Despite global economic headwinds, the US offshore wind industry has continued to slowly but steadily blossom, driven largely by enhanced vision and cooperation among federal government agencies under the Biden administration, coastal states and utilities looking to make good on renewable procurement and other climate change pledges, and private industry and capital seeking new opportunities for the next generation of large-scale clean power. Nevertheless, the United States lags far behind Europe when it comes to harnessing the abundant power of offshore wind.
To meet federal, state and industry goals, including the Biden administration’s “30 by 30” goal of having 30 gigawatts (GW) of US offshore wind in operation by 2030, the market will need to solve a host of challenges embedded within the full lifecycle of generation projects: technology and design features particular to the US coasts (floating turbines in California, transmission and grid congestion issues on both coasts); building out the supply chain for fabricating, manufacturing, transporting, constructing, and maintaining project infrastructure; a lack of availability of Jones Act compliant vessels; and workforce sourcing and training.
The following is a nonexhaustive summary of the current state of play of the US offshore wind industry and some of the top stories, trends, and recent successes that interested parties have been watching.
RACE TO THE FINISH: VINEYARD AND SOUTH FORK
The US currently has two offshore wind projects vying for the title of the first utility-scale US offshore project to become operational: (1) Vineyard Wind (MA), the planned 800 MW project resulting from a joint venture between AVANGRID, Inc. and Copenhagen Infrastructure Partners, and (2) South Fork Wind (NY), the planned 132 MW project resulting from a joint venture between Orsted and Eversource. These projects are considered blueprints for the rest of the US offshore wind industry, and future projects are already learning from their successes and challenges.
It has been a long road to get to this point. Vineyard Wind began the permitting process in 2015 after winning the rights to develop the lease area through an auction with the US Department of the Interior’s (DOI’s) Bureau of Ocean Energy Management (BOEM). The project received all state, regional, and local permit approvals in 2020 but did not receive federal approval by BOEM until 2021 (following a surprising BOEM decision in 2019 that led to lengthy delays), delaying construction until such time.
Most recently, the process of laying undersea cables connecting the turbine sites to the mainland has begun.[1] Construction and installation of the turbines themselves will begin this summer, with the expectation that half of the 62 total turbines will be installed by the end of 2023.[2] Vineyard Wind is expected to start delivering energy to the electric grid by the end of 2023, and reach full commercial operation in 2024.
The lease area for South Fork Wind was originally awarded in 2013, and the project site was finalized in 2020. The project received final federal permitting approval in January 2022. Currently, cables are being laid with the expectation that the foundations and turbines will be installed through late spring and summer; commercial operation is anticipated around the end of 2023/early 2024.
Current indications are that these first two projects could live up to their promises with respect to collateral benefits to the local communities and industries.
A report submitted by Vineyard Wind to the Massachusetts Department of Energy Resources providing an analysis of job and expenditure data shows Vineyard Wind created twice the amount of jobs and economic output from 2017 to 2022 than initially projected.[3] According to the report, more than three-quarters of Vineyard Wind employees are Massachusetts residents and about half of the construction phase workers are union employees.[4] Additionally, the project has partnered with Shoreline Offshore, a joint venture between the Quinn family (a longtime presence in the fishing community of New Bedford, Massachusetts) and SEA.O.G. Offshore, to build two floating barges that will act as a berthing and fueling area for crew transfer vessels. These new barges will help developers complete work on Vineyard Wind, but can also be utilized by future projects as well as New Bedford’s other maritime industries.
Similarly, South Fork Wind is utilizing local union organizations to source the labor for construction. South Fork Wind has engaged a Long Island contractor, Haugland Energy Group LLC, to install the underground onshore transmission line and lead the construction of the onshore interconnection facility; this engagement will create approximately 100 union jobs. Additionally, South Fork Wind will utilize the first US-made offshore wind substation, which will be designed and built by Kiewit Offshore Services, Ltd. in Texas.
FEDS OFFER SUPPORT
BOEM Express
The Bureau of Ocean Energy management—the primary federal permitting agency for US offshore wind projects—is currently soliciting comments on proposed regulations that would accelerate the offshore wind project permitting requirements, thus reducing the time and cost expended on obtaining necessary approvals.
