Energy Musings - May 26, 2026

TotalEnergies' deal to reinvest its offshore wind lease payments returned by the Trump administration has people wondering. The company's CEO expressed his views on the market.

Offshore Wind Challenges Continue

Roughly two months ago, the U.S. Department of the Interior announced an agreement with TotalEnergies SE for the company to invest about $1 billion in oil and natural gas and liquefied natural gas (LNG) production in the United States. Following their new investment, the U.S. will reimburse the company dollar-for-dollar, up to the amount it paid in lease purchases for East Coast offshore wind projects.

TotalEnergies’ CEO On The Offshore Wind Market

The announcement of this deal raised many eyebrows. Was it legal, people asked? No one was sure, but the terms of the deal were attractive to Patrick Pouyanné, Chairman of the Board of Directors and Chief Executive Officer of TotalEnergies. He was quoted in the press release saying, “…these agreements, under which we will reinvest the refunded lease fees to finance the construction of the 29 Mt [million tons] Rio Grande LNG plant and the development of our oil and gas activities, allow us to support the development of U.S. gas production and export.”

Pouyanné further noted that “These investments will contribute to supplying Europe with much-needed LNG from the U.S. and provide gas for U.S. data center development. We believe this is a more efficient use of capital in the United States.”

The $928 million in lease repayments for two offshore leases will fund the construction of Trains 1-4 of the Rio Grande LNG plant. It will also fund the development of upstream conventional crude oil in the Gulf of America and of shale gas production.

While the Trump administration achieved its goal of capping offshore wind development, it also secured investment in expanded LNG export capacity and in developing the gas resources to support increased exports. Of course, the deal sparked outrage among clean energy and offshore wind supporters. Media stories sprang up with headlines claiming, “Interior Dept. decided in its $1B oil bribe to stop wind power before it had a reason,” published by Electrek. Salon.com, a left-wing publication, wrote, “Trump’s $2B buyoff to cancel offshore wind farms is a bad deal for taxpayers amid energy shortage.” We were unaware of an energy shortage in the U.S., and boosting LNG exports actually helps ease the energy shortages that Europe and Asian nations were facing.

As Pouyanné noted, when the criticisms were thrown at him, it was actually TotalEnergies’ money that was being returned to it, and with which it could do anything it wanted. In fact, the company expects to earn a higher return on these new investments while also helping its continental neighbors by supplying more LNG.

However, at an industry gathering, Pouyanné offered observations about the offshore wind market and his plans for TotalEnergies. He indicated the company would consider new projects in the United Kingdom, Germany, and France. But he ruled out projects in India, Brazil, and the Philippines, markets touted as the next growth opportunities for offshore wind developers. Pouyanné said those three markets were “too expensive.” This led another offshore wind developer to suggest these countries need to revisit their auction designs, subsidy programs, and supply chain issues, or risk failed auctions.

Pouyanné commented that his company will “never” pursue offshore wind projects in the U.S., while it continues to pursue onshore wind projects. He reasons that the potential for major policy changes after every presidential election makes it impossible to invest. You have four years to invest, then possibly four years with no opportunities. Such a pattern makes investing in the U.S. impossible.

Irish renewables developer Simply Blue Group’s technical manager, Shadi Kalash, was also quoted in the Recharge article discussing Pouyanné’s views. He noted that the U.K., Germany, and France look to be “the only G7-quality offshore wind investment destinations with scale and policy stability.” However, this results in a risk concentration issue for developers. “A single EU [European Union] policy misstep would hit much harder when alternatives have been thinned out,” Kalash said. Offshore wind developers are highly dependent on government energy policies and subsidies. These issues may weigh heavily on developers’ offshore wind project approvals, almost as much as the cost of constructing projects.

Ørsted’s Views On The Offshore Wind Market

The cost issue continues to disrupt development plans. Amanda Dasch, chief development officer at Denmark’s Ørsted, speaking at the WindEurope conference, said that her company’s analysis shows that with a grid running on 70-90% renewable energy, with offshore wind as a core component, total system costs will drop by 30%.

The Ørsted report, “Offshore wind at a crossroads,” with its tagline “Reviving the industry to secure Europe’s energy future,” offers an interesting analysis based on significant assumptions about government policies well into the future. It also bases its conclusions on the levelized cost of electricity (LCOE), a metric that is highly manipulable to achieve desired outcomes.

The forward to the report, authored by Rasmus Errboe, CEO of Ørsted, contained the following explanation of what the European offshore wind industry needs and will deliver.

