In recent years, the opportunity to pursue clean energy technologies has clearly increased. In transportation, electric vehicles (EVs) have gained notable traction. Likewise, new strategies in hydroelectric power using pumped storage are being targeted. The same is true for solar power and wind energy with a number of developers involved in major projects. However, when it comes to wind energy specifically, there are pros and cons, with costs being the most formidable. This explains in part why offshore wind farms in the U.S. lags behind those in Europe. Despite state and federal support in many regions, many wind energy projects have stalled and failed. It’s therefore worth examining the most notable barriers to these efforts as it stands today.
When it comes to offshore wind farms in the U.S., there has been reason to be hopeful. This is particularly true along the eastern Atlantic coast, which is believed to be ideal for energy production. But various factors that have little to do with geography have undermined several projects with some being aborted altogether. These factors include regulatory policies as well as a lack of infrastructure in some instances. The question is whether many of these projects can be salvaged by pouring additional funds their way. Different companies are pursuing different strategies in this regard. And it remains to be seen if they’ll be effective.
“The U.S. offshore wind market is still in its infancy, and some states might have been trying to run before they could walk. Now they’re getting more realistic about the challenges facing developers, and that’s going to help in the long run.” – Atin Jain, Senior Associate at Bloomberg NEF
The Cost Burden of Offshore Wind
It’s likely little surprise that the cost of constructing and operating offshore wind farms in the U.S. is significant. This is to be expected since wind farms must be anchored to the sea floor and consist of massive blades. But in addition to these factors, there have also been concurrent trends that drove these costs even higher. For one, the pandemic exposed serious supply chain problems that drove materials costs much higher. The lack of supplier diversification was a problem. In addition to delays in receiving materials, the actual price of these materials skyrocketed as well. This was then further worsened by an increasing interest rate that made financing these costs more expensive. Thus, the most notable challenge with wind energy in recent years have been financial. And this is not likely to change anytime soon.
Understanding this, many of the project bids proposed prior to the pandemic have faced major setbacks. Some of the offshore wind farms in the U.S. have actually been terminated as a result. One off the shore of New Jersey has been canceled at a significant loss. Orsted, the Danish company responsible for the project, backed out on its development. Reportedly, Orsted lost about $5.6 billion worth of revenue in the process. Orsted is not the only company experiencing this challenge with wind energy. BP Oil, which has a 50% investment stake in Equinov, cited a loss of $540 million in wind projects. The Norwegian company has similarly faced struggles related to costs of construction and operation. In short, the economic climate was much more favorable when many of these bids were proposed. But circumstances now make it nearly impossible for some projects to proceed from a basic economic perspective.
“When there are a lot of project cancellations, that weakens the case for domestic manufacturing. We’re still in wait-and-see mode.” – Josh Irwin, SVP of Offshore Sales at Vestas
Infancy of U.S. Manufacturing
A noted challenge to wind energy in the U.S. also pertains to the lack of manufacturing relevant to this sector. When supply chains became disrupted, wind farm projects suffered greatly. A large part of this was because there aren’t many domestic manufacturers of wind turbine components. That meant blades and other key parts were being shipped from elsewhere including Scandinavia. In essence, this added insult to injury. Given that time is money, waiting for materials and equipment costs projects dearly in terms of delays. This could be easily remedied if domestic manufacturers existed. But at this point, offshore wind farms in the U.S. have not been vast enough in number to support this.
In many ways, this challenge with wind energy represents a catch-22 situation. If U.S. wind turbine manufacturers were in abundance, costs would be lower and deliveries timelier. But this isn’t the case because the demand for these components have not yet developed. Developing offshore wind farms in the U.S. is a fairly recent venture. The industry began only about three years ago and is thus still considered in its infancy. Until it advances enough to create a substantial demand, it’s unlikely incentives for domestic manufacturers will be enough. Policy incentives do exist for clean energy and for other industries like semi-conductors. But these alone are not enough to overcome the sizable cost and risk barriers in place.
Business Strategies Being Pursued
The challenge with wind energy that developers face in the U.S. aren’t the same as other regions. Europe, which has been pursuing wind energy for decades has hundreds of wind farms with significantly higher gigawatt production. In addition to a lack of experience and domestic partnerships, offshore wind farms in the U.S. also deal with some regulatory issues. For example, the Jones Act prevents ships to operate in U.S. waters unless built, operated, and staffed by American companies. At present, there are no such U.S. ships that can transport 300’ wind turbine blades. This forces wind farm projects to use foreign ships hundreds of miles away at extreme costs and delays. Obviously, these are the barriers for which new strategies must be considered.
Understanding this, companies involved in offshore wind farms in the U.S. are trying to persevere through new efforts. Many companies, including Orsted, Equinor, and others, are trying to adjust initial bids. Some states are allowing these companies to rebid at higher prices in order to lose the projects altogether. Other companies, specifically Dominion Energy of Virginia, is constructing their own American ship. This 472-foot vessel will be able to transport wind turbine components domestically and avoid unnecessary costs and delays. Finally, existing companies are striving to avoid past mistakes, offer better pricing bids, and adopt more realistic objectives. This is all part of a learning curve in an effort to address the challenge of wind energy in the U.S. This will undoubtedly take time, and the lofty predictions that were initially made for wind may need to be adjusted.