Challenges and Developments in U.S. Offshore Wind Energy

1. Summary

• The report titled "Challenges and Developments in U.S. Offshore Wind Energy" explores the current state and future prospects of the U.S. offshore wind sector. It highlights significant economic disruptions, project delays, and supply chain issues as the primary challenges affecting the industry, exemplified by Ørsted's cancellation of Ocean Wind projects due to rising costs and supply chain bottlenecks. However, technological innovations, particularly in turbine efficiency and floating wind technologies, alongside federal and state initiatives like the Inflation Reduction Act, offer pathways to overcoming these challenges. There are ambitious growth targets, such as the Vineyard Wind project, poised to significantly expand the U.S. wind energy capacity. Despite current operational limitations, these developments indicate substantial future expansion potential, underpinned by strong government support and advancements in technology.

2. Current Challenges in Offshore Wind Industry

• 2-1. Economic Disruptions

• The offshore wind industry in the U.S. is currently facing significant economic disruptions due to rising costs and inflation, which have adversely affected project viability. The cancellation of Ørsted’s Ocean Wind 1 and Ocean Wind 2 projects was directly attributed to rising interest rates, high inflation, and supply chain bottlenecks. These projects were expected to generate around 2.2 gigawatts of energy, sufficient to power over one million homes. Additionally, prices for vital construction materials, such as steel, have increased by over 50% from January 2019 through the end of 2022, exacerbating financial pressures on developers who argue that previously negotiated contracts are no longer feasible due to current economic conditions. Inflation has further increased the cost of other materials, while higher interest rates have made borrowing more expensive.

• 2-2. Project Delays and Cancellations

• The U.S. offshore wind industry has experienced multiple project delays and cancellations, indicating a challenging landscape for developers. In 2023, over 12 gigawatts worth of contracts were canceled or targeted for renegotiation. The cancellation of Ørsted's Ocean Wind projects serves as a stark example of this trend, driven by economic factors. Developers in New York have also sought to renegotiate existing contracts as of early 2024, potentially delaying further progress. The reliance on historical contract pricing established during more favorable economic conditions has contributed to these setbacks.

• 2-3. Supply Chain Issues

• Supply chain issues present significant challenges for the U.S. offshore wind industry, impacting project timelines and operational feasibility. The supply chain for offshore wind is still developing in the U.S., described as being in its infancy. A lack of vessels required for turbine installation has been a critical bottleneck, with Ørsted citing vessel availability as a reason for canceling its New Jersey project. U.S. regulations that mandate that only ships built and operated by U.S. entities can operate from U.S. ports have compounded these challenges, leading projects to circumvent this issue by operating from European ports, which incurs further delays in construction. Overall, the nascent supply chain and regulatory constraints have hindered the advancement of offshore wind capacity in the U.S.

3. Technological Advancements and Innovations

• 3-1. Turbine Efficiency Improvements

• 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, manufacturers are producing models capable of reaching 15 MW. This trend towards larger turbines is driven by their potential to capture more energy at a lower cost. The wind giant Vestas tested a 15 MW model in 2023, which earned the distinction of being the world’s most powerful wind turbine, expected to be utilized in an upcoming Danish wind farm.

• 3-2. Floating Wind Turbines

• Floating turbine technology has emerged as a pivotal innovation for the offshore wind industry, especially in areas with deep water where traditional seabed-fixed turbines are impractical. Pilot projects for floating turbines are already underway globally, like Hywind Tampen in Norway and WindFloat Atlantic in Portugal. These developments show promising potential for expanding offshore wind’s reach along the U.S. West Coast. Although floating projects are expected to make up less than 5% of offshore wind power installations even a decade from now, they are crucial for tapping into resources in deeper waters.

4. Growth Potential and Industry Outlook

• 4-1. Federal and State Initiatives

• The U.S. offshore wind industry has experienced momentum due to significant federal and state initiatives. The Biden administration has set an ambitious goal of achieving 30 gigawatts (GW) of offshore wind capacity by 2030, including 15 GW from floating technologies. As of now, at least 10 states have publicly announced procurement targets totaling nearly 81 GW of cumulative offshore wind capacity, aimed at supporting the industry's growth. This coordinated effort includes federal financial incentives like those in the Inflation Reduction Act, which extends tax credits for offshore wind projects, offering up to 40% of costs for building new wind farms. The combination of state mandates and federal support facilitates various offshore wind projects across the East Coast, which has become a focal point for development.

• 4-2. Current Capacity and Future Projections

• As of 2023, the operational capacity of offshore wind in the U.S. is limited, contributing only 42 megawatts (MW) to the national capacity of 148 GW, with installations in two states: Rhode Island and Virginia. Significant developments have occurred in early 2024, such as the Vineyard Wind project off Martha's Vineyard, which began operations with a capacity of 68 MW and is projected to reach 800 MW when fully operational. The South Fork Wind Farm, operational in March 2024, adds approximately 130 MW, making it the largest offshore wind installation in the country. Notwithstanding the current limited capacity, the pipeline for development is extensive, with over 20 GW of projects in permitting stages. The ambitious goals set by various states and federal incentives indicate a strong potential for expansion in the offshore wind sector, particularly along the East Coast.

5. Conclusion

• The U.S. offshore wind industry is navigating a pivotal phase marked by considerable challenges and robust growth potential. Ørsted's project cancellations underscore the significant economic hurdles, such as fluctuating costs and nascent supply chains, that currently impede the industry's progress. Nevertheless, federal initiatives like the Inflation Reduction Act, and state-level targets, including those supporting Vineyard Wind, exemplify the strategic frameworks in place to bolster the industry's trajectory. The report underscores the importance of technological advancements in turbine efficiency and floating technologies as essential components for future growth. These innovations are crucial for expanding capacity into deeper waters and reducing costs per megawatt. While limitations persist, particularly concerning economic viability and infrastructural development, the focus on innovative technical solutions and strategic policies is set to promote extensive expansion, with projections indicating considerable capacity growth. Real-world applicability of these findings highlights the industry's potential as a cornerstone of sustainable energy strategies in the U.S., suggesting a promising outlook as support mechanisms continue to evolve. Future prospects entail a combined effort in overcoming logistical challenges with continued technological and policy advancements to achieve ambitious wind energy targets.

6. Glossary

• 6-1. Ørsted [Company]

• Ørsted is a prominent renewable energy company involved in the U.S. offshore wind market. The cancellation of its Ocean Wind 1 and 2 projects illustrates the industry's economic challenges, underscoring the need for efficient supply chains and advanced technology solutions.

• 6-2. Vineyard Wind [Project]

• Vineyard Wind is a significant offshore wind project located off the coast of Massachusetts. With its potential 800 MW capacity, it represents the industry's expansion efforts and marks a major step in the U.S. offshore wind capacity increase.

• 6-3. Inflation Reduction Act [Policy]

• The Inflation Reduction Act is a federal law providing economic incentives to support the development of renewable energy projects, including offshore wind, helping mitigate some financial challenges faced by the industry.

7. 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