The US offshore wind industry could emerge a big winner if Congress later this year passes an infrastructure bill that includes key elements of President Joe Biden’s $2.25trn American Jobs Plan, according to officials with experience on Capitol Hill.

Among these are a ten-year expansion and extension of federal tax credits for renewables and commercial-scale energy storage with a “direct pay” provision and more than $100bn in federal funding for grid and port upgrades – including to Atlantic ports that are in the frame as staging sites and for operation and maintenance bases, workforce training and sector technology development.

The new “targeted” investment tax credit (ITC) will be central to spurring construction of high-voltage transmission lines able to deliver at least 20GW of renewable power from high resource locations to load centres, which could be applicable for development of multi-project grid systems on the federal outer continental shelf.

Offshore wind is among the clean energy sectors that Biden’s initiative seeks to either jump-start or fast-forward development as part of a broader federal government effort to address climate change, with the administration setting a national goal to have 30GW of turbines spinning at-sea by the end of the decade en route to having 110GW in place by 2050, supporting 135,000 total jobs.

At its heart, the strategy seeks to reverse decades of declining public investment as a share of gross domestic product, restore domestic manufacturing and put the US in position to out-compete China. After releasing a broad outline of the plan last week, the White House is expected to provide more details in May.

Offshore wind developers are seeking clarification on whether the extra tax credits will be paired with strong labour standards, how a direct payment option for tax credits would work and phase-down schedule details for the proposed multi-year ITCs and production tax credits (PTC).

Biden wants tax credits linked with strong labour standards to “ensure the jobs created are good paying jobs with a free and fair choice to join a union and bargain collectively”. At present, 6% of wind industry employees belong to a union.

Whether such a stipulation would be a carrot or a stick is unclear. House Democrats favour the former: they want to add an extra 10% to the ITC if an offshore project employs union labour during construction and contracts components and services from plants with workers represented by a union.

In that case, a project could be eligible for the ITC at 33% of capital expenditure instead of the present 30% if they begin construction before the end of 2025.

A “stick” approach would require union labour content and penalties for projects that come up short. How this would work in practice is unclear as many supply-chain companies don’t have a union workforce, particularly those in Atlantic states south of Virginia. Analysts said that language may be stripped from the final bill.

“We favour the carrot approach. We’re committed to using labour and working with our local communities going forward,” said Melissa Levin, director of federal government affairs at Iberdrola-controlled Avangrid.

“It’s an issue to watch and monitor in terms of legislative language,” she told a recent webinar. Avangrid’s renewables subsidiary is a leading US offshore wind developer and 50% owner of the 800MW industry flagship Vineyard Wind 1 array set for regulatory approval this quarter.

For direct payment of the ITC or PTC, the White House will need to reconcile differences in Congress. House Democrats want a refund of 85 cents for each $1 of credit value – a 15% haircut – while those in Senate support dollar for dollar for projects that use this option.

“This is something I think has to be worked out in the process of what the value of election is going to be,” Joe Mikrut, a partner at Capital Tax Partners in Washington, DC, told the webinar.

Reaction and reconciliation

Reaction in Congress, which Biden’s Democrats thinly control, has been mixed. At issue is the scope of what he is proposing and who will pay for it.

Most Democrats in the House of Representatives and Senate appear willing to support Biden’s intention to fund it by raising the top corporate tax rate from 21% to 28% for the next 15 years. He may have to accept a lower 25% rate and finance the balance with federal borrowing to get all Democratic lawmakers on board.

This is critical in the Senate where Democrats and opposition Republicans each have 50 seats. With all Democrats in support and Republicans in opposition, Vice President Kamala Harris can break a tie by voting affirmative as she also serves as president of the Senate.

Republicans are unlikely to back $2trn or more in corporate tax increases given their concern this could make the US less competitive and less attractive as a location for manufacturing and other investment.

Biden has said he wants the bill to be bipartisan and appears open to considering other funding sources. “Debate is welcome. Compromise is inevitable. Changes are certain,” he said. “I am open. … I’m prepared to work. I really am.”

Most Republicans support federal infrastructure investment but view the Biden plan as too cumbersome, unfocused, and wasteful. Some also reject a ten-year extension of wind and solar tax credits, noting that previous step-downs have not led to a phase-out.

If the White House is unable to find common ground with Republicans, it will support Democrats’ threat to fast-track and pass the future bill with a simple majority using an arcane process called reconciliation. This measure would allow them to circumvent the 60-vote threshold in the Senate for most major pieces of legislation.

Reconciliation was set up to allow lawmakers to alter spending or tax policies that affect the US budget. The process is permitted once each federal fiscal year and can only be used to change laws related to taxes and spending.

Rules for such changes – or ‘reconciliation’ – allow bills to increase the federal deficit but only for ten years. For that reason, Biden wants spending in infrastructure plan limited to eight years. Under the so-called Byrd rule, a senator who objects to a provision in a reconciliation bill can have it removed if it is deemed “extraneous” to the budget.

That is why some analysts are dubious that Biden’s proposed federal energy efficiency and clean energy standard that calls for a carbon-free electric grid by 2035 would be part of an infrastructure bill’s language using reconciliation for passage.

Wind

Biden's bullish infrastructure bill could be big win for US offshore wind