Offshore Wind Is Dying: They Cannot Do It Without Subsidies and, Therefore, There's No Case for Doing It at All

Guest Post from the Institute for Energy Research.

The Netherlands will postpone tenders for two offshore wind facilities with a combined capacity of two gigawatts due to a lack of interest from bidders. Three tenders had initially been planned for September, and now only one in the North Sea with a capacity of one gigawatt will proceed. High costs, interest rates, and supply chain constraints have made offshore wind even more expensive and have made potential developers leery about undertaking new projects unless subsidies are guaranteed.

According to developers Eneco and Orsted, there is no viable business case without subsidies.

The Dutch government is looking into ways to reintroduce subsidies in its tenders for offshore wind facilities, as prospective bidders are backing out of the current “zero subsidy” scheme. Last year, the Netherlands delayed its goal to reach 21 gigawatts of offshore wind capacity to 2032 from its current date of 2030, citing high costs, supply chain difficulties, and “challenges in timely decision-making.” The country has 4.7 gigawatts of offshore wind capacity.

Denmark’s Offshore Wind Tenders Include Subsidies

In January, Denmark announced it was revamping its model for offshore wind tenders because a scheme without subsidies did not work under existing market conditions. A month earlier, Denmark failed to attract bids in its biggest offshore wind tender due to the rigidity of its auction model and failure to recognize that renewable energy projects needed subsidies. In Denmark, subsidy levels will now be based on the bids offered in the tenders. The push for more offshore wind is to make the country and Europe independent from Russian energy and adhere to their climate goals under the Paris Accord.

Denmark plans to launch new offshore wind tenders beginning this autumn, offering developers subsidies of up to 55.2 billion Danish crowns ($8.32 billion) over 20 years. Three tenders with a combined capacity of three gigawatts are planned for this autumn and will cover two areas in the Danish North Sea and one between Denmark and Sweden. Two additional tenders will close in spring 2026 and one in autumn 2027, with completion expected by 2032 and 2033, respectively.

Sweden Blocks Offshore Wind Due to National Security Issues

The Swedish government blocked the development of 13 offshore wind farms in the Baltic Sea and halted another project off the island of Gotland, citing concerns from the military about national security. According to the Swedish Armed Forces, offshore wind turbines in the Baltic Sea interfere with the country’s defense capabilities. Wind turbines’ rotating blades and tower structures generate radar interference, potentially delaying the detection of incoming threats like cruise missiles.

Specifically, the blocked wind farms were near the Russian exclave of Kaliningrad, a heavily militarized region between Poland and Lithuania. According to the military, the presence of these offshore wind facilities would reduce the warning time for potential missile strikes from several minutes to just 60 seconds.

Offshore Wind in Trouble in the United States and Elsewhere

President Trump, recognizing the high cost of offshore wind, issued an executive order on offshore wind, “Temporary Withdrawal of All Areas on the Outer Continental Shelf from Offshore Wind Leasing and Review of the Federal Government’s Leasing and Permitting Practices for Wind Projects,” shortly after taking office. While offshore wind is already one of the most expensive technologies being built, its costs have grown even higher due to high interest rates and supply chain problems.

Unless companies can get higher-priced contracts for their wind energy, they are canceling projects. Norway’s Equinor, a leading developer in renewable energy, withdrew from offshore wind projects in Vietnam, Spain, and Portugal, citing unsustainable costs. Shell sold its stakes in projects across Massachusetts, South Korea, Ireland, and France and cancelled a $1 billion stake in a wind farm off the New Jersey shore.

Over a year ago, Danish wind developer Ørsted canceled its Ocean Wind 1 and Ocean Wind 2 projects off the New Jersey shore, citing rising interest rates, high inflation, and supply chain bottlenecks. The projects would have added about 2.2 gigawatts of intermittent capacity to the New Jersey grid.

Besides being expensive, offshore wind is also unreliable and needs backup power in the form of costly batteries or through coal, natural gas, or nuclear generators. Either way, the cost of electricity would escalate. Ørsted was able to write off $4 billion, primarily due to the cancellation of these two large offshore wind projects.

President Biden had a goal of 30 gigawatts of offshore wind power by 2030 and his administration favored the technology, lowering royalties, easing permitting, streamlining environmental documentation, providing generous wind subsidies, and quickly pushing through approvals.

Some projects have been completed, such as the 132-megawatt South Fork Wind Farm off of New York’s Long Island. Dominion Energy’s gigantic 2.6-gigawatt, 176-turbine, Coastal Virginia Offshore Wind project is about halfway to its planned completion, expected for the end of 2026. The project’s costs have risen by about $900 million (9%) to $10.7 billion.

In April, Interior Secretary Doug Burgum halted construction of New York’s 816-megawatt, $5 billion Empire Wind project, after reports surfaced that its approval by the Biden administration in 2024 may have been rushed and deficient. Empire Wind, like other offshore wind projects, has been troubled by much higher costs, leading it to seek renegotiation of its contracts. It settled for a cost of $150.15 per megawatt-hour, or three times the price of natural gas-fired generation.

Interior’s work stoppage was recently lifted in a deal with the state that will allow new gas pipeline capacity to move forward, lowering energy prices in New England. The deal could revive plans to build the proposed Constitution natural gas pipeline from Pennsylvania to New York, which was cancelled by New York State politicians in 2020, a state that has banned the use of natural gas in many new buildings.

Conclusion

The Netherlands has found that offshore wind developers do not want to undertake projects unless subsidies are guaranteed, as there is little interest in their planned tenders, making the country delay two of them. The cost of offshore wind is enormous, and unless developers can be guaranteed subsidies and a firm price, they do not want to proceed.

In December, Denmark found this to be the case when it got no bids on its tenders. President Trump has issued an executive order temporarily withdrawing areas for offshore wind leasing and has called for a general review of wind energy.

Compared to Europe, few offshore wind projects have been completed in the United States due to their high costs, the high-interest-rate environment, and supply chain problems that started with the COVID-19 lockdowns. However, the Trump administration has lifted a work stoppage on New York’s Empire Wind project to make a deal on a natural gas pipeline critical to energy needs in New England.

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