US offshore wind WTIV construction race heats up

New York-listed Eneti says it plans to commission a Jones Act-compliant wind turbine installation vessel (WTIV), the latest expression of confidence in the nascent US offshore wind industry and the Biden administration's plans for an American energy transition.

Eneti, formerly known as Scorpio Bulkers, became the third prospective owner of a US-flagged WTIV to make its plans public, although sources say talks are progressing for as many as five such vessels, of which there are none in operation at the moment.

In March, the Biden administration announced plans to build 30 GW of US offshore wind capacity by 2030, equivalent to a 1,000-fold expansion of current commercial capacity of 30 MW.

This announcement provided assurance to prospective WTIV owners, said IHS Markit analyst Catherine MacFarlane, that the American market was finally gathering a head of steam after years of lagging its European and Asian counterparts.

And Eneti, which previously focused on the dry bulk shipping sector, said 11 May it is in talks with "several" American shipyards to build a WTIV -- vessels that have a large deck, legs that allow the vessel to lift out of the water, and a tall crane to lift and place turbines -- that would meet Jones Act rules. The company didn't divulge which shipyards it is talking to.

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 because of Section 9503 of the $740.5 billion National Defense Authorization Act for Fiscal Year 2021.

Eneti sees this as an opportunity, despite the substantial cost involved. "The growing calls for a safe, efficient, American-constructed and American-operated asset have been clear and loud. We are intent on providing a state-of-the-art solution to our customers so that they can comply with the Jones Act as they bring renewable energy to the US consumer," CEO Emanuele Lauro said in the statement announcing the company's plans.

Lauro said during an investor call 13 May that he expected Eneti's US WTIV to provide a significant return to the company's investors. Lauro emphasized how attractive the US East Coast's offshore wind growth prospects and power demand requirements were during the call.

In addition, discussions with US-based industry stakeholders exposed a preference for Jones Act-compliant WTIVs over foreign-flagged vessels, for which supply is set to be tight later this decade, Chief Operating Officer Cameron Mackey said during the same call.

Eneti's announcement, according to American Clean Power Association Senior Director of Policy and Regulatory Affairs for Offshore Wind Laura Morton, "is a signal of growing confidence in America's offshore wind market, which represents up to 83,000 jobs and $25 billion in annual economic investment by the end of this decade. With certainty that projects are moving forward, companies can increase investments to build this brand-new source of clean energy for the US."

Chasing Charybdis

But Eneti and any of the other companies who may build a Jones Act-compliant WTIV and compete for business are all chasing Richmond, Virginia-based Dominion Energy.

Dominion was first on the board with a May 2020 announcement it would build its own $500-million, Jones Act-compliant WTIV. In the second half of December, Dominion said keel laying was underway at Keppel AmFELS' Brownsville, Texas, shipyard.

Dominion said the vessel -- the Charybdis -- is designed to handle current turbine technologies as well as next generation turbines of 12 MW 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.

Dominion initially intends to use the Charybdis to build the 2.64-GW Coastal Virginia Offshore Wind (CVOW) project, the largest offshore wind farm announced so far in the US. Construction on the CVOW project is scheduled to begin in 2024 and finish in 2026, according to Dominion.

As a result of Dominion keeping the Charybdis for its own use initially, other companies are seeing an opportunity. The same day Dominion provided its keel update saw Lloyd's Register North America announce it had teamed up with Ohio-based Northeast Technical Services Co. to design and develop a Jones Act-compliant WTIV.

The vessel 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. However, the companies have not said any more publicly about their plans since and did not respond to requests for comment this week.

Higher cost

Jones Act-compliant vessels carry additional risk and costs, according to IHS Markit's MacFarlane. The same day Eneti announced plans for its vessel, the company said it had inked a binding agreement with Daewoo Shipbuilding and Marine Engineering for the construction of another WTIV, of a similar size to the Charybdis, but it has a price tag of just $330 million.

And questions remain for such pricey investments, according to a US-based lawyer. "The Biden administration has signaled that it is a strong supporter of the Jones Act. That said, the administration granted a waiver for the Vineyard Wind project because there are no Jones Act-compliant WTIVs in existence currently," Jocelyn Knoll, a partner at global law firm Dorsey & Whitney, told IHS Markit.

"The real question is whether the waiver will be a permanent waiver for other offshore wind projects in the US," said Knoll, who is chair of Dorsey & Whitney's Construction and Design Practice Group. "The offshore wind farm developers would like a permanent waiver to keep their costs down."

But the era in which turbine size has increased massively is coming to an end, which will provide a much clearer idea of the risk involved in building a WTIV, and therefore developers can have greater reassurance about paying back their funding, said MacFarlane.

"Everybody needs a lot of assurances," she said.

The US market doesn't exist in a bubble. According to IHS Markit, the global WTIV fleet consists of 49 units, owned by 27 companies across 11 countries, although more than 65% of these units are located in mainland China. Of the global supply of WTIVs outside mainland China, 80% are based in five European countries around the North Sea, wrote Andrei Utkin, IHS Markit principal research analyst, in an April report.

Although six new non-China vessels are expected to get online by 2023, the global fleet will still experience difficulties to cover the global demand in 2026−27 and will most certainly fail to do so post-2028, according to Utkin. The industry will have to invest $1.2-$2.0 billion in at least four new vessels to meet the global demand outside mainland China, he added.

Alternatives and opportunities

One alternative to a Jones Act-compliant WTIV is a waiver for the vessel. Under the waiver, the foreign-flagged WTIV cannot enter a US port, requiring a feeder vessel to bring parts from the port to the non-Jones Act-compliant WTIV — the path taken by the 800-MW Vineyard Wind project, which earlier this week received its final approval, a record of decision from the US Bureau of Ocean Energy Management.

The feeder vessel path is attracting companies that want to provide options, and they argue, efficiencies, in the offshore service vessel field. In the past couple of months, motion compensation options -- which seek to keep decks of vessels supporting WTIVs steady -- have been gathering pace.

In April, Dutch company Ampelmann and C-Job Naval Architects said they had joined forces to develop a feeder vessel concept with motion compensation technology for the US market. Separately, on 25 April, Huisman said it was developing a Jones Act-compliant solution for wind turbine component supply in US waters using a motion compensated platform.

Posted 13 May 2021 by Keiron Greenhalgh, Senior Editor