Why US Offshore Wind Is Struggling – The Good, the Bad, and the Opportunity

America’s first major offshore wind farms began beaming power to the Northeast in early 2024, but a wave of canceled wind projects and rising costs have left many questioning the industry’s future in the U.S.

Several major players, including Ørsted, Equinor, BP and Avangrid, have canceled or tried to renegotiate contracts in recent months. The withdrawals meant the companies had to pay cancellation penalties ranging from $16 million to several hundred million dollars per project. It also caused Siemens Energy, the world’s largest maker of offshore wind turbines, to expect financial losses of about $2.2 billion in 2024.

In total, the projects cancelled by the end of 2023 were expected to have a capacity of more than 12 gigawatts, which would be more than half of the capacity planned for implementation.

So what happened, and does the U.S. offshore wind industry have a chance of rebirth?

I direct the Center for Wind Energy Science Technology and Research at UMass Lowell, WindSTAR and the Center for Energy Innovation, and I follow the industry closely. The problems facing offshore wind are complicated, but it is far from dead in the U.S., and some policy changes could help it find a firmer footing.

The Cascade of Challenges of a Long Approval Process

Obtaining permits and approvals for offshore wind projects in the U.S. takes years and involves more uncertainty for developers than in Europe or Asia.

Before a company can bid on a U.S. project, a developer must plan to purchase the entire wind farm, including making provisions for components such as turbines and cables, construction equipment and ships. The bid must also be cost-competitive, so companies tend to bid low and not anticipate unexpected costs, which increases financial uncertainty and risk.

The winning U.S. bidder then buys an expensive ocean lease, costing hundreds of millions of dollars. But it doesn’t yet have the right to build the wind project.

Before construction can begin, the developer must conduct a site assessment to determine what foundations are possible and to determine the scale of the project. The developer must finalize a power sales agreement, identify a grid connection point, and then prepare a construction and operations plan, which is subject to further environmental assessment. All of this takes about five years, and it’s just the beginning.

Developers may need to obtain dozens of permits from local, tribal, state, provincial and federal agencies to move forward with the project. The federal Bureau of Ocean Energy Management, which has jurisdiction over leasing and management of the ocean floor, must consult with agencies that have regulatory responsibilities over various aspects of the ocean, such as the military, the Environmental Protection Agency and the National Marine Fisheries Service, as well as groups including commercial and recreational fisheries, indigenous groups, shipping, port managers and property owners.

In the case of Vineyard Wind I, which began transmitting electricity from five of 62 planned wind turbines off the coast of Martha’s Vineyard in early 2024, it took about nine years from the BOEM lease auction to the delivery of first electricity to the grid.

Costs could skyrocket due to regulatory delays

Until recently, these agreements did not include any mechanisms to adjust for rising supply costs over the long approval period, increasing risk for developers.

From the time today’s projects were put out to tender until they were approved for implementation, the world grappled with the COVID-19 pandemic, inflation, global supply chain issues, increased financing costs, and the war in Ukraine. Soaring prices for raw materials, including steel and copper, as well as construction and operating costs, meant that many contracts signed years earlier were no longer financially viable.

New and retendered projects now allow for price adjustments after environmental data approval, making projects more attractive to U.S. developers. Many companies that canceled projects are now retendering.

The regulatory process is becoming increasingly streamlined, but still takes about six years, while other countries are implementing projects at a faster pace and on a larger scale.

Shipping rules, power connections

Another major obstacle to the development of offshore wind energy in the U.S. is a century-old law known as the Jones Act.

The Jones Act requires that ships carrying cargo between points in the U.S. be U.S.-built, U.S.-operated, and U.S.-owned. It was written to bolster the shipping industry after World War I. However, there are only three offshore wind turbine installation ships in the world that are large enough for the turbines proposed for U.S. projects, and none are Jones Act-compliant.

That means wind turbine components must be transported on smaller barges from U.S. ports and then installed by a foreign installation vessel waiting offshore, increasing costs and the likelihood of delays.

Dominion Energy is building a new vessel, the Charybdis, that will be Jones Act compliant. But a typical offshore wind farm needs more than 25 different types of vessels—for crew transfers, surveying, environmental monitoring, cable laying, heavy lifting and more.

The country also lacks a well-qualified workforce to produce, build and operate offshore wind farms.

The power grid also needs significant upgrades to keep the power flowing from offshore wind farms. The Energy Department is working on regional transmission plans, but permitting will undoubtedly be slow.

Lawsuits and disinformation add to challenges

Numerous lawsuits filed by human rights groups opposing offshore wind projects have further slowed development.

Wealthy homeowners have tried to stop wind farms from coming to their ocean views. Astroturfing groups, which claim to be environmentalists but are actually backed by fossil fuel interests, have launched disinformation campaigns.

In 2023, many GOP politicians and conservative groups were quick to blame offshore wind farm developers for the deaths of whales off the coast of New York and New Jersey, but evidence points instead to increased shipping traffic and entanglements in fishing gear.

Such disinformation can erode public support and slow down the progress of projects.

Actions to sustain offshore wind industry

The Biden administration has set a goal of installing 30 gigawatts of offshore wind capacity by 2030, but the latest estimates suggest the actual number will be closer to half that.

Despite the challenges, developers have reasons to move forward.

The Inflation Reduction Act provides incentives, including federal tax credits, for developing clean energy projects and for developers who build port facilities in locations that previously relied on the fossil fuel industry. Most coastal state governments also facilitate projects by allowing price adjustments after environmental permits are obtained. They see offshore wind as an opportunity for economic growth.

These financial benefits could make building an offshore wind industry more attractive to companies that need market stability and a pipeline of projects that can reduce costs – projects that can create jobs, drive economic growth and contribute to a cleaner environment.

This article is republished from The Conversation, an independent, nonprofit organization that provides you with facts and trustworthy analysis to help you understand our complex world. Written by: Christopher Niezrecki, University of Massachusetts at Lowell

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Christopher Niezrecki is director of the Wind Energy Technology and Research (WindSTAR) Research Center at the University of Massachusetts at Lowell, which receives funding from the National Science Foundation and several energy companies.