Wind

US demand-supply imbalance 'puts offshore wind developers in driver's seat'

Aegir Insights sees 53GW Atlantic state requirements exceeding available acreage, raising stakes for ambitious climate targets

Artists rendering of offshore wind staging at South Brooklyn Marine Terminal, a port project back on track after Equinor's Empire Wind was re-procured in the New York round 4
Artists rendering of offshore wind staging at South Brooklyn Marine Terminal, a port project back on track after Equinor's Empire Wind was re-procured in the New York round 4Foto: Equinor
US Offshore Wind Editor, Recharge

Limited accessible shallow water seabed along the US Atlantic and strong state demand all point in the right direction for the offshore wind sector after a tumultuous 2023, according to a new report by industry intelligence firm Aegir Insights.

Mid-Atlantic and northeastern states have set some 53GW of offshore wind procurement targets over the next decade, yet available acreage in federal waters would allow only 50GW of development. Demand is being driven by ambitious climate targets.

Demand-supply imbalance “is fundamentally favourable for [offshore wind] projects and can help them withstand economic pressures caused by high inflation, interest rates and supply costs,” the firm wrote in its Offshore Wind Market Playbook: Atlantic, US.

This is welcome news for a sector buffeted by last year's surging inflation and financing costs as well as ongoing supply chain turmoil that resulted in developers cancelling eight offtake contracts.

States responded by “re-procuring lost capacity and securing it better through increased termination fees, rather than penalising projects,” Aegir noted.

Successful reset

This new capacity is more expensive, with estimated strike prices in the New Jersey and New York rounds coming in between $145-$165/MWh, much higher than previous contracts.

New York re-procured Equinor’s 810MW Empire Wind 1 and Orsted-Eversource’s 920MW Sunrise – both were on the chopping block due to poor economics – agreeing to pay an estimated $150/MWh, compared to the original rates of $110.37/MWh for Sunrise and $118.38/MWh for Empire 1.
New Jersey replaced 2.25GW of capacity lost with Orsted’s abrupt cancellation of its Ocean Wind projects by awarding 3.7GW in its latest round in January, also at a premium.

“A new price equilibrium is dawning, signaling a successful reset of US offshore wind,” Aegir said.

New Jersey now has 5.2GW under contract towards its 11GW by 2040 target, including Shell-EDF's 1.5GW Atlantic Shores, while New York leads the nation with 5.8GW procured towards the mandated 9GW by 2035.
Some 9.5GW has been contracted since the summer of 2023, Aegir noted, with another five solicitations either currently open or publicly announced, including Massachusetts’ round 4 for up to 3.6GW that closes at the end of the month. Massachusetts is simultaneously working with neighbouring Connecticut and Rhode Island on a joint procurement for a total of 6.8GW.

Aegir estimates net present value for the recently procured projects at between around $3bn to $5bn-plus per GW, with a strong correlation between scale and price.

Federal-state process

US offshore wind typically occurs in federal waters under jurisdiction of energy regulator Bureau of Ocean Energy Management (BOEM).

BOEM has set a steady pace of leasing rounds to make available thousands of square kilometres of seabed, three under the administration of President Joe Biden, including the blockbuster New York Bight round that saw six leases sell for a record $4.34bn.

Even so, Aegir argued that “with the current BOEM leases, it will be almost impossible for all US Atlantic states to reach their offshore wind targets.

“This fosters competition to secure capacity,” the firm noted.

The US Atlantic has some 397GW of potential, and states led by Maryland and New York are urging BOEM to open more seabed for the sector. Leasing auctions are planned for the Gulf of Maine and the Central Atlantic.

Only around 5.5GW of shallow water capacity is available in the Central Atlantic however, and none in the Gulf of Maine, which may eventually push the sector to begin floating wind development in the early 2030s.

New leasing rounds might be jeopardised by elections this year, with known wind critic Donald Trump standing once again for a return to the White House.

Bottlenecks

Despite good fundamentals, the industry continues to face bottlenecks in supply chain, ports, and transmission.

Aegir noted that 19 Atlantic ports have offshore wind plans, but like much of the sector’s manufacturing capacity, are typically tied to specific projects, most of which stalled amid last year’s tumult.

Meeting the Biden administration’s target of 30GW by 2030 would require 34 new manufacturing facilities and over $22bn in investment, according to the US National Renewable Energy Laboratory.

Aegir forecasts less than half of the Biden goal by the end of the decade.

Transmission

Transmission is an ever-present headache for the energy transition with the US having an interconnection queue north of 2TW of capacity both on and offshore.

This results in multi-year delays that make “the planning of large-scale projects difficult and creating risks should a project be ready before the grid connection,” Aegir said.

Federal Energy Regulatory Commission (FERC), which oversees US wholesale power markets, is partially reforming the process through order 2023, while states are also taking the initiative, led by New Jersey’s State Agreement Approach to self-fund offshore wind transmission, with Maryland likely to follow, Aegir said.

In most states, offshore wind transmission is paid for by the developer, which is eligible for federal tax credits.

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Published 25 March 2024, 17:08Updated 25 March 2024, 17:08
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