“Responsibility lies with governments to provide predictability and certainty through contracts for difference (CfDs), to ensure the consistency of the build-out through sequential commissioning over time, and to coordinate with one another to maximize the value of offshore wind across the continent. In return, the industry can attract capital for necessary investment, secure enough capacity to deliver the necessary assets and technology, and deliver cost reductions by bringing down the cost of capital and committing to an accelerated learning curve.”

The Executive Summary includes the following bullet points outlining the state of the offshore wind industry in Europe.

• Europe’s offshore wind industry is facing increased risk, declining project viability, and shrinking investment across the supply chain.

• Several tenders are not offering the right balance between risk and reward, some have been unsuccessful, and major projects are at risk of being canceled or delayed, leading to a potential accelerated downward spiral that threatens Europe’s offshore wind future.

• Governments have set admirable offshore wind build-out targets, however, the build-out profile is bumpy and uncertain, hampering the supply chain’s ability to invest, deliver, and scale up.

• Without urgent action, the industry risks stagnation, jeopardizing Europe’s clean, affordable, and secure energy future.

Ørsted proposes that the offshore wind industry and the European Union Commission agree to a joint commitment to auction at least 10 gigawatts (GW) of CfD-backed capacity, along with roughly 5 GW of flexible merchant capacity each year for the 10 years from 2031 to 2040. Such a commitment will enable the offshore wind industry to secure the necessary investment to execute the projects. That will allow it to reduce the cost of capital and put the industry on an accelerated learning curve, reducing LCOE by 30% by 2040.

All of this is promised to enable the offshore wind industry to provide affordable, renewable electricity at scale. That will lower costs for industries and consumers, create and protect hundreds of thousands of jobs, save the European Union around € 70 ($81) billion on fossil fuel imports, and reduce carbon emissions by about 15%.

The plan sounds much like the industry touted back in the 2010s for the future of offshore wind. It was supposed to reduce electricity costs, create billions in economic benefits for governments, and cut carbon emissions.

The U.S. Bureau of Ocean Energy Management (BOEM) disclosed in every environmental statement for offshore wind projects that it would not reduce carbon emissions but might, at some point in the future, help reduce them. That was because BOEM knew offshore wind required backup electricity generation from fossil-fuel power plants, which would idle until called upon when wind failed to produce power.

Every offshore wind project proclaimed its electricity was cheap and would lower customer utility bills. However, they failed to tell people that they were discussing the marginal cost of the electricity when it was generated. Nor did they disclose how much additional system costs were required to manage this intermittent power source.

And who can forget every East Coast state governor claiming that their ports would become the center of the offshore wind industry and claiming thousands of jobs would be created. Yes, many jobs are created during the construction of offshore wind farms, but the number of permanent jobs associated with them was in the tens, not thousands.

The crux of Ørsted’s argument is that a decade of guaranteed capacity auctions would allow developers to create standardized wind farms. As Dasch said, wind developers needed to move away from proposing “gold-plated” one-off projects. However, as we discovered in the waters off the East Coast, the ocean floor was not uniform, requiring tailored installation solutions, the antithesis of standardization.

An Offshore Wind Study With Issues

Energy Solutions Intelligence conducted a study of 247 offshore wind farms in 18 countries, which they published in a report last December titled “Offshore Wind Economics 2026: Real Costs, Energy Output & LCOE Analysis.” This report demonstrated how cherry-picking data and using data from unrealistic periods led them to conclude that offshore wind is cheap.

For example, they listed four “record-breaking” offshore wind projects with high capacity factors. The number four project was Vineyard Wind 1 (US): 52.1% CF, 800 MW (partial year). The data they used in their analysis came from the Federal Energy Regulatory Commission (FERC) and was submitted by the customer. That may not be the actual output generated by the wind turbines, since the time period reflected start-up testing. We have often written about the felony committed by Vineyard Wind 1 for failure to report generating data to the Energy Information Administration (EIA), which excused them because of a misunderstanding of when they were required by law to report generating data.

During testing operations, diesel power is often used, so we have no idea how much wind-generated electricity was produced versus how much was supplied by the diesel engines. Furthermore, the time period included the year’s most wind-prone period. As we have noted, neighboring Block Island Wind has never reached its target output of 47% of nameplate capacity after nine years of operation. So, should we buy that Vineyard Wind 1 was setting electricity-generating records?

We know from testimony at the recent Massachusetts federal trial between Vineyard Wind 1 and its turbine supplier, GE Renewables, that the wind farm is not producing power at the levels it was supposed to. And there are only 49 of 62 wind turbines operable, further cutting the wind farm’s output. I am not sure Vineyard Wind 1 wants to be considered a record-breaking wind farm if it looks to win its lawsuit.

