Contrary to the utility’s normal modus operandi of selling off stakes – the so-called farm-down model – in offshore wind farms ahead of commissioning, Ørsted has now signed off to take over Public Service Enterprise Group’s (PSEG) 25% equity position in the 1.1GW Ocean Wind 1 development, to be installed roughly 24km off the coast of southern New Jersey, the Danish wind major informs in a statement Wednesday afternoon.

Upon finalizing the transaction, Ørsted will own 100% of the the asset. 

“PSEG has been a valuable partner as we’ve advanced Ocean Wind 1 to this point, and as we’ve successfully advanced our offshore wind vision in the US,” writes Ørsted Region Americas Executive Vice President Chief Executive David Hardy in the press release:

”With a well-established presence in the US, we’re confident in our ability to drive the project forward with commercial operations beginning as planned.”

Ocean Wind 1, slated to achieve first power in late 2024 and fully commission in 2025, stands to become Ørsted’s first large-scale offshore farm in US waters. The scheduled year for coming online also means that the final investment decision will likely be taken within the foreseeable future.

Sought contract annulment

Before the deal fully closes, probably in the first half of 2023, customary approvals from public authorities must first fall in place.

The buy-out has, however, been some time in the making as the US utility has mulled whether to continue as co-owner. Last autumn, though, PSEG’s then-newly appointed chief executive, Ralph LaRossa, clarified that the decision was indeed being contemplated.

This is far from the first time a US offshore wind project has changed hands. Beyond that fact, large swathes of Ørsted’s portfolio resulted from the Danish group’s 2018 acquisition of Revolution Wind, more recent examples are also available, such as when Copenhagen Infrastructure Partners divested its holding in the Commonwealth Wind project in Massachusetts waters after a larger reckoning with partner Avangrid.

This undertaking has been the subject of much back and forth – a situation brought about when the US-based Iberdrola subsidiary tried in vain to exit the contract signed with public authorities on the facility’s offtake.

Avangrid’s argument underpinning the failed retreat was that wider developments of recent years on factors like central bank interest rates, inflation and commodity prices had hollowed out the endeavor’s economic viability. So, too, said Shell, EDF and EDPR in concerned voices about their US project, Mayflower Wind.

Factors observed with other projects, LaRossa told analysts back in November upon being questioned as to PSEG’s offshore wind engagement, were also seen as applying to the US utility’s venture, thus prompting the power company to revise its plans.

Best to step aside

In connection with the decision now cemented and the divestment underway, the PSEG interjects, though, that offshore wind is still a targeted business segment.

“As Ocean Wind 1 has evaluated the optimal way to move forward, it has become clear that it is best for the project for PSEG to step aside and allow for a better positioned tax investor to join the project so that it can proceed with an optimized tax structure,” notes PSEG Senior Vice President and Chief Commercial Officer Lathrop Craig in a company announcement on the sale:

”While this was a difficult decision, it was driven by the best interests of the project and New Jersey’s offshore wind goals. PSEG will continue to actively support offshore wind in New Jersey and the region.”

The price paid for the quarter stake is undisclosed in the companies’ statements – nor does either divulge whether Ocean Wind 1 affects the preferred purchase option PSEG holds concerning 50% of Ørsted’s other New Jersey project, Ocean Wind 2, allocated by auction in the summer of 2021 and scheduled to be in operation from 2029.