Ocean Winds, the developers that Atton had mentioned, 0:15:42.440 --> 0:15:45.400 they have canceled their off take contracts entirely, and so 0:15:45.680 --> 0:15:49.840 they are paying forty nine million dollars and sixty million 0:15:49.880 --> 0:15:53.800 dollars in fees for canceling those off take contracts. And 0:15:53.840 --> 0:15:56.240 in the case of Oristed's Ocean Wind one in two 0:15:56.240 --> 0:15:58.760 projects in New Jersey, this is recent news, so we 0:15:58.800 --> 0:16:00.560 still have yet to see what's going on in there. 0:16:00.640 --> 0:16:03.880 But these projects have actually halted development altogether. So in 0:16:03.920 --> 0:16:05.960 the case of Massachusetts, these projects have said that they 0:16:06.000 --> 0:16:08.160 want to rebid at higher prices, but in the case 0:16:08.200 --> 0:16:11.160 of New Jersey, there's no indication of what the future 0:16:11.240 --> 0:16:13.800 of these projects hold. So there are some penalties, there's 0:16:13.800 --> 0:16:16.480 some renegotiation, there's a couple of different things that developers 0:16:16.480 --> 0:16:18.800 can take, but we've seen a couple of different approaches 0:16:18.880 --> 0:16:19.880 at this point. 0:16:20.560 --> 0:16:23.040 Now, wind farm development can take some time to get 0:16:23.040 --> 0:16:25.600 off the ground, and presumably if that moved a little 0:16:25.600 --> 0:16:28.520 bit faster, there would be less time for economic conditions 0:16:28.520 --> 0:16:30.480 to change so much in the amount of time it 0:16:30.520 --> 0:16:32.640 takes to get these things online. So let's talk a 0:16:32.680 --> 0:16:35.800 little bit about time. How long it takes to bring 0:16:35.840 --> 0:16:38.480 things online. There are a number of factors that weigh 0:16:38.480 --> 0:16:42.000 into this, including grid constraints, which we've actually talked about 0:16:42.040 --> 0:16:45.320 on this show in the past, and permitting delays. What 0:16:45.480 --> 0:16:47.760 is the state of play right now in the majority 0:16:47.800 --> 0:16:49.760 of the US, And let's leave Urkot to the side, 0:16:49.840 --> 0:16:51.720 because I actually want to come back to that and 0:16:51.800 --> 0:16:55.040 talk about how this is an outlier both in terms 0:16:55.280 --> 0:16:58.840 of how that electricity system is structured and what they 0:16:58.920 --> 0:17:01.880 have done to be come the leading state in the 0:17:02.000 --> 0:17:04.760 United States when it comes to wind. 0:17:04.880 --> 0:17:07.560 Dana, you highlighted like a really really key issue. So 0:17:07.680 --> 0:17:10.000 for offshore wind, these timelines can take eight to ten 0:17:10.080 --> 0:17:12.760 years in the US, can take as long as fourteen years, 0:17:12.840 --> 0:17:15.199 sometimes even longer as we're waiting to hear about the 0:17:15.200 --> 0:17:17.439 fate of some of these projects. And so with that 0:17:17.480 --> 0:17:21.080 in mind, New York recently awarded four gigawatts of offshore 0:17:21.119 --> 0:17:24.800 wind capacity to very early stage projects. And so these 0:17:24.800 --> 0:17:28.480 were projects that won seabed lease in a federal auction 0:17:28.920 --> 0:17:31.640 just last year and they're hoping to commission by twenty thirty. Now, 0:17:31.640 --> 0:17:33.920 I mentioned eight to ten years and sometimes as long 0:17:33.920 --> 0:17:36.080 as fourteen years, and so for US, we think they're 0:17:36.080 --> 0:17:38.600 going to commission into the twenty thirties, so later on 0:17:38.880 --> 0:17:41.320 than they're hoping for. And this is because of things 0:17:41.320 --> 0:17:44.560 like long permitting timelines, needing to figure out your transmission 0:17:44.680 --> 0:17:48.000 offshore wind again like huge infrastructure projects, and the US 0:17:48.040 --> 0:17:51.080 supply chain is extremely nascent on the offshore side of things. 