The regulations may result in projects bypassing the site assessment plan (SAP) requirement for deployment of nonfixed meteorological buoys used in data collection activities, among other information-sharing and regulation-streamlining proposals. BOEM reports that the proposed reforms are estimated to save developers approximately $1 billion over a 20-year period. Until March 31, 2023, stakeholders can provide comments on BOEM’s proposals. Observers are eagerly watching to see if the new regulations will be a dramatic acceleration to the development lifecycle of US-based projects.
IRA Opens Doors—and Wallets
The passage of the Inflation Reduction Act of 2022 (IRA) in August 2022 changed the rules of engagement for all types of renewable energy project development and finance, and offshore wind is no exception. The IRA devotes approximately $370 billion to energy and climate spending, including by making significant changes to the Internal Revenue Code to expand tax benefits for “green” energy and other technologies, such as offshore wind equipment manufacture and facility deployment.
With respect to deployment, prior to the enactment of the IRA, the Section 45 production tax credit (PTC) had expired for any wind power facility that had not “begun construction” before 2022 and the Section 48 investment tax credit (ITC) specifically applied to qualifying offshore wind facilities beginning construction before 2026. The IRA extended and expanded these tax credits for all eligible wind facilities by removing the preexisting tax credit sunset schedule for projects placed in service after 2021, and by extending these tax credits at potentially maximum rates through at least the end of 2033 (based on beginning of construction).
The IRA also enacted certain credit “adder” incentives (including for satisfying a “domestic content” standard) and a disincentive (for failure to meet a prevailing wage and apprenticeship standard) that largely apply across all tax credits enacted or expanded under the IRA. Navigating these new standards will require careful planning by offshore wind project developers, sponsors, and investors to ensure the projects and all stakeholders are getting the most mileage from these potential benefits. Fortunately for offshore wind developers, the IRA provides a more relaxed “domestic content” standard for offshore wind facilities (as compared to other types of generation facilities claiming ITCs or PTCs).
With respect to manufacture, the IRA enacts a new advanced manufacturing PTC for applicable green technology components produced in the United States or a US territory. Eligible components for this purpose include finished equipment and component parts of both onshore and offshore wind power generation facilities and offshore wind vessels.
The IRA could also incentivize pursuing interesting opportunities to align offshore wind with another potentially revolutionary technology: hydrogen. The IRA established a separate credit for the production of clean hydrogen. This could be a win for offshore wind, as the production of hydrogen using electricity generated by offshore wind (via onshore or offshore electrolyzers) is seen by many as one potential answer to a number of challenges relating to grid congestion and variability, and could help offshore wind dovetail with “hydrogen hubs”—the envisioned massive regional centers that will transform green electricity into hydrogen-based fuels for use in transportation, agriculture, manufacturing, and more. The US Department of Energy (DOE) is in the process of kickstarting these hubs with nearly $8 billion in grants and credits made available from the 2021 Infrastructure Investment and Jobs Act.
Moreover, the IRA introduces new methods for monetizing these tax credits. The IRA provides for refundable green technology industry tax credits (a “direct pay” option). However, aside from limited exceptions, including for the aforementioned advanced manufacturing credit and hydrogen production credit, only tax-exempt and US federal, state, local, or tribal governmental entities, the Tennessee Valley Authority, and corporations operating on a cooperative basis engaged in furnishing electricity to persons in rural areas are eligible for the refundable credit.
The IRA also allows for the novel ability of taxable entity project owners (generally, those not eligible to claim refundable credits) to sell all or a portion of their tax credits with respect to a particular year for cash.
Collectively, these and other features of the IRA are expected to broaden the potential universe of investors in offshore wind projects, drive down the cost of capital and equipment, and expedite the supply chain and transmission/grid transformations that will be vital to the industry’s success.
Helping Hands
The offshore wind industry is also seeing a significant push through various state and agency initiatives. Highlighted below are some of the most recent actions.
- California and Louisiana joined the Federal-State Offshore Wind Implementation Partnership. The partnership was originally created to accelerate the expansion of offshore wind while maximizing benefits for workers and communities, and now includes 13 states.
