Posted on May 2, 2023
To address offshore wind challenges, the US government is incentivising investments in offshore wind technologies and the supply chain, writes Intelatus Global Partners director of research, Philip Lewis.
A number of recent actions in the US will better position the nation to meet its short- and long-term offshore wind energy targets, as outlined in the April 2023 US Offshore Wind Report from Intelatus Global Partners.
In April came the news that the US federal government is seeking to accelerate and incentivise investment in offshore wind technologies and the supply chain, whether it be for bottom-fixed or floating wind projects, for the transmission of large amounts of electricity from offshore to an onshore grid that was not designed with this scenario in mind, or for the development of electron storage (battery energy storage systems) or Power-to-X solutions through the production of hydrogen-based low- and zero-emission fuels. For example, funding is already being rolled out for developing industrialised manufacturing solutions for nine floating wind substructure technologies. This support builds on the approach of the Inflation Reduction Act and creates increased confidence that the US will address the significant challenges that remain in deploying 30 GW of offshore wind by 2030, 15 GW of floating wind by 2035 and 110 GW of offshore wind by 2050.
Wind electricity procured by states
While the federal government creates the conditions for offshore wind capacity development, projects still need to market their power. Till now, US wind electricity procurement has been solely led by the states. The states have employed two distinct purchase models: 1) competitive bidding of a fixed rate contractual instrument (offshore wind renewable energy certificates (OREC) in Maryland and New Jersey and power purchase agreements (PPA) in Connecticut, Rhode Island, and Massachusetts); and 2) an indexed OREC, which is a type of two-side contract for difference (New York). What we have yet to see are floating-rate merchant PPAs, market-based agreements between private buyers and the windfarm operator, like several transactions executed in Europe and Taiwan.
In March, Rhode Island confirmed that it had only received a single bid, from Ørsted for the 884 MW Revolution Wind 2 project, in response to is latest request for offers. Maryland Governor Wes Moore signed legislation in April putting the state’s offshore wind deployment target at 8.5 GW by 2031. The state previously set a goal of 2 GW of offshore wind. The legislation is also intended to modernise the grid in the state to handle more electricity generated offshore.
Given recent developments, North and Mid-Atlantic States have booked around 17.5 GW of offshore wind offtakes, plan an additional 16 GW of offtakes in the short- to mid-term and have identified as much as a further 26.5 GW of longer-term capacity goals.
South Atlantic states have identified 8 GW of long-term goals to date, and the Gulf of Mexico is studying at least 5 GW and the Pacific states are evaluating goals amounting to 30 GW.
In a positive sign in the vessel-building segment, orders for three to five newbuilding crew transfer vessels (CTV) were identified in March. As a result of this activity, the US CTV fleet will move from three active vessels today to at least 20 by 2025 and more than 25 if all options are exercised; 10 of these CTVs are expected to be delivered within 2023.
Philip Lewis (Intelatus Global Partners): “Concerns remain about escalating project costs and a federal permitting timeline” (source: Riviera Maritime Media)
Despite the positive foundations, concerns remain about escalating project costs and a federal permitting timeline which is not expected to green light new capacity until September of this year. Federal authorities anticipate permitting over 14 GW in the first six months from September, which will have a significant impact on the supply chain. Despite building domestic turbine, foundation and cable manufacturing capacity, 14 GW of projects will not all be supplied from US factories. Further, the installation of these projects relies heavily on foreign flag vessels. Those developers without capacity reservation agreements will find themselves competing with an increasingly active European and Asian market for assets.
110 GW by 2050
According to the Intelatus Global Partners forecast, more than 70 projects will install over 77 GW of capacity in this and the next decade and a total 110 GW by 2050. The 77 GW forecast capacity will require capital expenditure amounting to over US$240Bn to bring onstream, a recurring annual operations and maintenance spend of around US$11Bn once delivered, and close to US$35Bn of decommissioning expenditure at the end of commercial operations.
Two major OCS projects, with around 940 MW of capacity, have been permitted, taken a final investment decision (FID) and moving forward with offshore construction.
The number of projects that are expected to make a FID within the next 18 months is 14, amounting to around 14 GW of capacity.
A further six projects, with a capacity of close to 3 GW, are expected to make a FID within 18-36 months, as well as an additional 14 projects for over 15 GW in 36-60 months.
Longer term, we have identified 35 projects with a total capacity of close to 45 GW, which support the installation of a cumulative 75 GW by 2035 and over 80 GW by 2040.