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Offshore wind faces more financial turbulence in 2024

The Biden administration is aiming to approve 16 offshore wind farms by 2025

Posted on January 10, 2024

The offshore wind industry is hoping for new momentum in 2024 to counter the broken contracts, canceled wind farms and missed targets characterizing its last 18 months.

While experts say the nascent industry is getting back on its feet after being thrashed by inflationary costs and an immature supply chain after the pandemic, the enormous scale of building a new U.S. renewable sector from scratch still poses significant challenges that could stall a key plank of President Joe Biden’s climate agenda.

“There is an adjustment going on in the industry that I read very clearly as we’re trying to build an industry for which we have no supply chain,” said Eric Hines, an engineering professor at Tufts University who studies the offshore wind industry. “Our demand has outstripped not only the U.S. supply chain but the global supply chain.”

The obstacles are coming to a head as Biden faces a tough election year and is aiming to prove his climate bona fides to needed voters on the left, some of whom have criticized the administration for not meeting 2020 campaign promises such as ending new oil drilling on public lands.

The Interior Department has 10 months to deliver on other White House offshore wind promises before Election Day, including pledges to approve 16 wind arrays by 2025 and hold lease sales in areas like the Gulf of Maine.

But optimism for the industry is growing as inflation eases and interest rates trend downward. Also, states have boosted enthusiasm by seeking contracts for a whopping 14 gigawatts of offshore wind power despite the harsh economic realities that have pushed up prices to build wind farms.

“I think the headlines are different for 2024,” said Theodore Paradise, an energy attorney at K&L Gates. “We’ve got better contracts, we’ve got better timelines, we’ve got a better sense of the supply chain.”

With the administration and industry set to make decisions in coming months that will drive the industry’s future, here are three issues to watch with offshore wind in 2024:

How close will Interior get to Biden’s offshore wind targets?

If the Bureau of Ocean Energy Management (BOEM) is going to meet the White House’s mandates for offshore wind, it will have to accelerate its pace in the months ahead.

Biden wants environmental reviews for 16 offshore wind projects completed by the end of his first term, according to an executive order in 2021. That represents roughly 19 GW of offshore wind power.

BOEM has so far completed six reviews for proposed wind farms, a process that is a major hurdle for building a project in U.S. waters. Those comprise Massachusetts’s Vineyard Wind, Rhode Island and Connecticut’s Revolution Wind, New Jersey’s Ocean Wind, New York’s Empire Wind 1 and 2, New York’s South Fork Wind, and the Coastal Virginia Offshore Wind project.

However, one of those approvals is moot. Ocean Wind developer Ørsted canceled the project in October due to economic headwinds.

Empire Wind 2, which was approved by BOEM in November, has also flagged serious concerns with its viability due to inflation and supply chain issues. Developers BP and Equinor on Wednesday canceled Empire Wind 2’s contract with New York, though its developers have stressed that the project is still live, and they are seeking a better contract for its power.

Considering the pace of approvals, many analysts say Biden’s goal of reaching 30 GW of offshore wind by the end of the decade is out of reach. Wood Mackenzie, a research and consultancy firm, is forecasting around 15 GW installed by 2030.

Vetting multiple massive offshore wind projects at rapid speed is a new role for BOEM. The agency has about a decade’s experience in advancing the industry through holding lease sales, conducting research and reviewing environmental impacts of proposed projects. But its first full project approval wasn’t until 2021 with Vineyard Wind. Now it’s expected to clear multiple projects at a time.

“There’s a difference between moving one lease area or one project forward, versus what they’ve got right now: scaling the whole operation,” said Catherine Bowes, senior director of strategy and advocacy at the offshore wind group Turn Forward.

“I’m optimistic that they’ll be successful, but it’s certainly not out of the woods,” she said.

BOEM did not comment on this story before publication.

To facilitate an offshore wind boom, BOEM’s staff has grown significantly since the Biden administration took office. It’s hired dozens of new employees, and Congress has obliged its requests for millions more in funding for the Office of Renewable Energy Programs, which handles offshore wind.

The bureau is working this year on potentially holding new lease sales in the Gulf of Maine and two other areas of the U.S.: off the coast of Oregon and in the central Atlantic. Two of the three sales face unique pushback at the local level, and all three require extensive planning in the Interior Department.

In Maine, lobster fishermen have mounted an opposition to offshore wind development, and in Oregon pro-renewables state leaders like Sen. Ron Wyden, a Democrat, have at times expressed concerns about offshore wind being advanced without enough study of its impacts to the Pacific environment.

Will the economic pressure relent?