- The DOE, DOI, Department of Commerce (DOC), and Department of Transportation (DOT) hosted the Floating Offshore Wind Shot Summit with the goal of spurring advancement of the floating offshore wind energy industry (as discussed below with respect to California-based projects).
- The DOE released the US Offshore Wind Supply Chain Roadmap, which describes how the United States can develop a domestic supply chain to support the national offshore wind target while also delivering jobs and economic benefits.
- The DOT’s Maritime Administration announced $660 million in funding available for port-related infrastructure projects including clean energy opportunities through the Port Infrastructure Development Program.
- The DOE announced $30 million in funding made available for innovative manufacturing processes and improved performance of composite materials to produce more energy efficient wind turbines. The DOE also announced $200 million in funding for “Energy Earthshot Research Centers,” which aim to address technological challenges required to achieve US climate and economic competitiveness goals.
- President Biden released his proposed 2023 federal budget plan, which, among other things, proposes investing $60 million to expand offshore wind permitting activities. Congress has yet to determine what part of this will be included in the final budget.
NEW FRONTIERS: CALIFORNIA AND GULF OF MEXICO
Westward Expansion
On December 6–7, 2022, BOEM held an offshore wind energy lease auction for areas on the US Outer Continental Shelf in central and northern California, which resulted in final bids totaling $757.1 million. The auction was for five sites totaling 583 square miles (373,268 total acres) of deep ocean waters, with two sites approximately 20 miles from Humboldt County and three sites approximately 20 miles from Morro Bay. The offshore wind projects on such leased areas would have the potential to produce more than 4.6 GW of offshore wind energy, enough to power 1.5 million homes. Victors included projects owned by industry leaders such as RWE, Copenhagen Infrastructure Partners, Equinor, Invenergy, and Ocean Winds (a joint venture of EDP, Engie, and the Canada Plan Investment Board).
One of the most interesting aspects of the California and West Coast offshore wind market is its unique design requirements: unlike the Outer Continental Shelf on the eastern seaboard, the deeper waters of the West Coast require floating (as opposed to fixed-bottom) turbines—which come at a higher cost and, and require additional R&D.
However, the auction dovetailed with increasing R&D into the particular challenges of the West Coast.
At the federal level, with respect to floating turbine technology, the DOE announced a “Floating Offshore Wind Shot,” described as “an initiative to help usher in a clean energy future by driving U.S. leadership in floating offshore wind design, development and manufacturing.” In addition to a February 2023 summit that brought together commercial, governmental, and technical experts, the initiative includes a host of funding opportunities for additional studies and R&D projects to drive down costs and solve the technical challenges unique to the West Coast.
With respect to transmission, the DOE announced that it is sponsoring the West Coast Offshore Wind Transmission Study, a 20-month analysis exploring how expanding transmission can enhance offshore wind development for West Coast communities. As with the East Coast, West Coast projects could be hampered by grid congestion in the areas of highest electric demand. Other DOE studies have concluded that government agencies and public and private entities in the western US need to increase their coordination efforts as well as central planning with respect to offshore wind development, and provide further collaborative analysis of the potential and actual effects of legislative and policy changes that impact offshore wind transmission (such as the IRA).
It is hoped that additional publicly financed research and coordination with industry will help drive private investment to expand the transmission grid, help alleviate congestion pressures, and unlock the full power of the Pacific winds.
New ‘Land’ Grab in Gulf of Mexico
On February 22, 2023, BOEM announced the first offshore wind lease sale to occur in the Gulf of Mexico.[5] The proposed lease sale area will include a 102,480 acre area off the coast of Lake Charles, Louisiana as well as two separate areas off the coast of Galveston, Texas. The proposed lease areas, if developed, could potentially generate enough clean energy to power 1.3 million homes.
Gulf-based offshore wind projects are expected to potentially benefit from several strategic advantages that the Gulf region has over the Atlantic and Pacific projects: more temperate climates, shallower waters, and existing oil and gas infrastructure, workforces, and supply chains that could potentially be retrofitted to accelerate industry development. For example, the Gulf is already home to shipbuilding and steel and other manufacturing that is anticipated to be utilized for building out the industry in other locations.
NYSERDA: BUILDING AN OFFSHORE EMPIRE?
