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US offshore wind to grow rapidly, but likely fall short of 2030 target: IHS Markit
28 July 2021Andrei Utkin
Bottlenecks in the permitting and supply chain market and a
crucial lack of infrastructure mean that US President Joe Biden's
optimistic offshore wind target of 30 GW by 2030 will almost
certainly be missed, despite the surge in activity in the industry
this year, says a new report from IHS Markit's Clean Energy Technology
Service.
IHS Markit expects US offshore wind installed capacity to reach
21 GW by 2030, up from just 42 MW at present, resulting from more
than $100 billion investment in the industry in the next nine
years. This would represent growth in the US share of the global
total installed offshore wind capacity, from close to 0% to around
9% in 2030.
Numerous factors are driving this growth, including an increase
in state-level policy commitments, federal lease sales, offtake
agreements, and a buildout of the offshore wind supply chain.
However, complex and lengthy permitting processes, combined with
a lack of manufacturing facilities, specialized US-flagged
installation and service vessels, dedicated ports, and poor power
transmission infrastructure continue to present bottlenecks (see
articles here and here). The impact of the
COVID-19 pandemic has been a further impediment, with
administrative processes delayed.
Delays are also expected for US offshore wind projects due to
the US Bureau of Ocean Energy Management's (BOEM) lengthy
investigation of impacts of construction. However, as the industry
matures the federal permitting process may improve.
BOEM has been active in recent months. The agency issued on 30
June a Notice of Intent to proceed with an environmental impact
study (EIS) for one part of the Vineyard Wind Project off the
coast of Massachusetts (Park City Wind, 804-MW), and then on 1 July
BOEM starting an EIS for Dominion Energy's proposed Coastal
Virginia Offshore Wind, potentially reaching 3,000-MW capacity.
On 28 July, BOEM announced two areas for
new wind power off California's coast. One is a Call for
Information and Nominations for two areas within a 399-square-mile
area located off central California, identified as the
Morro Bay Call Area East and West Extensions. The other is a
formal designation of the Humboldt Wind Energy Area offshore
northern California, for which it will proceed with an
environmental review as a prelude to possible leasing.
Positive signs can be seen at the state level as well. On 30
June the New Jersey Board of Public Utilities voted to award two
offshore wind projects with a total combined capacity of 2,658 MW,
which it said marks the largest single procurement of offshore wind
in the US.
Attractive benefits, despite high costs
Costs for offshore wind remain high compared to other
carbon-free generation resources. Current unsubsidized costs for
bottom-fixed and floating offshore wind projects are estimated at
$125 per MWh and $225 per MWh, respectively, well above wholesale
electricity prices and costs for both onshore wind and solar
PV.
While costs are expected to decline sharply in the coming
decades, offshore wind will remain a relatively expensive resource
to develop. But offshore wind has benefits that are nonetheless
driving investment.
Looking beyond the levelized cost of electricity (LCOE),
offshore wind offers alternative benefits over less-expensive
onshore wind and solar PV, including higher capacity factors and
greater capacity value. Onshore wind and solar PV are increasingly
constrained by availability of land, particularly in the US
Northeast and Mid-Atlantic.
Moreover, offshore wind projects are located close to load
centers, generating large volumes of clean electricity for major
coastal cities
Government investment lays path for
growth
The Biden Administration's 2030 target aims to significantly
promote the buildout of the domestic offshore wind fleet, drive
capital investments, and create jobs. The administration aims to
speed up project permits, including environmental reviews, and
provide $3 billion in public financing for offshore wind projects
through the Department of Energy.
Investment of more than $500 million is planned for port
upgrades, including reinforcing and modernizing port infrastructure
and supporting shore-side wind energy activities such as storage
areas, laydown areas, and docking of wind energy vessels to load
and move items to offshore wind farms. The sector will be further
bolstered by plans to build four to six new wind turbine
installation vessels in US shipyards, each representing an
investment of between $250-$500 million.
Additionally, the 30% investment tax credit (ITC) extension
enacted in June will provide a major boost for projects that start
construction by the end of 2025 and come online as late as
2035.
Vast investment opportunities
Due to the lack of established offshore wind supply chain in the
country, turbine components for the first commercial projects will
be mainly sourced from mature European markets until original
equipment manufacturers open US manufacturing facilities.
Pioneering units will be installed by European installation vessels
with the support of Jones Act-compliant US feeder vessels.
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
applies to offshore wind facilities, thanks to a bill that was
passed last year and survived a veto by President Trump. While
advocates say the Jones Act will help build US ship-building
industries, opponents say it stifles competition and leaves gaps in
critical service, such as offshore wind installation ships.
Regardless of the impact of the Jones Act, the offshore wind
sector offers a multitude of attractive investment opportunities
into dedicated supply chain, manufacturing and port facilities,
transmission grids, as well as installation and service
vessels.
At least $2.5 billion in investments
have so far been announced in a variety of offshore wind projects.
These include infrastructure upgrades, ports and factories for
foundations, towers, blades, and cables. These also include the
first offshore wind nacelle assembly facility by GE Renewables that
will assemble nacelles for the 1,148-MW Ocean Wind 2 project off
the coast of New Jersey.