Jones Act quandary fails to slow US offshore wind momentum

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.

Posted 08 January 2021 by Keiron Greenhalgh, Senior Editor