Navigating U.S. Offshore Wind Challenges

1. Summary

• The report delves into the U.S. offshore wind industry, addressing both existing challenges and future opportunities. Economic hurdles such as rising costs and supply chain disturbances are major impediments, leading to significant project cancellations from key players like Ørsted. Despite these issues, the report highlights the growth potential driven by federal initiatives, specifically the Inflation Reduction Act and the government's goal of achieving 30 GW capacity by 2030. It also showcases technological innovations like larger and more efficient turbines, and the development of floating turbine technology, with projects such as Vineyard Wind moving into operational phases. The summary indicates that while current operational capacity is minimal, substantial developments and supportive government policies provide a promising outlook for the industry.

2. Economic Challenges Facing the U.S. Offshore Wind Industry

• 2-1. Rising costs and supply chain disruptions

• The U.S. offshore wind industry is currently facing significant economic challenges, primarily driven by rising costs and supply chain disruptions. The leading offshore wind developer Ørsted recently canceled its Ocean Wind 1 and Ocean Wind 2 projects, which would have supplied just over 2.2 gigawatts of energy. Ørsted cited rising interest rates, high inflation, and supply chain bottlenecks as key reasons for these cancellations. Additionally, prices for essential materials like steel increased by over 50% from January 2019 to the end of 2022, adversely affecting developers who find previously negotiated contract prices untenable given current economic conditions. The industry also struggles with a nascent supply chain that is not yet equipped to meet the demands of offshore projects.

• 2-2. Cancellations of major projects like Ørsted's Ocean Wind

• Significant project cancellations have occurred in the U.S. offshore wind sector, particularly highlighted by Ørsted's cancellation of its Ocean Wind ventures. These cancellations reflect broader economic difficulties experienced in the industry, with over 12 gigawatts worth of offshore wind contracts either canceled or subject to renegotiation in 2023. The ongoing challenges include limited availability of vessels for turbine installation due to U.S. regulations and escalating costs associated with project development. Such setbacks represent major obstacles for advancing offshore wind capacity amidst a landscape marked by intense economic pressures and material costs.

• 2-3. Impact of inflation and material costs on project feasibility

• Inflation and the increasing costs of materials have significantly impacted the feasibility of offshore wind projects in the U.S. The rising prices for a range of construction materials, combined with increased borrowing costs, have created financial strain on developers. Inflation has rendered previous contract agreements economically unviable, prompting calls for renegotiation on several projects underway. For instance, as cited in reports, the average prices for essential materials have escalated dramatically, which in conjunction with high inflation rates, poses serious hurdles for the planning and execution of offshore wind developments. As of 2023, the operational offshore wind capacity in the U.S. remains minimal at 42 MW.

3. Technological Advancements in Offshore Wind

• 3-1. Larger and more efficient turbines

• The offshore wind industry has witnessed significant advancements in turbine efficiency. A decade ago, the average offshore wind turbine produced an output of around 4 megawatts (MW). By 2022, this figure had increased to just under 8 MW. Currently, major manufacturers are producing models capable of reaching up to 15 MW. This trend toward larger turbines is driven by their enhanced efficiency, as larger turbines tend to capture more energy at a lower cost. For instance, in 2023, the wind giant Vestas tested a 15 MW model, which became the world's most powerful wind turbine. The size of these turbines is becoming increasingly formidable, now nearing the height of major landmarks, such as the Eiffel Tower.

• 3-2. Development of floating turbine technology

• Floating turbine technology has emerged as a crucial innovation for the offshore wind sector, particularly in areas with deep waters where traditional seabed-fixed turbines are not feasible. Pilot projects for floating turbines are already in progress globally, including notable initiatives like Hywind Tampen in Norway and WindFloat Atlantic in Portugal. Various platform designs for floating turbines are being explored, with potential standardization expected to reduce costs over time. However, it is likely that floating projects will still represent a small fraction (less than 5%) of total offshore wind power installations in the next decade, suggesting that traditional fixed-bottom installations will continue to dominate the market.

• 3-3. Technological contributions to capacity expansion

• The U.S. offshore wind market has shown potential for substantial capacity expansion, with a significant goal set by the Biden administration to achieve 30 gigawatts (GW) of offshore wind capacity by 2030, including 15 GW from floating technologies. As of now, only 42 megawatts (MW) of offshore capacity is operational in the U.S., but over 20 GW of projects are in the permitting stages, indicating a robust pipeline for future development. With advancements in turbine technology and ongoing federal and state support, the industry is on a promising trajectory for growth, particularly along the East Coast where over 43 GW of offshore wind capacity is currently under development.

4. Growth Potential and Federal Support

• 4-1. Federal targets and support measures

• As of 2023, the offshore wind industry in the United States has set ambitious federal targets aimed at achieving 30 gigawatts (GW) of offshore wind capacity by 2030, including a specific aim of up to 15 GW from floating offshore wind technology. This initiative reflects the Biden administration's commitment to expanding renewable energy resources and is supported by state mandates across at least 10 states, which have collectively announced procurement targets totaling nearly 81 GW of offshore wind capacity. Despite only 42 megawatts (MW) currently being operational, over 20 GW of projects are in various stages of permitting, indicating significant future growth potential.

