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U.S. Offshore Wind: Challenges and Innovations

General Report October 30, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Overview of the U.S. Offshore Wind Industry
  3. Challenges Facing the Offshore Wind Sector
  4. Technological Advancements in Offshore Wind
  5. Current Status and Challenges of the U.S. Offshore Wind Industry
  6. Conclusion

1. Summary

  • Amidst increasing global demand for renewable energy, the U.S. offshore wind industry is seeking to expand under challenging circumstances. Currently limited to 42 MW of operational capacity across two sites, the industry faces notable hurdles such as economic pressures, regulatory barriers, and supply chain issues. The Inflation Reduction Act provides vital tax incentives and federal support, aiming to foster industry growth. Furthermore, state-level targets suggest a push towards enhancing offshore wind capacity. Innovations in turbine design and floating wind technology offer promising avenues for expansion, providing potential solutions to economic and geographical limitations. Vineyard Wind and the South Fork Wind Farm are key projects indicating a gradual trajectory of growth amidst these challenges.

2. Overview of the U.S. Offshore Wind Industry

  • 2-1. Current operational capacity and projects

  • As of early 2024, the U.S. offshore wind industry has a minimal operational capacity, with only 42 megawatts (MW) contributing to the national wind capacity of 148 gigawatts (GW). This capacity is spread across two operational facilities, including the Vineyard Wind project off the coast of Massachusetts, which began operations in February 2024 with an initial capacity of 68 MW and aims to reach full capacity of 800 MW. The South Fork Wind Farm, located off the coasts of New York and Rhode Island, commenced operations in March 2024, contributing approximately 130 MW, and is recognized as the largest operational offshore installation in the country. Despite these developments, the offshore wind market in the U.S. remains significantly behind more established markets like those in Europe, with ongoing projects facing delays and cancellations due to rising costs and supply chain issues.

  • 2-2. Historical context and timeline of development

  • The U.S. offshore wind industry has experienced a tumultuous inception, gaining traction primarily over the last decade. Notably, offshore wind power contributed only 42 MW as of 2023, contrasting sharply with the substantial growth observed in Europe. The industry began to garner momentum with the launch of the Block Island Wind Farm in December 2016, the first commercial offshore wind farm in the U.S. Recent developments such as the Vineyard Wind project signal a positive trajectory, with operations beginning in early 2024, representing critical growth for the nascent sector. The Biden administration's ambitious target of achieving 30 GW of offshore wind capacity by 2030, including 15 GW from floating technology, underscores the potential for increased development, although only 42 MW are currently operational.

  • 2-3. Federal and state support mechanisms

  • The growth of the U.S. offshore wind industry is significantly bolstered by federal and state initiatives. The Inflation Reduction Act plays a key role by extending and expanding tax credits for offshore wind projects, offering up to 40% of cost coverage for newly constructed wind farms, contingent upon using domestically sourced materials. At least 10 states have publicly set procurement targets for offshore wind, totaling nearly 81 GW of cumulative capacity. These state initiatives, paired with federal financial incentives and regulatory support, create a conducive environment for the development of offshore wind projects. However, challenges such as regulatory constraints and a nascent supply chain must be navigated to realize the potential benefits of these support mechanisms.

3. Challenges Facing the Offshore Wind Sector

  • 3-1. Rising costs and economic disruptions

  • The U.S. offshore wind industry is experiencing ongoing economic disruptions primarily due to rising costs. Ørsted, a prominent developer in the sector, cited rising interest rates, inflation, and supply chain bottlenecks as key factors leading to the cancellation of its Ocean Wind 1 and Ocean Wind 2 projects, which would have generated over 2.2 gigawatts of energy. Furthermore, construction material costs, particularly steel, have surged, with prices increasing by over 50% from January 2019 to the end of 2022. This sharp rise has left developers claiming that previously negotiated contracts are now untenable due to changed economic conditions.

  • 3-2. Supply chain constraints

  • The offshore wind sector faces significant supply chain constraints hindering its development. A notable challenge is the nascent supply chain within the U.S., which is still in its infancy and lacks key resources, such as installation vessels required for turbine deployment. Ørsted's project cancellations have been partially attributed to a shortage of these vessels. U.S. regulations also complicate matters, as a century-old law restricts operation of non-American-built vessels from U.S. ports, forcing developers to circumvent these restrictions by using European ports, ultimately leading to construction delays.

  • 3-3. Regulatory and permitting hurdles

  • The regulatory landscape for offshore wind in the United States is complex and presents numerous hurdles for developers. Both state and federal regulations play significant roles in the approval processes for offshore wind installations. The tension between ambitious federal goals and state-level initiatives often results in complications for project developers as they navigate varying requirements and approval processes. This dual approach can introduce delays and uncertainties that further impact project timelines and feasibility.

  • 3-4. Recent project cancellations and delays

  • The offshore wind industry has seen several high-profile project cancellations and delays. Over 12 gigawatts of contracts were either canceled or are under renegotiation in 2023, highlighting the industry's vulnerability to economic fluctuations. Ørsted's Ocean Wind projects were significant losses for the sector, reflecting broader challenges faced across various market regions. Developers in the U.S. are also seeking to renegotiate contracts for existing projects, such as those in New York, indicating ongoing struggles to align project viability with current economic realities.

