U.S. offshore wind gets a push behind it with federal, state support

The U.S. offshore wind industry hit some setbacks with rising interest rates and component cost inflation, but the industry is now solidly moving ahead, helped along by a supportive federal government, and state supports.

By Tony Kryzanowski

While the American offshore wind power industry has experienced some setbacks to growth recently due to interest rate spikes, shocks to the global steel market with Russia’s invasion of Ukraine, and supply chain disruption because of COVID and economy-wide inflation, the political will to support the industry has not waned.

That support is being reflected in a more transparent and clear regulatory environment, new federal offshore lease sales, better offtake contracts being offered by states, a continuing build-out of domestic infrastructure support in shipyards and construction of crew service vehicles.

But all this takes time and given the time horizon to complete just one offshore wind project, there is still plenty of potential turbulence ahead.

The offshore wind power development situation over the past year has been a bit like a group of nervous children standing on the pool’s edge with parents bobbing in the water, encouraging them to take their first plunge into the water. As is typical in this scenario, some jump in, some dip their toes, and some walk away until they can find the courage and the right moment to eventually take the plunge.

“The first quarter of 2024 saw a U.S. offshore wind market in full transition,” says the Oceantic Network in its Q1 2024 Market Report. It is a member-based organization in the U.S. dedicated to growing the offshore wind and other ocean renewables industries and their supply chains.

The parents in the water in the scenario described above are the federal government and states strongly encouraging investors to buy into the federal administration’s desire to produce 30 gigawatts (GW) of offshore power by 2030. While this is a bold objective which some question as feasible, what’s most encouraging industry today is that there are willing customers once a project is completed. The issue is how the economics going forward will either stifle or spur development.

“The nature of offshore wind projects absolutely makes them more susceptible to broad economic changes,” says John Begala, Vice-President of Federal and State Policy at the Oceantic Network.

“However, this is an issue that we are actively solving at the state level through transparent permitting mechanisms, such as the NOI (Notice of Intent) Checklist and Modernization Rule,” he adds.

The checklist is used by the federal Bureau of Ocean Energy Management (BOEM) to check off requirements within a Construction Operation Plan that companies must submit for approval before proceeding with offshore wind power projects. The Modernization Rule is an initiative by the Department of the Interior to modernize and streamline the permitting process for offshore wind energy projects.

Offshore wind power development is still in its infancy in the United States compared to Europe, but given the momentum to replace fossil fuel-based power production with clean and renewable energy, the business opportunity is obvious. According to industry promoters like the Oceantic Network, offshore wind development is currently driving over $25 billion in new investment in the U.S.

At present, the U.S. offshore wind market has installed about 242 MW of capacity up from only 42 MW last year. But by this summer, another 4 GW will be under construction.

The industry overall was encouraged when the Orsted 132 megawatt (MW) South Fork Wind project about 50 kilometres east of Long Island, New York came on line in March. Other projects are not far behind, as in the southeast, Avangrid and CIP’s partially completed Vineyard Wind I project began sending 68 MW to the grid, with plans to finish installation of all 800 MW by this fall and winter.

More specifically according to the Oceantic Network, onshore construction has ramped up on Orsted’s 704 MW Revolution Wind project, off the coast of Rhode Island and Connecticut, and lease area operations have begun with steel in the water. Dominion Energy’s Coastal Virginia Offshore Wind project, slated to produce nearly 2.6 GW, has also begun with monopile installation. The project is expected to take three years to complete. Finally, recent strides have been made to advance the Empire Wind project off New York/New Jersey, slated to produce over 2 GW after signing a new labor agreement to begin construction of the South Brooklyn Marine Terminal.

	States like New York, New Jersey, Massachusetts, Connecticut and Rhode Island are actively offering wind power purchase agreements, with some bids already accepted and more bids expected to be awarded throughout the coming year.

Completion of these projects are helping to take the sting out of decisions by the developers of Empire Wind 2 and Beacon Wind to terminate their state offtake agreements with New York, claiming economic difficulties. At the same time, three more projects totaling over 4 gigawatts (GW) were also in flux and other projects further up the coast terminated their power purchase agreements and paid substantial fines.

