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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.

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Projects in the Pipeline

Despite recent headwinds, recent federal and state government actions of the past few years are serving as drivers for offshore wind development in the United States. Across the country, 10 states have offshore wind goals, with another three states considering goals[2] and two (Texas and Louisiana) with projects in development without a set statewide goal. Federal actions that are supporting projects and offshore wind infrastructure include:

  • Financial incentives for the domestic offshore wind supply chain, specifically an advanced manufacturing production tax credit (45X) which includes offshore wind components (including vessels) and an advanced energy project investment tax credit (48C) that covers facilities that produce components.
  • Formalized coordination between states and the federal government through efforts like the Federal-State Offshore Wind Implementation Partnership between 13 states and four federal agencies.
  • Federal support for offshore wind research, including grid reliability, transmission, and port infrastructure.

As of 2023, America has roughly 40 offshore wind projects in the pipeline representing over 52 GW of capacity. Nearly 1,000 MW (or 1 GW) is anticipated to come online in 2024 between the South Fork project in New York and Vineyard Wind 1 in Massachusetts. Two additional projects–Dominion Energy’s Coastal Virginia Offshore Wind Project in Virginia and Ørsted and Eversource’s Revolution Wind 1 in Rhode Island–have begun construction and will bring an additional 3.3 GW of power in the next few years.

Other new actions point to a promising pipeline of domestic offshore wind activity:

  • In the Gulf of Mexico: The first-ever auction for three lease areas in the Gulf of Mexico was held in August 2023. Four additional areas with high potential for commercial wind energy activities (known as wind energy areas) were announced by the Bureau of Ocean Energy Management in the gulf in October, signaling developer interest in the region.
  • In Virginia: The 2.6 GW Coastal Virginia Offshore Wind project, currently the largest project in the U.S. pipeline, has begun construction and is set to be operational by 2026.
  • In North Carolina: The state has indicated strong interest in developing offshore wind and anticipates construction for the state’s 3.5 GW Kitty Hawk Wind project to begin in 2024.
  • In California: The depth of the Pacific coast will require floating offshore wind to meet state’s goal of 25 GW by 2045. According to DOE, deep water coastal areas (including much of the Pacific Coast) account for nearly two thirds of the United States’ offshore wind potential. These areas are too deep for traditional “fixed bottom” offshore wind turbines and will require floating offshore wind technology. Additional lease areas for California are set to be released mid-2024.

Future Outlook

There is enormous potential for offshore wind in the United States, as seen both by the technical estimates of how much power can be generated by coastal wind and the number of projects still in the pipeline. Signals of continued interest from developers can be seen from the numerous announced plans to reset and rebid projects that were previously seen as unfeasible. There is huge untapped potential in America’s resources to power our homes and businesses zero-carbon energy.

[1] 1 gigawatt (GW) is equal to 1,000 megawatts (MW). According to California Independent System Operator (CAISO), 1 MW is enough to power 750 homes, meaning 1 GW can power 750,000 homes – enough to power all the homes in both Nashville and Dallas.

[2] Washington, Hawai’i, and Oregon are considering offshore wind goals.

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