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A US maritime law marked a century on the books by getting its
hooks into an offshore wind industry barely out of the starting
blocks in the final month of last year, but cost-related and
logistical strictures and questions are failing to scare off
developers.
Interpretations of the protectionist Jones Act of 1920,
including which flags will be flown by vessels servicing coming
offshore wind facilities under construction, and a shortage of
domestic options for the largest ships involved, are also spurring
investment and innovation.
The Jones Act requires goods shipped between US ports to be
transported on ships that are built, owned, and operated by US
citizens or permanent residents.
It now applies to offshore wind facilities because Section 9503
of the $740.5 billion National Defense Authorization Act for Fiscal
Year 2021 says it does. The bill passed the Senate by a margin of
84-13 on 11 December, and both chambers had enough late December
votes to override a veto by President Donald Trump on non-energy
industry-related bellyaching.
The question of whether use of a Jones Act-compliant wind
turbine installation vessel (WTIV) would be required gained more
prominence in recent months, with the US Government Accountability
Office (GAO) issuing a report on the
delicate balancing act required as the promise of investment and
well-paid jobs beckons. There are currently no Jones Act-compliant
vessels capable of serving as a WTIV.
But the siren that is first-mover advantage is now calling to
more than just utilities eyeing the ramping up of construction come
2022 and especially 2023.
Dominion Energy was first on the board with a May 2020
announcement that it would build its own Jones Act-compliant WTIV
— such vessels have a large deck, legs that allow the vessel to
lift out of the water, and a tall crane to lift and place turbines.
As the second half of December began, Dominion said keel laying was
underway at Keppel AmFELS' Brownsville, Texas, shipyard. Dominion
said the vessel is designed to handle current turbine technologies
as well as next generation turbines of 12MW or more and will also
be capable of installing foundations for turbines and other heavy
lifts. The vessel is expected to enter service in 2023.
The same day Dominion provided its keel update also saw Lloyd's
Register North America (LR) announce it had teamed up with
Ohio-based Northeast Technical Services Co. (NETSCo) to design and
develop a Jones Act-compliant WTIV. The project will focus on
servicing US Atlantic Coast and Great Lakes offshore wind
developments, they said, adding that the plan was to adhere to a
hull shape familiar to US shipyards.
"The lack of Jones Act-qualified compliant [WTIVs] has become a
major challenge for offshore wind turbine developers. …This
collaboration was a cumulation of efforts to better support the
offshore wind turbine market with a Jones Act-qualified vessel
alternative, as well as offering conversion options for vessels
that have been dry-docked during this economic downturn," Jan
Flores, NETSCo vice president, said in a statement. Flores did not
respond to IHS Markit inquiries on the timeline and funding for the
project.
Those announcements came days after the GAO released its study
of the quandary many interested parties find themselves pondering:
how strictly will US Customs and Border Protection (CBP) enforce
the Jones Act when it comes to offshore wind infrastructure
construction?
The CBP has received a number of inquiries from developers and
their representatives as to its intentions, according to observers
IHS Markit spoke to, and has yet to respond, but sentiment that its
position won't make too much of a difference is growing.
Claire Richer, federal affairs director at the American Wind
Energy Association, which was rolled into the American Clean Power
Association effective 1 January 2021, does not expect the Jones Act
to slow the construction efforts, although she noted it was hard to
say how things would work out exactly.
The uncertainty is decreasing, according to Charlie Papavizas, a
maritime partner at Winston & Strawn LLC, who said he does not
expect the Jones Act to slow the sector's development. The sector
will become proficient in figuring out workarounds if need be, he
added.
Which flag?
Stakeholders told the GAO there were two possible approaches to
installing offshore wind projects in the US. Either approach may
lead to the construction of new vessels that comply with the Jones
Act. Under one approach, a Jones Act-compliant WTIV would carry
components from a US port to the worksite and also install the
turbines. The other would involve a foreign-flagged WTIV and Jones
Act-compliant feeder vessels.
The types of vessels that will be required by a project,
according to the GAO, are: survey vessels; a foundation
installation vessel, which can be a heavy-lift floating crane and a
jack-up vessel; a scour protection vessel; a cable-laying vessel,
which could be a barge that may need to be retrofitted; a WTIV; and
feeder vessels.
IHS Markit tracks the WTIV market globally, and in November
released its second report of 2020 on the current state of play.
IHS Markit expects WTIV vessel day demand from North America to
take off in 2023 on the back of the possible construction of wind
farms currently in various consenting stages.
