By Scott DiSavino and Nichola Groom
NEW YORK (Reuters) -New York regulators on Thursday denied requests by European energy firms Orsted (CSE:ORSTED), Equinor, BP (NYSE:BP) and other renewable developers to charge customers billions of dollars more under future power sale contracts.
The state denial could force some developers whose contracts may not cover project costs to scrap plans to sell power to customers in New York, cancel or delay projects, as happened with a couple of offshore wind projects in Massachusetts. Developers were looking to renegotiate contracts on four offshore wind and 86 land-based renewable projects.
Construction of renewable projects is key to the plans of U.S. President Joe Biden's administration and several states, including New York, to transition away from fossil fuels for energy and reduce carbon emissions.
"Sunrise Wind's viability and therefore ability to be constructed are extremely challenged without this adjustment," Danish energy company Orsted CEO Americas David Hardy told Reuters in an email.
Orsted, the world's biggest offshore wind farm developer, has contracts to sell power in New York from two offshore wind farms off Rhode Island and Massachusetts, the 132-megawatt (MW) South Fork, which is under construction, and the 924-MW Sunrise, which is under development.
Orsted's Hardy said South Fork continues to progress toward operations "in the coming months" but warned the company was evaluating next steps for Sunrise in light of the state's decision.
Developers sought to renegotiate the contracts to include inflation adjustments, among other cost increases, because some agreements no longer cover the rising cost of building and financing projects in the current high inflation and high interest rate environment.
In August, Orsted's shares plunged about 25% after it declared $2.3 billion in U.S. impairments due to supply delays, high interest rates and a lack of new tax credits.
Orsted stock was down about 3% on Thursday.
In addition to Orsted's Sunrise project, the other offshore wind developers that sought to renegotiate their New York power sales contracts were projects under development by a venture between Equinor and BP, including the 816-MW Empire Wind 1, the 1,260-MW Empire Wind 2 and the 1,230-MW Beacon Wind projects.
"These projects must be financially sustainable to proceed," Molly Morris, president of Equinor Renewables Americas, told Reuters, noting Equinor and BP will "assess the impact of the state’s decision on these projects."
In response to the decision, New York Governor Kathy Hochul released an "action plan" to support the renewable energy sector and reinforce the state's commitment to reaching its clean energy goals. The state said it will launch an accelerated procurement process for offshore and onshore projects "to backfill any contracted projects which are terminated."
The New York Public Service Commission said amending contracts would have resulted in increases of as much as 6.7% for residential customers' monthly bills. New Yorkers already pay some of the highest rates for electricity in the country, according to federal energy data.
But if some renewable developers cancel projects, New York could have a tough time reaching its goals of having at least 70% of electric load served by renewables by 2030, development of 9,000 MW of offshore wind by 2035 and meeting statewide demand with zero emissions by 2040.