The Energy Solutions Intelligence report built its LCOE model using data from these wind farms. Most of the wind farms were built in the glory years of offshore wind before 2020. A glaring example of how such a misguided analysis distorts the outcome is their use of a 6% discount rate in the model. That rate represents the weighted cost of capital, and a low rate guarantees a low electricity price.

Before 2020, global interest rates were near zero, so the debt component of the wind farm’s capital structure was extremely low-cost. Wind farms are built with a large component of debt, which helps to leverage the return on equity metric that often drives the investment decision-making of capital providers/

Remember, it was the rise in interest rates after the pandemic in 2020 that sank the East Coast projects, forcing developers to pay millions in penalties to break their power purchase agreements because the negotiated electricity prices were too low for the projects to be financed, otherwise they would fail. The customers were forced to agree to pay more for their offshore wind, as mandated by their state governments. A higher cost-of-capital figure in the model drives the LCOE up sharply, undermining the study’s conclusion that offshore wind is cheap and competitive with natural-gas-fired electricity generators.

Furthermore, we note that many highly successful money managers who run bond funds have shifted from being bullish on lower interest rates to expecting years of higher rates. Many of these bond fund managers have enjoyed a 40-year decline in interest rates but are now preparing for higher rates. Those higher rates will reflect governments’ debt loads, which have them struggling to meet current interest payments, let alone pay off the debt.

Higher interest rates for government debt mean even higher rates for corporate debt. Investors who finance offshore wind farms will face many competing investment alternatives, so they will not accept below-market rates of return on projects that claim they can prosper with a 6% weighted cost of capital.

TotalEnergies’ Germany Problems

Based on an article published by Clean Energy Wire, which is based on a news article by Germany’s Munich-based Süddeutsche Zeitung newspaper, TotalEnergies is looking to quit a major offshore wind project in Germany. In 2023, the company paid €6 ($7) billion for the right to develop the project, which could host 7.5 GW of offshore wind generating capacity. TotalEnergies wants out due to slow grid connections and deteriorating economic conditions. The company is offering the project to competitors without any success so far.

According to the newspaper, which cited an internal document it had seen, TotalEnergies said several projects from German auctions in 2023 and 2025 “probably cannot be implemented.” While the company says it still wants to develop the areas, it is exploring options to address project delays.

Germany’s offshore wind industry has suffered from a spike in investment and capital costs since 2020, making many proposed projects financially questionable. Remember the increase in interest rates, but there was also an increase in project costs from higher inflation and supply chain issues. In fact, while the 2023 auction raised billions of euros in bids, an auction in 2025 failed to attract a single bid. The change in market conditions is reflected in the addition of less than 1 GW of new offshore wind capacity since 2020.

TotalEnergies paid €800 million ($928 million) toward its total commitment and pledged a security deposit of €750 million ($870 million), according to the newspaper. It hopes to recover the deposit along with a discounted payment from its successor for surveying the lease.

The German economy ministry told the newspaper that bidders have no legal right to withdraw from an auctioned project. It fully expects the plans to go forward. The final investment decision is only required once an official grid connection date has been announced, which has not yet occurred. Moreover, grid operator Tennet said it is alarmed by a possible withdrawal.

The newspaper reported that the 2023 auction proceeds have been earmarked to finance grid fee reductions to cap electricity prices and fund grid expansion. Without the payments, there would be further delays in Germany’s grid development.

Reportedly, BP plc, also a successful multi-billion-euro bidder in the 2023 German offshore wind lease auction, is contemplating a similar opt-out. It has already transferred the lease to a subsidiary, and the company is scaling back its efforts to develop renewable energy projects.

Additionally, the newspaper said that the industry association BWO is working on a compromise proposal that would allow successful bidders to withdraw from a project but bar them from re-bidding in the same areas, and require companies to contribute their survey data to the Federal Network Agency. BWO member companies fear that a protracted legal battle over the projects could disrupt demand and undermine “industrial continuity” and “credibility” for Germany’s offshore wind industry. We wonder how the status of this development aligns with Pouyanné’s comments that Germany is one of the offshore wind markets his company would consider for project development.

Conclusion

Despite all the happy talk from European offshore wind proponents, it appears this industry continues to suffer from problems that are not easily addressed. Offering benefits in the 2040s based on optimistic assumptions about costs and interest rates today, which are unrealistic, is a disservice to the customers who must bear the costs with few benefits for the next 15 years. Everyone would benefit from more honest observations and recommendations, as Patrick Pouyanné offers.