The commercial models for booking WTIVs will be similar to those
common in the existing offshore heavy-lift market segment, with
several of the units with track records in offshore wind falling
into the heavy-lift category already, according to the latest
report, which observed that both lump-sum and cost-reimbursable
commercial models are used in the offshore heavy-lift market
segment.
The IHS Markit graphic below lays out the different types of
WTIVs:
For comparison with the above vessels, the largest Jones
Act-compliant jack-up vessel in the US is currently the
Robert, which has a 500 short ton (st) crane capacity and
15,403 square foot (sq ft) clear deck area.
The US' only operational offshore wind farm, the 30-MW Block
Island facility in waters off Rhode Island, used the Brave
Tern, a Maltese flagged vessel. It has an 882 st crane
capacity and a 34,445 sq ft clear deck area. When installing two
turbines for a demonstration project off the coast of Virginia,
Dominion used the Vole au Vent, which has a crane capacity
of 1,654 st and a clear deck area of 38,050 sq ft.
GAO says there are 50 WTIVs globally that could install turbines
such as the Block Island 6-MW turbines, but turbines are getting
bigger and bigger, limiting the amount of capacity to install such
turbines even further. That said, some existing vessels could be
upgraded, it added.
The opportunities are significant, said Aaron Smith, Offshore
Marine Service Association CEO. The race to build US offshore wind
facilities is a "generational market" for maritime and other
industries, Smith said. He said the US maritime industry can cope
and adapt provided there is predictability, that the feeder vessel
model is workable and that the Jones Act will be not an
impediment.
GAO's report identified multiple challenges associated with
constructing and using Jones Act-compliant vessels for offshore
wind installation. The stakeholders told GAO obtaining investments
in Jones Act-compliant WTIVs—which may cost up to $500
million—has been challenging, in part due to uncertainty about
the timing of federal approval for projects.
That uncertainty was not helped 15 December when the US Bureau
of Ocean Energy Management (BOEM) ended its review of the project
currently furthest along the path to construction, the Avangrid
Renewables-led 800-MW Vineyard Wind facility to be built in waters
off the coast of Massachusetts. The end of the review came after
Vineyard temporarily withdrew its construction and operations plan
earlier in December in order to carry out a revamp, after deciding
to use GE's 13-MW Haliade-X turbine, which is bigger than its prior
choice.
Observers say the decision came with the caveat that any BOEM
progress on the project would come after the Biden administration
takes control. Biden has promised to put climate change and
renewable energy development to aid that fight at the heart of his
administration's efforts.
However, it did mean that all the other projects queued up
behind Vineyard for BOEM's pleasure would have to wait ahead of the
Biden administration's debut.
Falling costs
While these difficulties remain, costs are dropping. From 2010
to 2018, the global weighted average levelized cost of electricity
(LCOE) of offshore wind decreased from 16 cents/kWh to 13
cents/kWh, according to the International Renewable Energy
Agency.
The non-governmental agency expects LCOEs to continue to fall to
an average between 5 cents/kWh and 9 cents/kWh by 2030 and between
3 cents/kWh and 7 cents/kWh by 2050. In 2018, average installed
costs were $4,353/kW and are expected to fall to between $1,700/kW
and $3,200/kW by 2030 and between $1,400/kW and $2,800/kW by
2050.
But using Jones Act-compliant vessels for offshore wind projects
in the United States would likely cost more than using foreign
flagged vessels, as Jones Act-compliant vessels are generally more
expensive to build and operate, GAO said in an 8 December letter to
the lawmakers who asked it to carry out the study.
US offshore wind developers do have an alternative solution,
according to Richard Sanchez, senior marine analyst, IHS Markit.
"The fastest and most cost-effective solution would be to allow the
internationally-flagged fleet of WTIVs to compete for US wind
projects. The rest of the long-term maintenance and support could
be limited strictly to Jones Act vessels, because US shipyards do
have a robust capacity to build craft smaller than WTIVs," Sanchez
said. "The US shipyards might not have sufficient capacity and
expertise to build the WTIVs cost effectively. Similarly-sized
vessels supporting oil and gas are nearly always internationally
flagged."
"Allowing international WTIVs could be accomplished through a
number of avenues, but they are not easy. Congress could pass
legislation to amend the Jones Act to make an exception for large
offshore construction. The oil and gas industry routinely uses
internationally flagged construction vessels for the largest
offshore construction jobs. Under the new presidential
administration, [the CBP] could amend its letters of ruling.
