The Latest Headwinds and Tailwinds for U.S. Offshore Wind

For the first time in the United States, commercial-scale offshore wind is bringing power to the U.S. grid from an enormous, virtually untapped American resource. The United States has nearly 1,500 gigawatts (GW) or 1.5 million megawatts (MW) ^[1] of fixed-bottom offshore wind technical potential, according to the National Renewable Energy Laboratory. By 2030, the United States has a goal to deploy 30 GW of offshore wind generation capacity. But over the last eight years, the nation’s 0.042 GW of installed capacity has lagged China (31 GW) and Europe (30 GW) by an order of magnitude.

So, it was a big deal when turbines began turning this month at Ørsted and Eversource’s newly operational South Fork Wind in New York, with Avangrid’s Vineyard Wind 1 in Massachusetts likely to follow close behind. This comes on the heels of a somewhat turbulent past 12 to 24 months, in which many U.S. offshore wind deals were being inked while others were canceled.

What happened to create this seesaw effect in the industry, and does it spell trouble moving forward?

High Interest Rates and High Cost of Capital

2022 was an optimistic year for the industry, with an unprecedented expansion into new leasing areas around the country and a significant number of projects entering the permitting phase. In the last 12 months, however, several offshore wind projects have stalled due to increasing project costs related to supply chain disruptions, higher interest rates, and the overall higher cost of capital. Project developers rely on revenue from selling power to an offtaker (typically a state utility) to fund project development. However, due to the long development timelines of large-scale energy projects, many of these power purchase agreements were negotiated during a more favorable financial environment and are no longer sufficient to cover increased project costs. Many developers of stalled projects plan to (or have already begun to) renegotiate and rebid their projects in the coming year.

Manufacturing, Supply Chain, and Logistics Challenges

High-interest rates and the cost of capital are also constraining the needed expansion of domestic component manufacturing, ports, and specialized marine vessels for enabling a cost-effective pipeline of U.S. offshore wind projects. Offshore wind turbine fabrication requires specialty manufacturing. Much of the expertise in manufacturing offshore wind components currently resides in Europe, in large part due to the industry’s maturity on the continent. Onshoring offshore wind manufacturing could generate new market opportunities for domestic manufacturers and boost U.S. manufacturing employment.

Offshore wind components for turbines, each typically capable of producing 6 to 8 MW, are often too large to transport over land. The growing offshore wind industry will require a network of ports with complementary capabilities like fabrication or assembly. According to a 2023 report from the Business Network for Offshore Wind, 35 offshore wind ports are either in development or have recently reached commercial operations. But these ports are facing material financing gaps due to higher-than-expected construction costs. A lack of U.S. wind turbine installation vessels is also a major challenge for the domestic buildout of offshore wind, especially given the requirements of the Merchant Marine Act of 1920 (also known as the Jones Act; see the Bipartisan Policy Center’s report “Windy Waters: Unlocking the Potential of U.S. Offshore Wind” for more details). Without access to these specialized vessels, developers must rely on other installation options like using barges and multiple tugboats which are expensive and logistically complex. If no new action is taken by either the public or private sector, port capacity and domestic installation vessels are projected to continue to be two of the most significant U.S. offshore wind deployment constraints.