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US offshore wind to grow rapidly, but likely fall short of 2030 target: IHS Markit

28 July 2021 Andrei 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.

Posted 28 July 2021 by Andrei Utkin, Senior Associate, Climate and Sustainability Group, IHS Markit

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