The issue of the federal tax credit, the ITC, is in many ways central to the US offshore wind rollout. This is especially true after the Biden administration’s passage of the Inflation Reduction Act (IRA) last year, which extends the ability to deduct capital expenditures for offshore wind projects on a large scale.

So far, however, the question has primarily been - as with Vineyard Wind - whether projects qualified for ITCs and whether the rebate should accrue to states or developers. The latter varies from state to state depending on the tender scheme in place. But now, another aspect is being added in New Jersey, where the rebate can be used by project proponents in the state - which, for now, means Ørsted.

Two protest movements of local New Jersey opponents have now filed a lawsuit against both the Danish utility major and the state of New Jersey. While the original 2019 agreement between Ørsted and the state utility, NJBPU, for the Ocean Wind gigawatt project stated that tax rebates would be passed on, a new bill last month reversed that. 

For the benefit of Ørsted

However, the subsidy scheme is unlawful and therefore violates the state’s constitution, according to opponents, who are demanding the law be withdrawn. 

”[The law] is intended solely to benefit Ørsted and was enacted for the sole purpose of protecting Ørsted from the business and financial risks it voluntarily assumed under the approved agreement with the NJ Board of Public Utilities (NJBPU) for the Ocean Wind 1 project,” the lawsuit states.

The change in the law last month was enacted citing, among other things, high inflation. As well as the fact that when Ørsted and the government signed the contract in 2019, the value of the ITC was nowhere near the 30% of the investment cost that is likely to be the case after the passage of the IRA. Now, the value looks to be more than USD 1bn.

Changing conditions

New Jersey is not the only place where intense efforts are being made to change the terms of existing offshore wind contracts. Or scrap them altogether, as was the case last month in Massachusetts, where Avangrid, after a long struggle, was allowed to withdraw from its contract with Commonwealth Wind for USD 49m.

Thus, both Shell/Ocean Winds and Equinor/BP have railed against the conditions on their projects off New England and New York. Just as Ørsted has also done. At the beginning of the year, the Danish utilty took a DKK 2.5bn write-down on its half of the Sunrise Wind project in New York and has since acknowledged that there may be loss-generating projects. 

However, Ocean Wind 1 has not been one of the first to go. On the other hand, the project - which has previously been moderately threatened by disgruntled local politicians demanding faster action to create local jobs - is probably the one where Ørsted has had its hand on the financial hotplate the most.

It was in New Jersey that the Danish utility company made the first large-scale investment in the construction of a US offshore wind supply chain all the way back in 2020. This came in the form of a co-investment in German foundation manufacturer EEW’s Paulsboro facility - a USD 250m factory whose production of monopiles is expected to begin this year.

Will continue cooperation

Since then, a number of other financial commitments have followed. Most recently, last week Ørsted formally became the first tenant at the state’s upcoming ’wind port’ - New Jersey Wind Port - which will be used as a shipping port for the Ocean Wind 1 project. A contract with an estimated value of more than USD 25m.

Without commenting on the newly filed lawsuit, the energy company maintains that Ocean Wind is good business for the local community.

”We do not comment on a pending lawsuit. Ocean Wind 1 continues to work with the community and will contribute to New Jersey’s clean energy and economic development goals by creating good jobs and local investment,” the company said in a written statement to EnergyWatch.