Furthermore, with enough political will, Jones Act waivers could be
issued to WTIVs which best fit the project," said Sanchez.
And Winston & Strawn's Papavizas told IHS Markit another
benefit of using foreign flagged WTIVs would be that costs may be
lower than expected because the WTIVs would remain at the site of a
project and would not have to return to port to pick up more
foundations, towers, blades or nacelles.
Dominion may make its money back, according to Sanchez's IHS
Markit colleague Genevieve Wheeler Melvin, if it is the only Jones
Act-compliant WTIV operating in US offshore waters. However, the
global market is saturated, she said, and will remain so unless a
good number of vessels are scrapped. There are only eight
HL3-category WTIVs out there, according to Melvin. One is currently
under construction, but that will probably end up being used for
oil and gas projects in Asia, she said.
That said, an avalanche of Chinese offshore wind projects could
change the dynamics. The world's largest wind power market needs to
be installing 50GW of wind power a year through 2025, and 60GW a
year from 2026 onwards to meet China's September pledge to be
carbon neutral by 2060, Global Wind Energy Council Strategy
Director Feng Zhou said in November. At the end of the third
quarter of 2020, China's operational offshore wind capacity totaled
4.6GW, good for third in the global rankings table, according to
RenewableUK data.
The US barely figures in this table, but is prominent in the
rankings for projects announced. Here, according to the RenewableUK
data, it makes the top three, with the amount of capacity in the
works growing throughout 2020. The US capacity pipeline increased
10% to 17.8GW from 16.2GW at the start of the year, according to
the data.
Generally, waters off the coast of the US are considered state
waters up to 3 nautical miles offshore, and federal waters from 3
to 200 nautical miles offshore. The turbines for the Block Island
project were installed in state waters and, therefore, according to
BOEM, most of the project was not required to go through the
federal permitting.
Still, the developers of Block Island requested approval from
CBP on the extent to which planned vessel uses comply with the
Jones Act. The CBP said the developers' approach-which used some
vessels that were Jones Act compliant and some that were not-would
not violate the act. It later revoked the ruling because of
uncertainty about whether the project was in federal waters. And
this is where the uncertainty developers fear kicks in.
Momentum gathers
As of December, according to GAO, BOEM had issued 16 commercial
leases to offshore wind developers for projects in federal waters;
all are on the US Atlantic Coast. The projects have a combined
capacity of more than 21GW.
The number of applications and the stages they have reached is
building rapidly. Avangrid Renewables submitted a Construction and
Operations Plan to BOEM on 11 December for its 2.5-GW Kitty Hawk
Offshore Wind project off the coast of North Carolina. Kitty Hawk
would be built multiple phases between 2021 and 2030, according to
those plans.
Atlantic Shores Offshore Wind LLC, a 50-50 joint venture between
EDF Renewables North America and Shell New Energies US LLC, on 10
December submitted a proposal to the New Jersey Board of Public
Utilities to supply the state with up to 2.3GW of renewable wind
energy. New Jersey plans to award between 1.2GW and 2.4GW of
offshore wind energy projects as part of a second solicitation for
such capacity. Atlantic Shores estimates that its first project
would be completed as early as 2027.
And development of the onshore supply chain for offshore
facilities also ramped up in recent weeks. On November 12, Norway's
Equinor announced plans to locate what it said would the US' first
offshore wind tower manufacturing facility at the Port of Albany in
upstate New York.
But there are still worries about shipyard capacity. There are a
limited number of shipyards in the US with the capacity to
construct purpose-built WTIVs given their large size, according to
the GAO. In addition, one vessel owner and operator and one project
developer told GAO a lack of competition may increase the price to
vessel owners.
There is some government funding available through the Maritime
Administration (MARAD). The builder of the crew transfer vessel for
Block Island used MARAD's Capital Construction Fund program to help
finance its construction. MARAD officials added that while the
Federal Ship Financing Program has not been used to support WTIV
construction, the agency has talked to some industry participants
that indicated that they are likely to apply for such support, GAO
said.
Many US ports close to planned offshore wind projects,
particularly in New England, have limited ability to support
offshore wind vessels because they lack the necessary space or
infrastructure or are behind bridges that large WTIVs or jack-up
feeder vessels could not pass underneath, it said.
But as Papavizas and Smith noted, the appetite for innovation is
there, as is the inclination to play catch-up with the rest of the
world in this growing renewable energy sector.