Sea ice–wave interactions have been widely studied in the marginal ice zone, at relatively low wind speeds and wave frequencies. Here, we focus on very different conditions typical of coastal polynyas: extremely high wind speeds and locally generated, short, steep waves. We overview available parameterizations of relevant physical processes (nonlinear wave–wave interactions, energy input by wind, whitecapping and ice‐related dissipation) and discuss modifications necessary to adjust them to polynya conditions. We use satellite‐derived data and spectral modeling to analyze waves in 10 polynya events in the Terra Nova Bay, Antarctica. We estimate the wind‐input reduction factor over frazil/grease ice in the wave‐energy balance equation at 0.56. By calibrating the model to satellite observations we show that exact treatment of quadruplet wave–wave interactions (as opposed to the default Discrete Interaction Approximation) is necessary to fit the model to data, and that the power n > 4 in the sea‐ice source term Sice ∼ fn (where f denotes wave frequency) is required to reproduce the strong attenuation of high‐frequency waves observed for frazil streaks. We use a very‐high resolution satellite image of a fragment of one of the polynyas to determine whitecap fraction. We show that there are more than twofold differences in whitecap fraction over ice‐free and ice‐covered regions, and that the model produces realistic whitecap fractions without any tuning of the whitecapping source term. Finally, we estimate the polynya‐area‐integrated wind input, energy dissipation due to whitecapping, and whitecap fraction to be on average below 25%, 10% and 30%, respectively, of the corresponding open‐water values.