South Fork Wind Farm Will Not Be Impacted by Soaring Industry Costs, Developer Says

The runaway train momentum that had seemed to be driving the burgeoning offshore wind energy industry unstoppably forward has been slowed, somewhat, in recent months by surging costs that have changed the calculations for the multibillion-dollar projects and derailed several that were in the pipeline.

But the turbulent marketplace will have no impact on the construction, operation or price of electricity for South Fork Wind, the wind farm currently being constructed off Block Island that will send power to East Hampton, the project’s developer and the Long Island Power Authority say.

The pricing of materials and labor for the construction of South Fork Wind were locked in before rising costs hit the industry, its developer, the Danish energy company Ørsted, said this week. And its contract with LIPA set the price that the utility will pay for power from the wind farm, in 2018.

“The pricing for LIPA’s South Fork Wind project remains unchanged,” LIPA said in a statement in response to inquiry by The Press about the status of the project. “There has been no request to adjust the pricing within the power purchase agreements from what was originally agreed upon in 2017 and 2018, respectively. LIPA looks forward to providing our customers on Long Island and the Rockaways with the clean energy produced by New York’s first offshore wind farm.”

Construction of South Fork Wind is underway — Ørsted recently completed installation of the 12 steel foundations and is assembling the first turbine this week — and is expected to be completed by the end of the year.

But Ørsted last week canceled its plans for two massive offshore wind farms it had planned to begin building off the coast of New Jersey in 2025 — a move that could cost the Danish company billions of dollars and sent its stock price plummeting.

Earlier this year, two other wind farm projects slated to be built off Massachusetts also were canceled by the companies that had proposed them, because they said the costs of development would now far exceed what had been projected when contracts were inked. Ørsted and a German company, Equinor, have asked New York State to renegotiate the power purchase agreements they signed in 2019 for two other projects, because of rising costs. The state has rejected the appeal and has said that if the developers cancel the projects, a new round of bidding will be opened in short order to get new projects in the pipeline.

One of those projects, Sunrise Wind, was to be constructed immediately adjacent to the 12 turbines of the South Fork Wind project, about 30 miles southeast of Montauk. Sunrise Wind would be much larger than South Fork Wind — generating 880 megawatts from several dozen turbines — and would send power ashore via a 70-mile cable, running along the sea floor off the South Fork to Smith Point Park, just west of Moriches Inlet.

Wind farm developers have said that worldwide inflation since the pandemic, rising interests rates and material supply chains that are still struggling to keep up with demand are driving the costs they would have to incur to build a wind farm now far beyond what had been forecast when the contracts were drafted prepandemic.

The economic headwinds for Ørsted and other developers have sowed some doubts among local residents in recent weeks about what the new realities mean for South Fork Wind, both in terms of its viability and how costs will be passed along to local residents.

The costs of power from South Fork Wind were fixed in the two power purchase agreements, or PPAs, that LIPA signed with Deepwater Wind, the company that conceived the project before selling it and its other assets to Ørsted in 2019.

An Ørsted spokesperson said that the South Fork Wind project, which is expected to be the first utility-scale offshore wind farm in United States waters when it begins generating power this winter, has not been hit by the same soaring costs as projects that followed just a year or two later.

“South Fork Wind locked in its pricing and supply contracts far earlier than Sunrise Wind and other early projects, so it has been less impacted by inflation and supply chain constraints,” the spokesperson said. “No request has been made to adjust the South Fork Wind PPA since 2018, when LIPA agreed to purchase 40MWs of additional power from the project, made possible by shifting to more powerful turbines within the same project footprint.”

LIPA signed two separate contracts for the power from South Fork Wind — one for the 90 megawatts the wind farm was initially expected to produce, and then an additional one for another 40 megawatts when the rapidly improving technology made it possible for the company to use larger turbines.

The prices for the power also were vastly different. The power for the first 90 megawatts, according to the contract, will start at 16 cents per kilowatt hour in the first year of operation and rise 2 percent annually, to 24 cents per kWh after 20 years. But the power for the additional 40 megawatts will start at 8.6 cents per kWh and rise to 12.8 cents per kWh.

