Offshore Wind and Price Adjustments

[Saluki]

If offshore wind is to become viable in the long term, it has to overcome some challenges that are political, like this NIMBYism: 

 

https://www.offshorewind.biz/2023/09/05/south-australia-rejects-offshore-wind-project-application-asks-federal-government-to-move-declared-development-zone-out-of-state-waters/

 

Another problem is that the same inflation and supply chain disruption that affected other industries also affect offshore wind, and when it does, who should pay for it? 

 

https://www.offshorewind.biz/2023/09/01/new-york-offshore-wind-developers-ask-for-inflation-related-price-relief-nyserda-argues-some-requests-not-tied-to-inflationary-pressures/

 

It's pretty easy to say that a contract is a contract, but several new projects have not gotten multiple bids and the willingness to take on these type of projects will be greatly diminished if they can't make money on it.  

 

It could be that rising energy prices will fix this problem because renewables become more attractive relative to fossil fuels as the price of fossil fuels goes up. "The cure for higher prices is higher prices."  But I don't think that the industry has been around long enough that some of the new entrants are willing to endure a long winter of unprofitability. 

 

Also, if you have an interest in this industry, the website linked above will send you daily articles to your inbox so you can keep track of what's going on. 

 

 

[ValueArb]

https://www.wsj.com/business/energy-oil/americas-wind-farm-revolution-is-broken-fa82d64e?mod=business_feat5_energy-oil_pos1

 

"Even with generous green subsidies, offshore wind projects are being called off as developers struggle to make a profit"

Edited September 8, 2023 by ValueArb

[Saluki]

 

First Jones Act compliant offshore wind service vessel being built for Ostead profiled on CBS. 

 

 

Video about an offshore wind farm on the East Coast US.

 

 

Marine Money video with two companies in the offshore wind space.   Some of these videos on Marine Money or Capital Link with the largest operators in the shipping world have only a couple of hundred views, which is why I think a lot of these shipping companies still have room to run.  Everyone hates shipping and no one is looking at it, they are throwing money at AI and other nonsense.  I think Bruce Greenwald had a good point about looking at overlooked and unloved areas of the stock market. 

 

I have a mid size position in STNG and NETI and a couple of very small positions in two other shipping companies that I'm studying. 

[Value_Added]

GLDD also has a ship under construction for rock installation in the offshore windmills base.  Not sure what to think of the future of the offshore wind industry.  Very political and subsidy reliant...worst case is all U.S contracts for offshore wind are cancelled and GLDD can sell the ship at cost or potentially better to wind companies outside of the U.S where the offshore wind market isn’t so new.  Best case, they’re able to use it for their own benefit for years to come.  Luckily offshore wind doesn’t factor into GLDD working out at these prices as the original thesis is playing out nicely.

[Saluki]

On 9/14/2023 at 11:45 AM, Value_Added said:

GLDD also has a ship under construction for rock installation in the offshore windmills base.  Not sure what to think of the future of the offshore wind industry.  Very political and subsidy reliant...worst case is all U.S contracts for offshore wind are cancelled and GLDD can sell the ship at cost or potentially better to wind companies outside of the U.S where the offshore wind market isn’t so new.  Best case, they’re able to use it for their own benefit for years to come.  Luckily offshore wind doesn’t factor into GLDD working out at these prices as the original thesis is playing out nicely.

 

I'm not sure how it will play out in the US vs the rest of the world.  If NIMBYism or a lack of appetite for federal and state subsidies in offshore installation aren't around, then I don't know if anyone will be willing to build ships in the US, to comply with the Jones Act, which will be large enough to install the new generation of larger wind turbines.  The larger wind turbines are more effecient, which makes them cost effective, but you need new bigger installation ships.  If the ships aren't built, you are stuck with smaller installation ships, installing less efficient smaller turbines, which makes the project less attractive and less likely to be built. it's a chicken/egg problem. 

 

ENETI, just got a big 2027 contract for a ship that won't hit the water until 2025.  And I don't think this is because the people overseas are doing that much more projects. It's because there are bigger offshore turbines being built and the fleet order book hasn't kept up. 

 

https://finance.yahoo.com/news/eneti-inc-signs-vessel-reservation-115400557.html

 

With mobilization commencing in the first quarter of 2027, the contract will be performed by one of the Company’s two NG16000X Wind Turbine Installation Vessels currently under construction at Hanwa Ocean in South Korea. Inclusive of mobilization and demobilization, the engagement is expected to be between 210 and 245 days and generate approximately USD 87 million to USD 100 million of gross revenue. Project costs are expected to be USD 15 million in aggregate.

 

Someone one here had a post pitching GLDD.  It looked interesting but I couldn't get comfortable with a company that is reliant on relationships with state/local governments.  I've since come to appreciate the moat in specialty ships like Ro-Ros or Shuttle Tankers, or Offshore Wind Installation, so maybe I'll take a look again. 

 

 

[Value_Added]

1 hour ago, Saluki said:

Someone one here had a post pitching GLDD.  It looked interesting but I couldn't get comfortable with a company that is reliant on relationships with state/local governments.  I've since come to appreciate the moat in specialty ships like Ro-Ros or Shuttle Tankers, or Offshore Wind Installation, so maybe I'll take a look again. 

 

That was me.  Not an amazing company, but is a necessity and they are the lowest cost producer allowing them to win more bids with better margin.  Yes they are reliant on government but these projects have to happen to maintain proper infrastructure and supply chain.  I’m extremely hopeful for wind contracts to proceed as planned but not holding my breath.  I may reach out to investor relations to see if they’ll divulge their plans if it doesn’t come to fruition and their new expensive wind vessel is left sitting without work.  

[Pelagic]

Some of the goals set by the Biden administration are quite ambitious, considering the US currently only has 7 operational wind turbines - 5 off RI and 2 as part of a test project off VA for a total of 42MW of installed capacity. Their base goal of 30GW of installed capacity by 2030 is incredibly ambitious given the lack of vessels in the US.

 

https://www.whitehouse.gov/briefing-room/statements-releases/2022/09/15/fact-sheet-biden-harris-administration-announces-new-actions-to-expand-u-s-offshore-wind-energy/

 

Quote

• New Goal to Reach 15 GW by 2035: The Administration will advance lease areas in deep waters in order to deploy 15 GW of floating offshore wind capacity by 2035—building on the President’s existing goal of deploying 30 GW of offshore wind by 2030, which will be largely met using fixed-bottom technology.

I almost wonder if their floating offshore wind shot, a program envisioned to design, test and ultimately produce floating offshore wind turbines isn't an end run around the Jones Act by the Biden administration. They likely recognize the Jones Act's impact on stymieing offshore wind installation but can't provide waivers or repeal parts of it for political reasons. However, if you're building the turbines on a floating base and can just tow them into position, maybe the ships with heavy lift cranes aren't necessary, eliminating the expense and wait time of Jones Act compliant vessels. 

 

In any case it will be interesting to see which portions of the admin's goals get met over the next decade or so.