0:17:51.200 --> 0:17:54.840 And because these projects just secured seabed leases last year 0:17:54.920 --> 0:17:57.040 and they won their off take contracts this year, this 0:17:57.200 --> 0:17:59.679 means that they are locked into pricing for when they 0:17:59.680 --> 0:18:01.960 commit in the twenty thirties, which is like a high 0:18:02.040 --> 0:18:04.440 level of risk that we usually don't see in other markets. So, 0:18:04.560 --> 0:18:07.080 for example, in the UK, you're required to have your 0:18:07.080 --> 0:18:09.960 permits as well as access to a grid connection before 0:18:10.000 --> 0:18:12.119 you bid for off take, and that's usually closer to 0:18:12.160 --> 0:18:14.439 when you'll reach financial close and have a better idea 0:18:14.520 --> 0:18:17.080 of how much your project's actually going to cost. I'll 0:18:17.119 --> 0:18:18.560 pivot to add and to talk a little bit more 0:18:18.600 --> 0:18:19.720 about the onshore side. 0:18:19.960 --> 0:18:23.640 Yeah, the onshore projects come up relatively quicker than offshore, 0:18:23.760 --> 0:18:25.560 but still take a lot of time. In the US, 0:18:25.680 --> 0:18:28.440 I think the average time varies at around four to 0:18:28.520 --> 0:18:31.160 five years, but in some cases can go even high 0:18:31.280 --> 0:18:33.439 as up to a decade or even more. And the 0:18:33.560 --> 0:18:36.480 major challenge that most of the project developers in the 0:18:36.600 --> 0:18:40.360 US phase for onshore is permitting. Researchers at the Columbia 0:18:40.440 --> 0:18:43.320 Law School identified about two hundred and twenty eight local 0:18:43.400 --> 0:18:47.560 and about nine state level restrictions that have impacted projects 0:18:47.560 --> 0:18:50.720 in about forty five states of the country, so we 0:18:50.840 --> 0:18:53.679 almost every state has the same kind of problems. And 0:18:53.720 --> 0:18:55.520 if you have to kind of like break down what 0:18:55.640 --> 0:18:59.760 kind of challenges these projects face, they're essentially like seven 0:18:59.800 --> 0:19:02.520 may types, and then if you have to bucket all 0:19:02.560 --> 0:19:05.680 the other challenges into other category, there's probably an eighth 0:19:05.720 --> 0:19:08.240 one as well. The most common form of wind farm 0:19:08.280 --> 0:19:10.600 limitation that we see in the US is about a 0:19:10.640 --> 0:19:14.440 required distance limit or sometimes called as a set pack 0:19:14.480 --> 0:19:18.320 limit between the turbines and public or private property lines 0:19:18.480 --> 0:19:21.199 imposed by the local councils. And we have seen this 0:19:21.320 --> 0:19:24.320 kind of a challenge really emerge in the Midwest States, 0:19:24.400 --> 0:19:26.880 which is really has become some sort of a hotbed 0:19:26.960 --> 0:19:30.160 for opposition for both onshore wind farms as well as 0:19:30.160 --> 0:19:32.480 solar projects in the country. And if I have to 0:19:32.520 --> 0:19:35.639 talk about some of the states that are really increasing 0:19:35.680 --> 0:19:38.440 the pressure on the developers or like really pushing back 0:19:38.480 --> 0:19:40.720 on wind par One state that comes to my mind 0:19:40.760 --> 0:19:45.200 is Indiana. Indiana has about twenty local counties where there 0:19:45.240 --> 0:19:49.200 is some sort of restriction that wind projects face. There 0:19:49.200 --> 0:19:53.560 are other important states with good wind resource like Nebraska, Ohio, 0:19:53.760 --> 0:19:56.919 Texas as well to an extent where the developers are 0:19:56.920 --> 0:19:59.000 really facing these permitting challenges. 0:20:00.119 --> 0:20:03.800 Pivot to Texas, the island grid for the lone Star 0:20:03.880 --> 0:20:06.439 state urcut. They have been able to get some of 0:20:06.480 --> 0:20:10.720 the projects down to as little as two years. How 0:20:10.840 --> 0:20:13.000