Although the US offshore wind sector saw “significant progress” in 2022 with its pipeline reaching 51.3GW across 32 leases, supply chain and inflationary pressures drove up expected power prices and “cast doubt on the economic viability” of some projects, Washington, DC trade group American Clean Power Association (ACP) noted in its 2023 market report.
“American offshore wind power is vital to accelerating the deployment of clean energy and the industry is stepping up to the plate to invest,” said John Hensley, ACP’s vice president of research & analytics.
“The rapid growth in the US offshore wind pipeline reflects strong federal and state government commitment to clean energy expansion,” he added.
TheOffshore Wind Market Report underscored the crucial role that states are playing in driving US offshore wind procurement.
Total procurement targets on for East Coast states alone has risen to over 51GW, propelled by Maryland’s recent hike of its mandate from 2GW to 8.5GW. In total, ten states have combined offshore wind targets of over 81GW.
Some $1.7bn in supply chain investments have already been announced along with massive port infrastructure investments and more than 30 vessels have been commissioned or are already under construction to service the sector.
The sector is on track for a big ramp with over 9GW of accumulated capacity expected to be operational by the end of 2026 – over 5GW commissioned that year alone.
Headwinds
The report saw substantial headwinds impacting the sector, though, with rising inflation following the COVID-19 pandemic and the subsequent interest rate hikes that “have significantly increased the cost of delivering offshore wind in the US”.
Surging steel prices have had the biggest impact. Steel comprises nearly 90% of the total materials of an offshore wind turbine by weight, and although prices have come down somewhat since their pandemic-highs, ACP noted that prices in North America and Northern Europe “remained 52% and 69% above January 2019 prices at the end of 2022”.
Further, the report noted that the “capital intensity of an offshore wind project means that higher interest rates have a large impact on the financial costs”.
Estimated levelised cost of energy (LCOE) for the US sector rose by 17% from an estimated $84/MWh in 2021 to $98.5/MWh this year.
Supply chain, port infrastructure, and transmission constraints meanwhile add further uncertainty, compounded by delays in permitting and regulatory timelines that likewise “introduce significant risk”.
“These uncertainties cast doubt on the economic viability of projects negotiated in more favourable economic conditions,” the report said.
The report noted that Iberdrola-controlled Avangrid is attempting to withdraw its 1.2GW Commonwealth Wind project awarded in 2021 due to changing economics. The project was awarded for a record purchase power agreement of $72/MWh, which the developer now claims is too low in the face of rising costs, rendering it unfinanceable and no longer viable.
These trends are expected to decline throughout the decade driven in large part by the expectation that bigger and more efficient turbines will generate economics so scale that will offset higher costs. LCOE for the US sector is expected to decline to $90/MWh by decade’s end.
