Wind

Leading Light's struggles show US offshore wind's high cost, thin margin tightrope

Loss of GE Vernova's 18MW model and addition of a dozen extra units appears to have halted development of New Jersey-bound, 2.4GW $12bn project

The GE Haliade change of plans led Leading Light to shift focus.
The GE Haliade change of plans led Leading Light to shift focus.Photo: GE Renewable Energy
US Offshore Wind Editor, Recharge
US developer Invenergy’s request for a pause in activities for its 2.4GW Leading Light project as it searches for a turbine supplier underscores offshore wind's ongoing risks of high costs and thin margins despite a pricing reset, market analysts told Recharge.
Sector costs that spiraled some 20-30% or more over the past two years on skyrocketing inflation and financing costs took out half of all US contracted projects in the past 12 months, resulting in a reset in offtake that includes higher prices and inflation adjustment mechanisms to claw back capacity and ensure viability.
Leading Light was awarded in New Jersey's third round starting a $112/MWh, levelised over its 20-year tenor to $139/MWh, a 15% uplift over the state's earlier two procurements, according to research consultancy BloombergNEF.
Still, its price was 15% lower than New Jersey peer Attentive Energy 2 and 11% lower than New York's round 3 awards and depended on economies of scale generated by GE Vernova's planned 18MW turbine that was later scrapped.
Vestas' offering had already been deemed unsuitable due to “cost and technical factors”, while its second choice Siemens Gamesa later hiked prices beyond what the developer could afford, leaving Leading Light “without a viable turbine supplier”, Invenergy said in a filing to New Jersey Board of Public Utilities (NJBPU).

“The aggressive tariffs for Leading Light compared to other projects, suggest Invenergy has little room to accommodate supply chain shocks,” said Atin Jain, BNEF wind energy analyst.

Stephen Maldonado, Wood Mackenzie research analyst for North America wind, said the bid was “slightly aggressive compared to the other NJ projects, but not unrealistic.”

“It's a 2.4GW project that can bring economies of scale which we felt was factored in,” he said, noting the bid price had space for inflation adjustment of up to 15% before commissioning and a 2.5% annual escalator for 20 years.

GE's move to go with a 15.5-16.5MW Haliade-X upgrade would have raised the number of turbines needed from 133 to 145, adding around $60m to the project Capex, based on estimates of $4.5m-$5m/MW for US offshore wind.

This is a tiny fraction of the project's minimum $12bn price tag but apparently stretches the project's already low returns of between 4-8%, as estimated by S&P Commodity Insights senior research analyst John Murray.

Cost isn't the only factor, though, and Maldonado noted adding turbines “can have significant knock-on effects to installation schedule, permitting, vessel and port availability, etc. that can play a large role in project viability.”

GE's cancelled 18MW turbine also collapsed New York's entire 4GW round 3 awarded at an estimated $145/MW.

While Invenergy's turbine options appear limited, they almost certainly won't include offerings from Chinese makers despite lower costs and larger models, analysts agree.

Chinese turbine makers including Mingyang and Goldwind have ramped the turbine arms race with 16-18MW models already in commercially deployed and 20MW pilots undergoing testing, but “cheaper Chinese turbines are unlikely to enter the market,” said Murray.

“The US government aims to build a strong domestic supply chain for offshore wind development, rather than relying on Chinese imports,” he said.

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Published 12 September 2024, 16:17Updated 12 September 2024, 16:42
AmericasUSInvenergyLeading Light Wind