But in April, Deb Haaland, U.S. Secretary of the Interior, announced a new five-year offshore wind leasing schedule which includes up to 13 potential offshore wind energy lease sales into 2028. Future offshore wind energy lease sales from the BOEM are anticipated in the Atlantic, Gulf of Mexico, Pacific and the waters offshore of U.S. territories in the next five years. The leasing schedule includes four potential offshore lease sales in 2024, one each in 2025 and 2026, two in 2027 and four in 2028.

Offshore wind power development is still in its infancy in the United States compared to Europe, but given the momentum to replace fossil fuel-based power production with clean and renewable energy, the business opportunity is obvious. According to industry groups, offshore wind development is currently driving over $25 billion in new investment in the U.S.

“Our offshore wind leasing schedule will provide predictability to help developers and communities plan ahead, and will provide the confidence needed to continue building on the tremendous offshore wind supply chain and manufacturing investments that we’ve already seen,” says Haaland.

There has been a strong desire by many coastal states, particularly in the northeast, to generate their own energy, with offshore wind power representing an obvious opportunity. But the economics of some previous offtake agreements have contributed to several development hiccups. The situation, however, is stabilizing and improving with rates that better reflect today’s economic realities and there is business to be had.

States like New York, New Jersey, Massachusetts, Connecticut and Rhode Island are actively offering power purchase agreements, with some bids already accepted and more bids expected to be awarded throughout the coming year.

The State of Maryland has also passed a law setting up for future offshore wind solicitation for the state and allowing MarWin and Momentum Wind developer, US Wind, to renegotiate its current offtake agreements. This action follows Orsted’s January withdrawal from its power purchase agreement with Maryland for its Skipjack project, and ensures that Maryland can quickly re-allocate the Offshore Wind Renewable Energy Credits held by Orsted to US Wind without exceeding mandated ratepayer caps.

“States have always been the primary drivers of demand for offshore wind in the U.S.,” says Begala. “They continue to demand offshore wind because it is a clean, reliable energy source that will bring jobs and economic development and allow states to meet their energy goals. States rebidding projects at potentially higher costs show strong support for the industry’s long-term growth, despite short term challenges.”

There is also a better understanding by state officials of the susceptibility of wind projects, because of their long time horizon from concept to production, to economic factors out of their control.

“Critically, states have demonstrated their ability to learn from past contract failures,” Begala says, “and have begun to put in place inflation indices that will help to ensure that future projects are not derailed by forces outside of a project developer’s control.”

These inflation adjustment mechanisms also help to reduce speculative bidding, he adds, thus creating room for a project to deliver on a lower final cost for electricity.

As the offshore wind power industry continues to make positive strides toward concluding a ‘reality check’ on what are reasonable expectations on rates within offtake agreements, it continues to battle a campaign against further development, even supported by former President Donald Trump, that has been found to be, “consistently tied to oil and gas companies,” according to the Oceantic Network.

In an Op Ed piece written recently by Liz Burdock, CEO of the Network, she states that at the end of the day, these are attacks directly against the American worker and economic growth, job creation, and the cleaner future that offshore wind is providing.

The concerns of the anti-wind power groups have been broadly debunked, adds Begala. “All reputable national environmental groups, the Sierra Club, National Wildlife Foundation, just to name a few, have repeatedly expressed their broad support for offshore wind.”

There is an underlying network of support industries evolving in the U.S., making the domestic industry less reliant on foreign suppliers of components as well as Service Operation Vessels (SOVs).

For example, the Eco Edison was recently christened in New Orleans as the first new build, U.S.-flagged, and Jones Act-compliant SOV. It was constructed by Edison Chouest Offshore (ECO), created 600 jobs, and had a supply chain spanning 34 states.

Also, a number of projects are underway to produce a domestic fleet of Crew Transfer Vehicles (CTVs) to once again reduce American reliance on foreign suppliers, who have been difficult to attract because of well-advanced offshore wind power development taking place elsewhere.

Other support network investments include $700 million for a new tower and forge facility on the East Coast by U.S. Forged Rings, $164 million for the expansion of EEW’s Paulsboro, New Jersey monopile facility, and a commitment from developers to purchase up to $188 million worth of American iron and steel products as part of New York’s expedited procurement round.

Q3 2024