Unprecedented clarity from state-level policies in the US Northeast is now set to support an offshore industry that will install at least one full-scale project per year beginning in 2021. Three states have adopted the necessary policy frameworks to attract real investment in offshore wind thus far: Maryland, Massachusetts and New York, and these states have also contracted power from projects off the coasts of Delaware and Rhode Island.

The offshore industry has shown considerable momentum in recent months as developers jostle to secure their share of what MAKE Consulting expects to be a more than 2GW market over the next decade. The potential in the market has attracted the leading offshore players in Northern Europe, including Orsted (formerly Dong) and Iberdrola, firms that have proven how to achieve a targeted return on investment in offshore wind. In fact, big-name interest in full-scale projects has accelerated in recent months to the point that the industry looks set to largely bypass the era of demonstration-scale projects seen in Europe and Asia.

Price signals reflect real competition. Awarded power pricing is falling: Maryland’s awarded prices, which include delivered energy, will cost about 45% less than Block Island’s power-purchase agreement. Federal offshore lease auctions solicit ever-higher bids: the winning bid at the latest federal offshore lease auction, for a zone off the coast of North Carolina, came at an estimated price per megawatt nearly as high as that of the southern Maryland Wind Energy Area — even though North Carolina lacks offshore-specific incentives and has far more distant prospects.

The positive industry momentum represents critical steps towards building an annual multi-billion-dollar industry, but momentum does not guarantee success. The offshore industry will need to overcome several challenges relating to levelised-cost-of-energy (LCOE) reductions, logistics and policy.

The investment tax credit, which underpinned low bids in Maryland, will expire soon, with no successor policy in place and no proposals likely to survive a Republican-majority Congress and President Donald Trump’s veto. The extent to which US developers can leverage the gains in technology and expertise that have driven down European offshore LCOE remains to be seen.

A negative outcome in either scenario may cause the downward trend in purchased power prices to stagnate at a crucial juncture in the mid-2020s.

US Jones Act 'no impediment' to offshore wind, New York concludes

All three themes come together in the case of the Jones Act, which stipulates that only US-flagged vessels can transport goods between US ports. Without adequate wind installation vessels in the US, the act creates an immense logistics challenge that, if mismanaged, could throw project schedules and budgets into disarray and adversely affect LCOE. Two possible mitigating strategies — building a US-flagged turbine installation vessel or bringing two or more vessels from Europe — are dependent on adequate policy signals that ensure a market exists for the investment required to procure vessels.

Meeting those challenges and others will be a growing process, fraught with its share of failures, but it will build the invaluable first-hand experience that supports an industry in the long term. Offshore wind is positioned to play a crucial role in the coming decade as the production tax credit phase-out limits the market potential for onshore wind. These crucial state initiatives and commitments are laying the foundation for a fledgling industry that is poised to achieve consistent annual growth — if progress continues. 

Chicago-based Anthony Logan is market analyst, North America, at MAKE Consulting