ARKANSAS, Sept 11 (Future Headlines)- The United States, with its vast coastal regions and strong wind resources, has immense potential to harness offshore wind energy as part of its efforts to transition towards clean and sustainable power sources. President Joe Biden’s administration has set ambitious targets, aiming to have 30 gigawatts (GW) of offshore wind capacity installed by 2030. This bold initiative not only aligns with decarbonizing the power sector but also seeks to revitalize domestic manufacturing and create green jobs. While these goals are commendable, the U.S. offshore wind industry faces a myriad of challenges, including inflation, supply bottlenecks, and fluctuating financing costs.
Despite its enormous potential, the U.S. currently lacks large-scale commercial wind farms in operation. However, significant progress has been made in recent years. The federal government has approved several large-scale offshore wind projects, signaling a growing commitment to renewable energy sources. Among these projects, Vineyard Wind 1 and South Fork are expected to deliver their first power by the end of this year. Moreover, over two dozen power offtake contracts, totaling more than 17 GW, had been signed as of May, according to a U.S. Department of Energy (DOE) report published in August. This signifies a strong commitment from various stakeholders to invest in offshore wind.
- Challenges in the U.S. offshore wind industry
While the offshore wind industry in the U.S. is gaining momentum, it is not without its share of challenges. Several factors are impacting the profitability and feasibility of these projects. The global economy has witnessed inflationary pressures that have affected the cost of materials and labor. Inflation, in combination with other factors, has eroded the profitability of many offshore wind projects. This phenomenon has prompted some developers to cancel offtake agreements due to unfavorable economics. In addition, supply chain disruptions have become a prevalent issue in the wake of the COVID-19 pandemic. Delays in the procurement of critical components, such as wind turbines and substructures, have led to project setbacks and increased costs. Fluctuations in financing costs have impacted the financial viability of offshore wind projects. Higher interest rates can significantly increase the overall project cost, potentially rendering some projects unfeasible. Developers are urging officials to ease requirements for subsidies under the year-old Inflation Reduction Act. Changes in subsidies can have a direct impact on the economic feasibility of offshore wind projects.
- Cost considerations
Understanding the cost dynamics of offshore wind projects is crucial for assessing their economic feasibility. The levelized cost of energy (LCOE) is a key metric used to compare the competitiveness of different energy sources. In the U.S., the LCOE for offshore windfalls within a range of $72 to $140 per megawatt-hour (MWh), as analyzed by investment bank Lazard in April. To put this in context, utility-scale solar energy ranges from $24 to $96 per MWh, onshore wind costs approximately $24 per MWh, and combined cycle gas falls between $39 to $101 per MWh.
- The impact of electricity prices
Electricity prices also play a significant role in evaluating the attractiveness of offshore wind projects. In 2022, wholesale electricity prices averaged around $92 in New England, $90 in New York, and $83 in the PJM West Hub, which encompasses western Pennsylvania to Washington, D.C. These prices provide a reference point for understanding the competitiveness of offshore wind in relation to conventional energy sources.
- Major U.S. offshore wind projects
To gain a deeper understanding of the landscape, let’s explore some of the major offshore wind projects currently in development:
Vineyard Wind 1: An 800-MW project off the coast of Martha’s Vineyard, expected to commence operations by the end of this year, supplying clean energy to 400,000 homes.
South Fork: A 132-MW project off Rhode Island and Massachusetts, aiming for full capacity by the end of this year, capable of powering 70,000 homes in 2024.
Ocean Wind 1&2: A project off southern New Jersey, with the first stage, Ocean Wind 1, potentially commissioning in 2026. The second stage, Ocean Wind 2, is expected to start operations in 2029.
Revolution Wind: A 704-MW project owned by Orsted and Eversource Energy, delivering power to Rhode Island and Connecticut from 2025-2026.
Coastal Virginia Offshore Wind (CVOW): A 2,600-MW project owned by Dominion Energy, scheduled to begin construction in 2024 off the coast of Virginia Beach.
Sunrise Wind: The 924-MW Sunrise Wind 1 project aims to start operations in 2025-2026, pending price adjustments.
Empire Wind 1&2: Two projects south of Long Island owned by Equinor and BP, potentially starting operations in 2027-2028, pending price adjustments.
Beacon Wind 1: Owned by Equinor and BP, the 1,230-MW project off Montauk Point seeks price adjustments and is expected to commence operations in 2028-2029.
Southcoast Wind: Previously known as Mayflower Wind, this project off Massachusetts faces potential delays as owners Shell and Ocean Winds canceled power purchase agreements.
Commonwealth Wind: The 1,232-MW project off Massachusetts is also at risk of delays due to price adjustments.
Park City Wind: Avangrid owns this 800-MW project off Massachusetts, working on addressing the economic viability of previously signed power purchase agreements.
Atlantic Shores Offshore Wind South: A joint venture between Shell and EDF, planning to construct a 1,510-MW capacity stage in 2024.
Marwin: Maryland’s first offshore wind project, a 270-MW endeavor by US Wind, is expected to start operations in 2025-2026.
Momentum Wind: Another project by US Wind, the 808-MW Momentum Wind off Maryland, aims for operations in 2026-2028.
Skipjack 1&2: Owned by Orsted, the Skipjack project off Maryland consists of two parts, with the first, 120-MW, aiming for operations in 2026-2027, and the second, 846-MW, following a year later.
The U.S. offshore wind industry is at a pivotal juncture, with ambitious goals but also a host of challenges. Inflation, supply bottlenecks, financing costs, and price adjustments have all played a role in shaping the industry’s landscape. As the nation strives to achieve its renewable energy targets, stakeholders must address these challenges while ensuring the economic viability of offshore wind projects. The successful development of these projects not only contributes to decarbonizing the power sector but also fosters economic growth and job creation.
Writing by Kevin Wood; Editing by Sarah White