Following the February 2021 BOEM site lease auction that shocked the market with a record-setting $4.3 billion in bids for lease areas off the NY and NJ coasts (in what is known as the NY Bight) and awarded leases to development projects owned by some of the biggest names in the industry (EDP, Engie, Global Infrastructure Partners, EnBW, TotalEnergies, RWE, and National Grid, to name a few), New York State—through the New York State Energy Research and Development Authority (NYSERDA) (which carries out certain of the state’s renewable energy initiatives)—solicited bids for offtake from the NY Bight projects via contracts for offshore renewable energy credits (ORECs). This is New York’s third competitive offshore wind solicitation and is anticipated to procure power for approximately 1.5 million homes in New York, according to NYSERDA. Bids were due at the end of January, with an announcement on awards expected in Q2.
Beyond providing an all-important anticipated revenue stream that will eventually underwrite development and financing plans, New York is using the RFP to drive its broader development goals of becoming an “offshore energy hub” and helping to “establish major ecosystems for workforce development, manufacturing, and operations and maintenance.” For example, bidders were required to include supply chain investment plans (SCIPs) evidencing commitments to build out the local manufacturing and supply chain industries. Proposals were required to include New York workforce and jobs plans evidencing commitments to help increase employment in struggling communities in proximity to the local project infrastructure.
NYSERDA will require projects entering OREC contracts to meet minimum US-manufactured iron and steel standards to further drive domestic steel production, and will allow for some inclusion/credit for benefits derived from energy storage and other decarbonization/green energy technologies, including demonstration and experimental projects that could be paired with offshore wind. Bidders will be required to work with union labor to negotiate project labor agreements, project peace agreements, and prevailing wage agreements and to consult with various other state agencies and stakeholders not just on individual project plans but on overall industry plans and development for strategies to mitigate effects on fishing, wildlife, and the environment.
Later in 2023, New Jersey is expected to launch a similar RFP process that could attract bids from some of the same NY Bight projects, which could, depending on ultimate development plans, sell portions of power to both neighboring states.
A (TEMPORARY?) SETBACK: JONES ACT VESSELS
Despite significant attention paid to the potential undersupply of qualified Jones Act wind turbine installation vessels (WTIVs) and other Jones Act qualified transportation vessels that are necessary for the construction of planned offshore wind projects, publicly available information suggests that the actual construction of qualified Jones Act vessels is lagging far behind offshore development plans and may be a source of delay.
Media sources indicate that Dominion Energy’s order for the new 472-foot Charybdis vessel remains the only firm commitment for a US-built WTIV, but around six vessels will be required to meet President Biden’s target of 30 GW of offshore wind by 2030. Developers can use WTIVs made in Europe or Asia but are required to use US-built Jones Act qualified barges and other transport vessels to transport the WTIVs to and from US ports. Developers also face supply risks from soaring demand in Europe as countries accelerate their renewable energy plans amid the conflict in Ukraine. Very few US shipyards are large enough to build WTIVs and builders face competition from other industries such as the military.
Rising turbine capacities also present design challenges for shipbuilders. Offshore wind turbines are approaching heights of 300 meters, and dimensions continue to grow as developers seek higher-capacity units. Investment is also being hampered by economic headwinds of soaring inflation, rising interest rates, and supply chain challenges. New designs of Jones Act qualified transport vessels have been announced but currently none appear to be under construction. The few shipyards with the capacity to build WTIVs may prefer the more lucrative military contracts that have been sustaining them for years.
Given this, it is unclear if the financial incentives the IRA and Biden administration offer to the shipyards will be sufficient to attract their interest and result in signed vessel construction contracts to meet the demand for Jones Act qualified vessels to support the planned offshore wind projects.
[1] Vineyard Wind Expects to Begin Turbine Installation This Summer, The Martha’s Vineyard Times, Feb. 21, 2023 (updated Feb. 23, 2023).
[2] Id.
[3] Michael Bates, Report Suggests Vineyard Wind Is Exceeding Jobs and Economic Output Forecasts (Feb. 16, 2023).
[4] Id.
[5] US Dept. of Interior, Interior Department Proposes First-Ever Offshore Wind Sale in Gulf of Mexico (Feb. 22, 2023).
