Ørsted, COP and MUFG discuss US offshore

Offshore wind is seeing more hook-ups and bust-ups than a student disco.

Lithuania’s Ignitis has paired up with EDP Renewables and Engie’s joint venture OW Offshore Wind. Equinor is going out with JERA and J-Power and Japan.

Meanwhile, Iberdrola and Polish utility Enea called off a relationship. Drama!

But the superstar of this disco is BP, which last week announced its entry to offshore wind with all the pizzazz of 1970s John Travolta in a white suit.

Last week, BP said it was forming a partnership with Equinor to enter the US offshore wind market. This is BP’s first offshore wind venture. Chief executive Bernard Looney called it an “important early step” as the oil giant pivots to “truly becoming an integrated energy company”.

BP is paying $1.1bn for 50% of Equinor’s 2.4GW Beacon Wind and 816MW Empire Wind projects. The transaction is scheduled to close in early 2021.

The oil giant’s choice to enter offshore wind in the US at first looks intriguing. BP is a London-headquartered company and so has the world’s largest offshore wind market all around it.

In contrast, the US has only two working offshore wind projects (30MW Block Island and 12MW Coastal Virginia), and regulatory delays for the rest.

But the US has three big factors in its favour for BP: huge state ambitions for offshore wind; the chance to get into a market early; and a track record in the US. It is looking to take advantage of the potential ‘Offshore Gold Rush’ that we referred to in the title of a session at our Financing Wind North America event earlier this month.

The session contained great insights about the challenges facing BP.

Offshore Gold Rush

One of the biggest challenges is the regulatory delays at federal level.

Lars Thaaning Pedersen, co-chief executive at Copenhagen Offshore Partners and chief executive at Vineyard Wind, said the 800MW Vineyard Wind project is now running two years behind schedule due to delays from the Bureau of Ocean Energy Management and Department of the Interior in giving permits. Those approvals are due by the end of 2020.

He said that lack of regulatory certainty would hold up investments in building ports and other infrastructure. This causes a unique challenge for the US wind as work to upgrade ports for offshore wind relies on private companies, while in Europe it was led by public funding.

“There is a question of who’s going to fund that,” he said. But he added that companies would respond when there is clarity over the project pipeline.

Martin Neubert, chief executive of offshore wind at Ørsted, said it had also delayed commissioning of its 132MW South Fork and 120MW Skipjack until 2023 because of the regulatory delays. He agreed infrastructure was key to the US rollout, and said regulatory clarity would enable supply chain companies including vessel operators to make major investment decisions.

He hoped the US would learn lessons from Europe to “move immediately to large-scale projects and deployments of the latest technology”. That would help the US to avoid “the learning curve... in Europe over the last 15 years”.

However, he added the US faced similar challenges as other emerging offshore markets, including Taiwan, and every new market has “bumps in the road”.

Regulatory certainty would also encourage turbine makers and investors.

Christos Kolliatsas, global director of offshore wind at UL, said he expected the US to move quickly to turbines of 10MW and larger that are used in other markets. Beth Waters, managing director at MUFG, said she expected strong bank interest too.

“The states are all for it and forging ahead, but on the federal side or BOEM they’re dragging their feet and putting roadblocks… but there’s tremendous appetite in the bank market for doing these deals,” she said.

Waters said that large offshore wind deals would require project bond and mezzanine financing alongside debt deals.

Financing is unlikely to present an obstacle to a giant such as BP, but the wider challenge with securing federal support is a concern for the whole market. That is delaying the ‘gold rush’, and the lack of clarity from BOEM and DOI means we approach the end of 2020 with nerves rather than excitement.

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