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Challenges and Progress: U.S. Offshore Wind

General Report November 1, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Current State of Offshore Wind in the U.S.
  3. Economic Challenges Facing Offshore Wind Projects
  4. Technological Advancements in Offshore Wind
  5. Regulatory and Supply Chain Constraints
  6. Current Challenges and Developments in the U.S. Offshore Wind Industry
  7. Conclusion

1. Summary

  • The U.S. offshore wind industry is experiencing both significant challenges and promising advancements. Central issues include escalating costs, supply chain bottlenecks, and complex regulatory environments that hinder project timelines and economic feasibility. Notably, Ørsted, a leader in the industry, has faced project cancellations due to these increasing economic pressures. Despite these hurdles, advancements are evident with projects like Vineyard Wind in Massachusetts and the South Fork Wind Farm demonstrating their capacity to enhance the U.S. energy landscape with their substantial outputs. Both projects highlight the industry's potential for growth, with Vineyard Wind aiming for 800 MW and South Fork already operating at around 130 MW, the largest in the nation. Federal support in the form of financial incentives also facilitates the burgeoning industry's growth, focusing on improving turbine efficiency and introducing innovative technologies like floating turbines.

2. Current State of Offshore Wind in the U.S.

  • 2-1. Operational Capacity and Facilities

  • As of 2023, the U.S. offshore wind industry had operational facilities contributing a total of 42 MW to the national capacity of 148 GW. Specifically, offshore wind power was limited to two states: Rhode Island and Virginia. Notably, by early 2024, the Vineyard Wind project commenced operations off the coast of Massachusetts with an initial capacity of 68 MW, expected to reach a total of 800 MW when fully operational. Additionally, the South Fork Wind Farm began operating in March 2024, providing approximately 130 MW of capacity, and is currently recognized as the largest operational offshore wind installation in the U.S.

  • 2-2. Recent Project Completions

  • Recent completions in the offshore wind sector denote a significant progress despite economic challenges. The Vineyard Wind project, which began operations in February 2024, represents an important milestone as it is projected to contribute substantially to the overall energy mix, aiming for a final capacity of 800 MW. Furthermore, the South Fork Wind Farm began operations in March 2024, which with its capacity of around 130 MW, positions it as the largest installation in the nation, marking a notable achievement in the development of offshore wind energy.

  • 2-3. Development Pipeline

  • The development pipeline for the U.S. offshore wind sector indicates strong potential for future growth. Currently, over 20 GW of offshore wind projects are in various stages of the permitting process, primarily concentrated along the East Coast. This represents significant momentum towards the Biden administration's goal of achieving 30 GW of offshore wind capacity by 2030. However, only 42 MW are currently operational, highlighting the need for overcoming economic challenges and regulatory hurdles to realize these ambitious capacity targets.

3. Economic Challenges Facing Offshore Wind Projects

  • 3-1. Rising Costs and Inflation

  • Rising costs and inflation have been significant challenges impacting offshore wind projects in recent months. Ørsted, a leading offshore wind developer, noted that the cancellation of its Ocean Wind 1 and Ocean Wind 2 projects was primarily due to rising interest rates, high inflation, and supply chain bottlenecks. Collectively, these projects were expected to deliver approximately 2.2 gigawatts of energy, sufficient to power over a million homes. Prices for essential construction materials, like steel, have surged over 50% from January 2019 to the end of 2022, which has led developers to argue that contracts they negotiated in 2019 or 2020 are now unfeasible due to the sharp rise in costs. Additionally, inflation has further exacerbated the price of other materials and pushed borrowing costs higher.

  • 3-2. Supply Chain Disruptions

  • The offshore wind industry is currently experiencing significant supply chain disruptions, particularly in the U.S. A nascent supply chain is developing slowly, and there is a critical shortage of vessels required for turbine installation. Ørsted highlighted a lack of available vessels as a reason for the cancellation of its New Jersey project. Moreover, a century-old law restricts the operation of vessels not built and operated by the U.S. from U.S. ports. This regulation forces projects to embark from European ports and utilize large U.S. barges offshore, which can delay construction significantly. The global supply chain challenges have also recently halted projects in the U.K. and Japan, increasing competition for resources.

  • 3-3. Financial Incentives and Support

  • Financial incentives are crucial to supporting the offshore wind industry in the U.S. The Inflation Reduction Act has extended and expanded existing tax credits for offshore wind projects, offering up to 40% of the costs associated with building new wind farms, contingent on utilizing domestically sourced materials. While a reliable supply chain is still being established and economic challenges persist, there are promising signs of growth. For instance, the second large-scale offshore wind farm commenced operations in January 2024, and new development sites are expected to be auctioned in the upcoming year.

4. Technological Advancements in Offshore Wind

  • 4-1. Improvements in Turbine Efficiency

  • The offshore wind industry has seen significant advancements in turbine efficiency. A decade ago, the average output of an offshore wind turbine was around 4 megawatts (MW); by 2022, this output had nearly doubled to just under 8 MW, with manufacturers currently producing models capable of reaching 15 MW. This trend towards larger turbines is motivated by their ability to capture more energy at a lower cost, indicating a continuous improvement in the technology associated with offshore wind energy generation.

  • 4-2. Emergence of Floating Turbine Technology

  • Floating turbine technology has emerged as a pivotal innovation for the offshore wind industry, particularly for regions with deep water where traditional seabed-fixed turbines are impractical. Pilot projects for floating turbines are already underway globally, including Hywind Tampen in Norway and WindFloat Atlantic in Portugal. These initiatives demonstrate various platform designs and hold the potential to expand offshore wind’s reach along the U.S. West Coast, signifying a notable direction in technological advancement.