When the 20-year contract is up, LIPA will have the opportunity to extend it for the entire 130 megawatts for five years — the useful life of offshore wind turbines is expected to be 25 years — starting at 9.5 cents per kWh.

While the power from the wind farm will come ashore in East Hampton, it technically does not just supply power locally but will feed into the overall grid via a new substation constructed in Cove Hollow near East Hampton Village. The costs of the nearly $2 billion contract will be passed on to all LIPA customers.

LIPA has acknowledged that the cost for electricity from the project will be substantially higher than from traditional diesel-fired generators that Long Island primarily relies on now. That is the cost of getting in the game early, the authority says — and that they hope those costs will be diluted considerably as more wind farms come online with lower baseline costs.

Whether that will happen in light of the changing marketplace remains to be seen, but the company says that as it stands on its own the real-world financial impact of the project for the “average” LIPA customer will be between $1.39 and $1.57 per month during the life of the wind farm.

The power authority and developer have said South Fork Wind will produce enough energy to power about 70,000 homes, based on industry usage estimates, but actual usage levels on Long Island are well above those standard estimates, so the actual number will be substantially less.

Ørsted inked contracts with East Hampton Town and the East Hampton Town Trustees that allowed it to install the power cable beneath the ocean beach in Wainscott and under 2 miles of town-owned Wainscott roadways. The company will pay the town $28.9 million over the next 20 years — $1 million of which has already been paid.

The offshore wind energy industry has exploded from zero to hundreds of billions of dollars in investment by some of the world’s largest companies in just a handful of years, and has been embraced by several East Coast states and the Biden administration as a way to shift energy production away from fossil fuels. But the industry has been beset by pushback from commercial fishermen who fear that the noise or electrical pulses from thousands of turbines along the coastal plain will disrupt fish migrations, or push fishermen off traditional fishing grounds.

Cox Ledge, where South Fork Wind is being constructed, has long been a favored place for Montauk anglers to fish for cod — a species that is already suffering from destructive overfishing — and scientific assessments of the project said that the construction of the turbines posed a limited threat to fish nearby.

More recently, a campaign led by offshore wind farm opponents and mounted primarily through social media, has blamed a rise in the number of deaths of whales in the Northeast over the last three years on sonar surveys conducted in preparation for wind farms — and celebrated the recent canceling of the two New Jersey projects.

Biologists have said that there is no evidence the wind farm work has caused any whale deaths and that the increase in deaths is more likely attributable to more ship strikes because of growing whale populations, their increased numbers in nearshore waters because of a resurgence in forage fish populations and increased ship traffic. But while many deaths can be empirically attributed to ship strikes — by bruising and internal bleeding revealed in the necropsy’s conducted on all dead whales that wash ashore — they have acknowledged that the causes of some whale deaths cannot be determined, usually because of advanced decomposition.

Wind farm developers say that the sort of sonar surveys that are used to asses site conditions for potential wind farms are very different from the seismic surveying done by oil drilling companies in their search for oil deposits miles below the sea floor — which have been shown to be harmful to whales.

Despite the bumps in the road, developers are still pushing ahead with plans for dozens of wind farms along the East Coast with the potential for thousands of turbines to be put up in the next decade.

Ørsted said this week that the Sunrise Wind project, which the company had hoped to start constructing next year and have online by 2025, is not dead. The company has already begun prep work for the project, like site surveys and manufacturing the concrete foundations.

“We are encouraged to see the state advancing a potential rapid rebidding process, as it recognizes the urgent action needed to keep New York’s offshore wind ambitions on track,” the company said in a statement. “As an advanced, ready-to-build project, Sunrise Wind can deliver a range of critical clean energy and economic benefits in the very near term. The timely and successful development of early-wave projects is critical to the buildout of the offshore wind supply chain in New York. We will consider the state’s rebidding parameters, but we believe it’s likely Sunrise Wind can deliver a competitively priced option to help New York realize its offshore wind potential without delay.”