• 4-2. Role of the Inflation Reduction Act

• The Inflation Reduction Act provides crucial financial incentives for the offshore wind industry, extending and enhancing existing tax credits for project development. This legislation potentially covers up to 40% of the expenses for constructing new wind farms, provided that they utilize domestically sourced materials. As a result, the Act is instrumental in addressing the economic challenges faced by developers, especially in light of rising costs and supply chain disruptions. It supports initiatives that could lead to the operationalization of more offshore wind projects, contributing towards the established federal targets.

• 4-3. Growth projections and current project status

• Currently, the U.S. offshore wind industry is in a nascent stage, contributing only 42 MW to the national wind capacity of 148 GW. However, significant projects are coming online, with Vineyard Wind beginning operations in February 2024 at 68 MW capacity, expected to reach 800 MW upon full operation. Additionally, the South Fork Wind Farm commenced operations in March 2024 with around 130 MW capacity, making it the largest operating offshore wind installation in the country. Over 20 GW of additional projects are undergoing the permitting process, indicating a robust pipeline and potential for future capacity growth.

5. Key Offshore Wind Projects in the U.S.

• 5-1. Vineyard Wind and South Fork Wind Farm

• The Vineyard Wind project, located off Martha’s Vineyard, Massachusetts, began operations in February 2024 with an initial capacity of 68 MW, projected to reach 800 MW when fully operational. This installation signifies a notable advance in the U.S. offshore wind capacity, particularly as it is expected to be fully operational by late 2024. Additionally, the South Fork Wind Farm commenced operations in March 2024, situated off the coasts of New York and Rhode Island, producing approximately 130 MW, thus holding the title of the largest operational offshore wind installation in the United States as of early 2024.

• 5-2. Overall status of U.S. East Coast projects

• As of 2023, only two states, Rhode Island and Virginia, had operational offshore wind facilities, contributing a total of 42 MW to the national wind capacity of 148 GW. However, the East Coast projects have shown significant momentum for future development, with over 43 GW of offshore wind capacity at various stages of development. The Biden administration has established an ambitious target of achieving 30 GW of offshore wind capacity by 2030, including 15 GW from floating technology. Over 20 GW of projects are currently in the permitting stages and nearing final approvals.

• 5-3. Impact of state policies on project development

• State policies have played a critical role in advancing offshore wind development in the U.S. A state-mandated procurement process has been instrumental in facilitating federal support for the industry. At least 10 states have committed to procurement targets, aggregating nearly 81 GW of cumulative capacity. These initiatives are intended to support the growth of offshore wind, with projected policies that could enable the development of approximately 43 GW by 2040. Furthermore, supportive legislation such as the Inflation Reduction Act is aimed at alleviating economic challenges faced by developers.

6. Conclusion

• The U.S. offshore wind industry presents a complex landscape of obstacles and opportunities. Economic constraints, exemplified by Ørsted's project cancellations due to inflation and material cost surges, underscore the financial challenges. Despite only 42 MW of current operational capacity, technological advancements in larger turbines and innovations like floating technology offer significant growth potential. The Inflation Reduction Act plays a critical role in mitigating economic pressures by extending tax incentives, thereby encouraging project development. For the industry to attain the ambitious 30 GW target by 2030, swift action is required to address infrastructural and regulatory roadblocks. The federal and state-backed efforts, combined with technological prowess mirrored by projects such as Vineyard Wind, lay a firm groundwork for future expansion. Nonetheless, ongoing challenges necessitate continued policy support and strategic investments in infrastructure to harness the full potential of the U.S. offshore wind sector. Future developments are likely to concentrate on enhancing supply chain efficiencies and expanding capacity, particularly on the East Coast and areas suitable for floating turbines. The practical applicability of these advancements could significantly contribute to the nation’s renewable energy landscape, potentially setting a precedent for global offshore wind initiatives.

7. Glossary

• 7-1. Ørsted [Company]

• A Danish multinational power company, Ørsted plays a significant role in the offshore wind industry. It canceled its Ocean Wind projects in the U.S. due to economic feasibility issues, highlighting the challenges faced in the current market scenario.

• 7-2. Vineyard Wind [Project]

• A major U.S. offshore wind project off the coast of Massachusetts, Vineyard Wind began operations in 2024. It is significant as a marker of progress in U.S. offshore wind development, with a capacity of 800 MW projected when fully operational.

• 7-3. Inflation Reduction Act [Legislation]

• A key piece of U.S. federal legislation that provides financial incentives to ease economic burdens in the renewable energy sector, benefiting projects like offshore wind, thereby facilitating development and expansion in the industry.

8. Source Documents

• What’s next for offshore windhttps://www.technologyreview.com/2024/01/10/1086354/whats-next-for-offshore-wind/
• U.S. Offshore Wind Challenges and Growthgo-public-report-en-7f7ec314-ae02-47b8-9eb2-8d3e8557592c-0-0
• A Decade of Growth in Solar and Wind Power: Trends Across the U.S. | Climate Centralhttps://www.climatecentral.org/report/solar-and-wind-power-2024
• Turbulent Waters: Developments in U.S. Offshore Wind | FTIhttps://www.fticonsulting.com/insights/articles/turbulent-waters-current-developments-us-offshore-wind-industry