  • 4-3. Size and Capacity Increases

  • The U.S. offshore wind market displays significant potential for size and capacity increases. The Biden administration has set ambitious goals of achieving 30 gigawatts (GW) of offshore wind capacity by 2030, with 15 GW expected from floating technologies. Although the current operational capacity stands at only 42 megawatts (MW), over 20 GW of projects are in the permitting stages. This indicates a robust development pipeline, particularly within the East Coast region, highlighting the escalating efforts to bolster offshore wind energy in the U.S.

5. Regulatory and Supply Chain Constraints

  • 5-1. Legal Constraints for Installation Vessels

  • Legal constraints have significantly affected the availability and operation of installation vessels in the U.S. offshore wind industry. A century-old law mandates that only ships built and operated by the U.S. can operate from U.S. ports. This regulation has forced projects to operate from European ports, using large U.S. barges offshore, which can result in delays during construction. As highlighted by industry experts, the current supply chain for offshore wind in the U.S. is in its infancy and does not adequately meet the demands of this burgeoning industry. The lack of U.S.-built vessels has been identified as a critical issue, particularly in the wake of project cancellations such as Ørsted's Ocean Wind ventures.

  • 5-2. State vs Federal Regulations

  • The regulatory landscape for offshore wind in the U.S. is complex, involving a mix of state and federal regulations that can lead to complications. The Biden administration has set ambitious targets for offshore wind capacity, with a goal of achieving 30 gigawatts by 2030. However, state-level initiatives are also crucial, as at least 10 states have announced procurement targets totaling nearly 81 gigawatts. This dual regulatory approach can result in challenges for developers as they navigate different requirements and approval processes at both levels. The tension between federal ambition and state-level implementation presents a significant regulatory barrier to offshore wind development.

  • 5-3. Supply Chain Restrictions

  • The offshore wind industry in the U.S. is currently facing substantial supply chain restrictions that have impeded growth and development. Issues include rising costs of raw materials, such as steel, which increased by over 50% from January 2019 to the end of 2022. Higher inflation and interest rates further exacerbate these supply chain challenges, making financing more difficult and placing additional financial strain on developers. According to a BloombergNEF analysis, no bidders participated in the UK’s last offshore wind leases auction, illustrating the global supply chain constraints affecting project viability. Additionally, while over 20 gigawatts of projects are in permitting stages, the existing pipeline is heavily reliant on fixed-bottom technologies, with floating technologies still in developmental phases, particularly essential for the Gulf of Maine and Pacific coasts.

6. Current Challenges and Developments in the U.S. Offshore Wind Industry

  • 6-1. Projected Capacity Growth

  • The U.S. offshore wind industry is currently exhibiting a significant potential for growth, with state-mandated procurement driven by strong federal support and enhanced tax incentives. Following the first offshore wind farm, Block Island Wind Farm, which began operations in December 2016, offshore wind has gained momentum. The Biden administration has set ambitious targets of 30 gigawatts (GW) of offshore wind capacity and up to 15 GW of floating offshore wind capacity by 2030. As of early 2024, at least 10 states have announced procurement targets that encompass nearly 81 GW of cumulative capacity.

  • 6-2. State-Specific Initiatives and Targets

  • Currently, only 42 megawatts (MW) of offshore wind capacity are operational in the U.S.; however, there are over 20 GW of projects undergoing permitting and nearing final approvals. The East Coast states are particularly active, with more than 43 GW of offshore wind capacity at various stages of development. This showcases a robust commitment among states to bolster their offshore wind initiatives amidst ongoing challenges.

  • 6-3. Technological Innovations on the Horizon

  • Technological advancements are pivotal for the future of offshore wind in the U.S. While over 80% of the current development pipeline consists of fixed-bottom projects, the introduction of floating wind technologies is crucial for harnessing wind energy in deeper waters, particularly off the Gulf of Maine and Pacific coasts. These innovations could facilitate significant capacity expansion and further the country’s leadership in renewable energy.

Conclusion

  • The U.S. offshore wind sector is positioned at a pivotal junction, facing essential challenges that can shape its future trajectory. Rising costs, notably those recognized by Ørsted's project cancellations, underscore the financial and logistical hurdles prevalent across the industry. However, recent strides such as Vineyard Wind's expected full capacity of 800 MW and the operational success of the South Fork Wind Farm, illustrate the progress being made. These developments are bolstered by federal incentives, which, alongside ambitious state-level goals, create a promising environment for expansion. Addressing supply chain and regulatory constraints remains crucial, particularly pertaining to installation vessels and legal frameworks. Increasing turbine efficiency and advancing floating turbine technology present robust opportunities to redefine capacity capabilities, particularly in deeper waters like those off the Gulf of Maine and the Pacific coast. Ensuring these advancements are implemented effectively could enable the U.S. to meet its 30 GW offshore wind target by 2030 and secure a leading position in the global renewable energy sector.

Glossary

  • Ørsted [Company]: Ørsted is one of the world's leading offshore wind developers, recognized for its significant contributions to the offshore wind sector. The company has faced challenges, including project cancellations due to economic pressures, which highlight the broader issues facing the industry.
  • Vineyard Wind [Project]: Vineyard Wind is a critical offshore wind project located off the coast of Massachusetts, marking a significant step in the U.S. offshore wind development. It began operations in February 2024, with plans to scale to 800 MW, showcasing the potential for increased offshore wind capacity in the country.
  • South Fork Wind Farm [Project]: The South Fork Wind Farm is currently the largest operational offshore wind installation in the United States, with a capacity of around 130 MW. Its development represents a key milestone in the expansion of offshore wind energy along the U.S. East Coast.

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