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U.S. Offshore Wind: Challenges and Growth

GOOVER DAILY REPORT October 20, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Current Status of U.S. Offshore Wind Industry
  3. Challenges Facing Offshore Wind Development
  4. Technological Advancements and Opportunities for Growth
  5. Federal and State Initiatives Supporting Wind Expansion
  6. Conclusion

1. Summary

  • The U.S. offshore wind industry stands at a critical crossroad, offering both exciting prospects for growth and significant challenges. This report delves into the current landscape, highlighting technological achievements and federal initiatives aimed at expanding this renewable energy sector. Key projects, such as Vineyard Wind and South Fork Wind Farm, represent incremental increases in operational capacity. However, the industry faces hurdles due to rising economic inflation, supply chain disruptions, and regulatory complexities, as evidenced by Ørsted's recent cancellations in New Jersey. Despite these challenges, technological advancements, especially in turbine efficiency and floating turbines, are creating opportunities to overcome barriers and enhance energy capture. Federal measures, including tax incentives under the Inflation Reduction Act, aim to cushion the financial difficulties of offshore wind projects. The combined federal and state policy frameworks are pushing forward a robust capacity pipeline with the ultimate goal of increasing offshore wind capacity to 30 GW by 2030. This multifaceted approach seeks to address the industry's current tasks while paving the way for future advancements.

2. Current Status of U.S. Offshore Wind Industry

  • 2-1. Existing operational capacity

  • As of 2023, the operational capacity of the offshore wind industry in the United States is 42 MW. This marks the beginning stages of offshore wind power utilization, contributing a small fraction to the overall national wind capacity of 148 GW.

  • 2-2. Key operational projects

  • Two significant operational projects in the U.S. offshore wind sector are Vineyard Wind and South Fork Wind Farm. The Vineyard Wind project, located off the coast of Massachusetts, commenced operations in February 2024 with an initial capacity of 68 MW, expected to reach 800 MW when fully operational. The South Fork Wind Farm, situated off the coasts of New York and Rhode Island, began operations in March 2024 with approximately 130 MW of capacity, currently recognized as the largest operational offshore wind installation in the country.

3. Challenges Facing Offshore Wind Development

  • 3-1. Rising costs and economic inflation affecting project viability

  • Economic challenges, particularly rising costs and inflation, have significantly impacted the offshore wind industry in the U.S. For instance, leading offshore wind developer Ørsted attributed the cancellation of its Ocean Wind 1 and Ocean Wind 2 projects in New Jersey to soaring interest rates, high inflation, and supply chain bottlenecks. These projects were initially expected to supply over 2.2 gigawatts of energy, enough to power more than a million homes. Increasing prices for key materials, such as steel, which saw over a 50% price increase from January 2019 to the end of 2022, have also contributed to the financial difficulties faced by developers. Consequently, many are arguing that previously negotiated contracts from 2019 or 2020 are no longer viable under the current economic conditions.

  • 3-2. Supply chain disruptions and cancellations, exemplified by Ørsted's New Jersey projects

  • The offshore wind industry has been grappling with significant supply chain disruptions that hinder project timelines. Ørsted's cancellation of its New Jersey projects illustrates these supply chain issues, specifically citing a lack of vessels necessary for turbine installation. Additionally, U.S. regulations mandate that only ships built and operated by the U.S. can operate from U.S. ports, which has caused further complications and delays. The reliance on foreign-built ships necessitating operations from European ports has aggravated these issues, as it slows construction processes. In 2023, it was reported that over 12 gigawatts’ worth of contracts in the U.S. were either canceled or targeted for renegotiation, shedding light on the broader impact of supply chain challenges on offshore wind development.

4. Technological Advancements and Opportunities for Growth

  • 4-1. Advancements in turbine efficiency and floating turbine technology

  • The offshore wind industry has been experiencing significant advancements in turbine efficiency and the development of floating turbine technology. Current turbine designs have evolved dramatically over the past decade; the average offshore wind turbine produced an output of around 4 megawatts (MW) a decade ago, while this output reached just under 8 MW by 2022. Notably, manufacturers are now producing models capable of generating outputs in the 15 MW range, which have been recognized as some of the world's most powerful turbines. These developments are pivotal, as larger turbines are generally more efficient, enabling the capture of more energy at a lower cost. Additionally, floating technology represents a vital innovation for offshore wind farms, particularly for deep-water sites along the U.S. West Coast and in the Gulf of Maine. Floating turbines allow for installations where securing turbines to the seabed is not feasible, and several pilot projects globally, such as those in Norway and Portugal, are leading advancements in this area.

