President Joe Biden’s ambitious goal of developing 30 gigawatts of offshore wind by 2030 is under threat due to soaring costs, supply chain setbacks, and regulatory hurdles that have stymied developers and forced some to abandon contracts.
Combined, the conditions have created a perfect storm for developers in the United States, forcing a near-term existential crisis for the industry as government officials and industry leaders work to confront a cascading series of challenges, including poorly negotiated power purchase agreements, an underdeveloped offshore supply chain, and high project costs that have ballooned amid rising global demand and unanticipated global crises. [emphasis, links added]
For outside observers, this is a jarring setback for an administration that has put renewable energy at the center of its agenda.
But those who have spent years in the offshore wind industry have described the developments as a sort of car crash in slow motion, the result of years of underinvestment in offshore wind supply chains and long-delayed efforts to adjust power purchase agreements to account for the costs of the burgeoning industry better.
The 30 GW offshore target “is now, unfortunately, not something that the developers are really aspiring to,” Michael Brown, the North America manager for Ocean Winds, said at an industry event hosted by Reuters in July.
Others have widely echoed this assessment.
“We’re definitely not on the track that we’d hope or we’d think we’d be right now,” Kris Ohleth, executive director of the Special Initiative on Offshore Wind, told the Washington Examiner.
Below are some of the reasons why:
Rising costs, limited funding
Developers have pointed to financial constraints, inflation, and supply chain delays as the primary problems facing offshore wind.
Materials costs have soared due to limited supply and higher demand as countries around the world seek to build out their own offshore wind industries.
The investments needed to meet offshore demand are massive.
An August 2023 report from the consultancy Wood Mackenzie estimates that governments around the world (with the exception of China) would each need to invest roughly $100 billion in building out an offshore wind supply chain by 2026 in order to meet their 2030 offshore wind targets — or adding a total combined global capacity of 80 GW per year.
“We don’t think that’s feasible, to be frank,” said Soeren Lassen, the head of offshore wind at Wood Mackenzie.
A push for federal funding
The Biden administration has overseen billions of dollars in federal funding for offshore wind, primarily by way of the Inflation Reduction Act, which allocated a record $369 billion for clean and renewable energy growth.
Still, major developers are arguing it’s not nearly enough cash for the massive build-out, a shortfall they say threatens to crater projects in the near term unless the government [taxpayers] helps foot the bill for the higher costs and eases requirements for companies to qualify for certain tax credits offered under the Inflation Reduction Act.
In September, the governors of New Jersey, New York, Connecticut, Maryland, Massachusetts, and Rhode Island called on the Biden administration to boost federal support for offshore projects.
The leaders asked the administration to “utilize every federal tool available” to help prevent projects from going under, including establishing a pathway for developers to receive the Inflation Reduction Act’s 30% tax credit for offshore projects, as well as a bonus 10% credit available to developers who use U.S.-made materials.
“Without federal action, offshore wind deployment in the U.S. is at serious risk of stalling because states’ ratepayers may be unable to absorb these significant new costs alone,” the governors wrote. “Absent intervention, these near-term projects are increasingly at risk of failing.”
Orsted, a Danish company, warned this month that it could shutter its U.S. projects completely if it does not receive more federal support, including Inflation Reduction Act subsidies.
Just weeks prior, the company warned of impairments of up to $2.3 billion on its U.S. projects due to the higher costs.
“We are still upholding a real option to walk away,” Orsted CEO Mads Nipper told Bloomberg in an interview.
Read rest at Examiner
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