4. Technological Advancements in Offshore Wind

  • 4-1. Innovations in turbine design

  • The offshore wind industry has seen significant advancements in turbine design, particularly in turbine efficiency. A decade ago, the average offshore wind turbine produced an output of around 4 megawatts (MW). By 2022, this output increased to just under 8 MW, with manufacturers currently producing models capable of reaching 15 MW. This trend towards larger turbines is driven by their ability to capture more energy at a lower cost.

  • 4-2. Emergence of floating wind technologies

  • Floating turbine technology has emerged as a pivotal innovation for the offshore wind industry, particularly for areas with deep water where traditional seabed-fixed turbines are impractical. Pilot projects for floating turbines are already underway globally, including significant installations like Hywind Tampen in Norway and WindFloat Atlantic in Portugal. These projects feature various platform designs and have the potential to expand offshore wind's reach along the U.S. West Coast.

  • 4-3. Efficiency improvements in existing projects

  • The offshore wind market in the U.S. indicates a strong potential for efficiency improvements in existing projects. The operationalization of new facilities has begun, with projects like Vineyard Wind and South Fork Wind Farm contributing to the increase in operational capacity. Vineyard Wind began operations in February 2024 with an initial capacity of 68 MW and plans to reach 800 MW upon full operation. Similarly, the South Fork Wind Farm started operating in March 2024 with around 130 MW, currently recognized as the largest operational offshore wind installation in the country.

5. Current Status and Challenges of the U.S. Offshore Wind Industry

  • 5-1. Current and projected capacity growth

  • As of 2023, the U.S. offshore wind industry has a minimal operational capacity of 42 MW, primarily from two states: Rhode Island and Virginia. In February 2024, Vineyard Wind commenced operations with an initial capacity of 68 MW and aims to reach 800 MW upon full operation. Additionally, the South Fork Wind Farm began operations in March 2024, contributing approximately 130 MW of capacity, making it the largest operational offshore wind facility in the country. The Biden administration has set ambitious targets of achieving 30 GW of offshore wind capacity by 2030, with over 20 GW currently in the permitting stages, indicating strong growth potential in the pipeline.

  • 5-2. Key projects in the permitting stages

  • The current development landscape includes more than 43 GW of offshore wind capacity at various stages along the East Coast, significantly propelled by state mandates and federal support. Key projects that are in their permitting stages include those identified along the East Coast, with particular emphasis on initiatives aimed at overcoming existing legal and supply chain constraints. The Biden administration’s objectives of reaching 30 GW of offshore capacity by 2030 highlight the critical nature of these projects, but rising costs and inflation are impacting timelines for project approvals and operational readiness.

  • 5-3. State-level procurement targets

  • At least 10 states have established public procurement targets for offshore wind, aiming for nearly 81 GW of cumulative offshore wind capacity. These state-specific initiatives are crucial in supplementing federal financial incentives provided by the Inflation Reduction Act, which aims to facilitate the development of a reliable renewable energy network. Expected achievements by states reflect coordinated efforts to enhance the offshore wind capacity, ensuring that nearly 43 GW could be realized by 2040 as they navigate the complex regulatory landscape and economic challenges.

Conclusion

  • The U.S. offshore wind industry is at a critical juncture, grappling with significant challenges while being buoyed by progressive technological and legislative support. Legislative efforts, like the Inflation Reduction Act, are instrumental in addressing financial constraints by offering substantial tax incentives, crucial for attracting investments. Projects such as Vineyard Wind, alongside state-level procurements, underscore a strategic shift towards increased offshore wind capacity. Meanwhile, technological advancements, specifically floating wind technology, reveal optimistic prospects for expanding operations into deeper waters. However, the industry must confront and mitigate pressing issues like rising costs and supply chain limitations. Addressing these hurdles is essential for meeting the ambitious targets set by the administration, which envision 30 GW of offshore capacity by 2030. As the industry advances, leveraging technological innovations and enhanced regulatory support will be key to realizing the substantial environmental and economic benefits of offshore wind energy, positioning it as a cornerstone of the U.S. renewable energy landscape in the years to come.

Glossary

  • Inflation Reduction Act [Legislation]: The Inflation Reduction Act provides crucial tax incentives aimed at bolstering the offshore wind industry, supporting both current projects and future developments. This legislation plays a significant role in addressing the economic challenges faced by the industry and fosters an environment conducive to growth.
  • Vineyard Wind [Project]: Vineyard Wind is a pivotal offshore wind project located off the coast of Massachusetts, representing a significant step in the U.S. offshore wind sector. It is expected to contribute substantially to the national capacity once fully operational, serving as a model for future developments.
  • Floating Wind Technology [Technology]: Floating wind technology is an innovative approach that allows for wind turbines to be deployed in deeper waters, expanding the potential sites for offshore wind farms. This technology is critical for the future growth of the offshore wind industry, particularly along the Gulf of Maine and Pacific coasts.

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