  • 4-2. Federal incentives, including the Inflation Reduction Act

  • Federal support plays a critical role in the growth of the U.S. offshore wind industry. The Inflation Reduction Act has extended and expanded tax credits specifically designed for offshore wind projects, offering potential credits of up to 40% on the costs associated with new wind farm constructions. To qualify for the full tax credit, projects must utilize domestically sourced materials, which underscores the importance of strengthening the supply chain within the U.S. Despite ongoing challenges like rising costs and supply chain constraints, federal incentives provide a significant impetus for the establishment and expansion of offshore wind capacity. The Biden administration has set an ambitious target for 30 gigawatts (GW) of offshore wind capacity, and there are strong state-level procurement announcements totaling nearly 81 GW. This multifaceted approach indicates a robust framework supporting both technological innovation and the economic viability of offshore wind projects.

5. Federal and State Initiatives Supporting Wind Expansion

  • 5-1. Biden administration 2030 target of 30 GW for offshore capacity

  • The Biden administration has set an ambitious target of achieving 30 gigawatts (GW) of offshore wind capacity by the year 2030. This initiative reflects the federal commitment to advancing renewable energy and particularly emphasizes the potential of offshore wind as a significant contributor to the national energy mix. The goal includes the incorporation of 15 GW specifically from floating technology, which is recognized as a crucial innovation for expanding offshore capabilities in deeper waters.

  • 5-2. State-specific policies aiming for 81 GW capacity and contribution of 43 GW by 2040

  • At least ten states in the U.S. have publicly declared procurement targets aimed at achieving a cumulative offshore wind capacity of nearly 81 GW. These state-specific initiatives underscore a coordinated effort to facilitate the growth of offshore wind energy, with projections indicating that approximately 43 GW of this capacity is expected to be developed by the year 2040. The support from state policies, combined with federal financial incentives such as those provided by the Inflation Reduction Act, is seen as instrumental in addressing economic challenges faced by the industry and promoting successful offshore wind projects across various coastal regions.

6. Conclusion

  • In conclusion, the U.S. offshore wind sector is navigating a landscape filled with both obstacles and opportunities. While rising costs and persistent supply chain issues challenge growth, the sector benefits from significant advancements in turbine technology and strong backing from both federal and state initiatives. Ørsted's decision to cancel sizable projects underscores the need for supportive infrastructure and economic conditions for the industry to thrive. The Biden administration's target of 30 GW by 2030, backed by robust policy and financial incentives like those provided by the Inflation Reduction Act, is ambitious yet vital for realizing the full potential of offshore wind. Strengthening domestic supply chains and enhancing infrastructure are key areas requiring strategic focus to facilitate growth. Looking forward, continuous technological innovation combined with policy support could accelerate industry expansion, making offshore wind a cornerstone of the U.S. renewable energy portfolio. Vineyard Wind and other projects stand as testaments to the industry's progress and potential, highlighting the importance of maintaining momentum in the face of challenges. Such efforts could lead to a sustainable increase in energy capacity, reducing reliance on non-renewable sources and contributing to broader environmental goals.

7. Glossary

  • 7-1. Ørsted [Company]

  • Ørsted is a prominent developer in the offshore wind industry. Recently, it canceled two major projects in New Jersey due to economic challenges. This action highlights the financial and logistical difficulties currently affecting the U.S. offshore wind sector, emphasizing the need for supportive policies and economic stability for future project viability.

  • 7-2. Vineyard Wind [Project]

  • Vineyard Wind is a significant offshore wind project located off the coast of Martha's Vineyard, Massachusetts. It is part of the progress being made within the U.S. offshore wind industry and contributes a substantial 68 MW to the current operational capacity. Once fully operational, it will significantly bolster the national offshore wind capacity.

  • 7-3. Inflation Reduction Act [Legislation]

  • The Inflation Reduction Act provides federal incentives to support financial viability and expansion of the U.S. offshore wind industry. It aims to ease the economic burden on offshore wind projects, fostering growth in line with federal capacity targets.

8. Source Documents