US offshore wind development challenges coming into focus as projects mature

With several US offshore wind projects moving through the development phase, market participants and experts May 18 highlighted some of the challenges that are being worked through, like construction risk, financing, and transmission complexities.

A critical underpinning of New York's offshore wind market is the state's policy framework which is needed to drive investment, Fred Zalcman, executive director of the New York Offshore Wind Alliance, said during the Independent Power Producers of New York Spring Conference in Albany.

"We are building a new US-based industry," Zalcman said, adding that the recent federal lease auction in the New York Bight area could result in 7 to 11 GW of capacity from the awarded leases. A number of "very sophisticated well capitalized developers are entering the market," he said.

The entry of large developers like Equinor and BP will be critical to getting some of these large projects financed, Shane Ogren, vice president of infrastructure and energy finance for the Americas at Macquarie Capital, said.

"Projects are finally getting large enough scale where people are interested in financing them," he said. "We see a lot of strategic investors in the market, and you need large balance sheets to get these projects developed," Ogren said.

One financing challenge involves construction risk as there are not a lot of ports that can handle the heavy loads and height requirements for bridge clearance associated with offshore wind development, he said. Additionally, supply chain issues and material shortages have caused some cost increases, Ogren added.

Project density could also become an issue as more offshore wind farms are built, he said.

New York has a legislatively mandated target of 9 GW of offshore wind power capacity by 2035 and the Biden administration in March set a national target of building 30 GW of offshore wind by 2030.

Development challenges

But the Jones Act, which requires cargo delivered between US ports to be transported by ships that are US-owned and built, has been increasing offshore wind development costs.

Companies can bring in construction vessels from Europe, but they can't port, so smaller support vessels are needed which increases costs, Ogren said. And the European vessels can cost as much as $250,000 per day, he said.

"Pricing is very tight" for the 804-MW Vineyard Wind 1 project being built off Massachusetts, "which is interesting but speaks to the strength of the developer," Denmark's Orsted, Ogren said.

Ogren added that construction risks are probably most significant for financing entities and that Vineyard will be a big test because any "problems will ripple through the system, but it will be huge if the project is successful."

Beth Treseder, head of area development for US renewables at Equinor, said that getting offshore wind projects done on time and on budget is her biggest challenge. "These are first-time projects so from the developer side we need to manage expectations and minimize risks as much as possible," she said.

The Offshore Wind Alliance's Zalcman said transmission is the biggest challenge because the first projects are all being constructed with their own cables to shore, but as New York gets closer to 9 GW, the power system was not designed to accept that level of injection of offshore wind.

Asked where the industry is headed regarding costs, Ogren said he expects to continue seeing cost declines that will make the economics look better over time.

"We see significant global demand for offshore wind and supply chains are strained," Treseder said. Cost declines will come from building up domestic supply chains, she said, adding that it took a while for the regulatory structure to emerge in the UK, "but we can model that in US and don't need to make a fit-for-purpose regulatory construct."

Energy storage will also need to be incorporated with offshore wind projects over time, the panelists said.

It is pretty clear from studies that storage will be needed as more offshore wind is built so it can be put to use when needed most while avoiding curtailment, Zalcman said. "It's good to encourage the colocation of storage, but that comes at a cost premium, so you need to weigh that with construction costs," he said.

Emilie Nelson, executive vice president at the New York Independent System Operator agreed, saying that time shifting will be critically important because renewable energy output is unlikely to match peak loads, so storage will need to be part of the solution.

"Dispatchable technology will need to be longer duration than the storage systems we have today, and power markets have to properly value the reliability contribution of those resources," she said.