Ripple effects from offshore wind’s 2023 financial troubles are continuing this year — at least so far.

The day after BP and Equinor’s Wednesday announcement that they would cancel the Empire Wind 2 contract in New York, Seatrium — the construction firm contracted to build Empire Wind 2’s $250 million substation — said its deal was also canceled.

The company blamed the “significant macroeconomic conditions” affecting the Empire Wind project.

Additionally, the manufacturer that was contracted to build Empire Wind 2’s turbine foundations, Sif, announced last week that its contract was canceled.

But analysts say the outlook for offshore wind could already be improving.

“We’ve likely hit a peak on interest rates, and with inflation slowing, that should in theory take stress off project financing,” said Stephen Maldonado, a research analyst for North America wind at Wood Mackenzie.

Maldonado noted that states are also increasingly including inflation protections in their offshore wind contract offers, which addresses “one of the killers for recent project cancelation.”

Hines with Tufts said that offshore wind is likely to be more expensive for a time, a natural outcome of the sudden spike in demand versus the limited supply chain for building offshore wind in the U.S.

“I think in 2024, there are a lot of people who are eagerly awaiting, and perhaps even on tenterhooks, awaiting, what are the prices going to be?” Hines said. “This is going to play itself out this year. And we will not know how it’s going to play itself out until it does.”

New York, Massachusetts and New Jersey are among the states seeking new offshore wind projects and putting protective measures in their contracts, such as allowing inflation adjustments to contracted prices, to mitigate financial uncertainty.

“We’re confident in the future of the offshore wind industry in Massachusetts,” said Lauren Diggin, spokesperson for the Massachusetts Department of Energy Resources.

Diggin said the Vineyard Wind project off the coast of Martha’s Vineyard that sent its first power to the grid last week “shows this can be done, and our solicitation lays the groundwork to get more projects up and running.”

Additionally, Massachusetts, Connecticut and Rhode Island announced last year a tri-state procurement process that will be selected in 2024. The agreement is an incredible shift in thinking for offshore wind development across state lines, said Paradise, the attorney.

Regional planning has long been viewed as the next phase in maturing the offshore wind industry in the U.S., because it can drive down the cost of building projects and connecting them to the grid by boosting regional transmission planning and grid upgrades.

Can the supply chain grow up?

The U.S. offshore wind supply chain reached a turning point in 2023 — there weren’t enough businesses ready to build offshore wind farms, prices were high and projects were competing for limited supplies.

Ørsted’s Ocean Wind projects in New Jersey were canceled — the only fully canceled projects in the U.S. due to the economic conditions so far — in part due to the lack of vessels available to install turbines offshore, according to company executives. A delay in securing a vessel meant redoing existing construction contracts at much higher costs, the company said in November.

“It’s a bit contradictory,” said Hines, adding, “If you want a supply chain, you must demonstrate that there is enough of an industry and demand to support that supply chain. But if you create the demand, and now you have deadlines, and you can’t make those deadlines because you don’t have a supply chain, then that means local demand was created without an appropriate foundation of investment behind it.”

A National Renewable Energy Laboratory study Hines contributed to in 2023 found that to reach 30 GW of offshore wind by 2030 requires $22 billion in supply chain investment. That would represent an explosion of vessel construction, blade manufacturing plans, foundation construction and cable facilities. But the nation is nowhere near that level of public and private investment, experts said.

There are just two facilities in the U.S. building the primary component parts for offshore wind — Nexans’ cable facility in South Carolina and a monopile factory in Paulsboro, New Jersey — said Sam Salustro, vice president of strategic communications at the Oceantic Network.

“We have a lot on paper. Those are the only two that have, frankly, even broken ground,” he said.

In a catch-22, the offshore wind industry’s challenging year sapped investment into the supply chain as well, blunting its growth when it’s most needed, Salustro noted.

The U.S. is at a disadvantage in securing the supply chain business that offshore wind needs compared to other markets globally, he said. Though the 2023 economic challenges witnessed in the U.S. were also felt in more mature global markets, Salustro said Europe’s maturity as an offshore wind developer meant it likely fared the downturn better.

More than ever, the U.S. is playing catch-up at a critical period of the offshore wind industry’s construction. In 2024, the largest offshore wind project approved so far, Dominion Energy’s Coastal Virginia Offshore Wind project, is beginning construction.

“We’ve always been anxious that we need to build up the U.S. supply chain as much as possible,” Salustro said. “It’s doubly imperative that we’re making the most of this time period to get the investments, the manufacturing in the ground, the shipbuilding in the ground, to build the ports we need.”


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