The US offshore wind market may still be in a stage of infancy, but that doesn’t mean it’s fodder for start-ups. Copenhagen Infrastructure Partners, Blackstone, Caisse de dépôt et placement du Québec and Global Infrastructure Partners are just some players from the infra establishment that have dedicated a whopping $4.37 billion this year alone to the industry’s latest large-scale project – the land lease off of the New York Bight.
Efforts to grow the US’s offshore wind market began under the Obama administration, when officials launched plans to identify potential areas in federal waters suitable for lease and development. These processes of identification and approval for auction continued throughout the Trump administration, finally coming to fruition in 2018 with the first major offshore wind land lease being held for plots off Martha’s Vineyard in Massachusetts. The New York Bight auction constitutes the second large-scale project the country has seen to date.
The Vineyard Winds auction garnered $405 million, a mere fraction of the $4.37 billion committed this year to the New York Bight. The numbers are clear – companies are putting their faith behind offshore wind.
Seth Kaplan, director of governmental and regulatory affairs at Ocean Winds, winner of the 71,522-acre lease area OCS-A0537 off the New York Bight, says: “Companies like EDP, ENGIE and GIP [the three main contributors to the Ocean Winds consortium] have decided that offshore wind is the next big thing for renewables, and have formed partnerships accordingly so as to pursue growth in that space.”
Speaking to Infrastructure Investor, Kaplan adds that the market has become a playground for firms of this size and this size only: “There are a lot more companies on the scene. And with the dollar amount [of land lease auctions] increasing. If you roll back the tapes to 2018, there were some aspiring smaller players in that auction. This time around, I think everybody was aware, much more aware of the number of zeroes that were going to be involved in the results. So, you only had very substantial companies participating in the auction.”
Skyrocketing from scratch
The relative youth of the market means it also lacks a skilled workforce, critical infrastructure and supply chains, among other things. In Europe, however, facilities have long been auctioned off and built. “For a variety of reasons that, frankly, aren’t worth drilling down into great depth, we are generations behind in the United States, and we are rushing forward, I think, pretty quickly to build the supply chain, to build the infrastructure, to build the workforce, to catch up,” says Kaplan. “Those things generally follow projects, and we’re trying to get ahead of that as best we can.”
Despite the fact the first major auction was four years ago, these issues still remain, though one might look at the price difference between federal auctions and guess that their risk was mitigated somewhat over the passage of time.
According to Joris Veldhoven – president and commercial and finance director of Atlantic Shores, a joint venture between Shell New Energies and EDF Renewables North America that won a 79,351-acre lot off of the New York Bight – thinking this would be a folly: “The risk profile is still significant because the number of wind turbines we have spinning in the water in the US can be counted on two hands.”
Veldhoven divulges his own opinions behind the price discrepancies: “Those [physical and market] differences [between the Martha’s Vineyard and New York Bight auctions] aside, clearly the world is three-and-a-half years further in our journey to combat climate change.
“Around 2017, 2018, I think a lot of things started to come together for US offshore wind in terms of additional lease areas becoming part of the mix, states being very serious about combatting climate change and wanting to set up markets to procure clean, renewable power – not just New York and New Jersey, but in various East Coast states. I also think the industry for the first time overcame its mistrust over why [offshore wind] didn’t happen before, as it had looked promising a decade ago already.”
Sheri Lauten, director of government relations for National Grid Ventures (a stakeholder in joint venture Community Offshore Wind launched with RWE Renewables), agrees that the government had a role in boosting investors’ confidence in the market – both state and federal.
“The bureaucratic nature of federal offshore wind auctions helps reduce risk, and so that encourages investment in offshore wind and other technologies,” she says. What type of investment? Everything from physical infrastructure to R&D.
“If you look at some of the permitting reviews for previous projects, they have swapped out turbines along the way, while BOEM was considering their construction and operations plan because the technology did change,” she adds. “And so instead of using a 12MW turbine, now you can use a 15MW turbine, and that increases the capacity of the lease area. So, innovations will continue to occur.”
Indeed, unlike many other energy projects in the US, which see significant progress happening at state and local levels, the offshore wind market is, by definition, a federal market. The areas large enough and deep enough to support such heavy infrastructure almost entirely lie within ocean waters or the interstate Great Lakes region. The role the federal government plays in establishing such a market can thus not be understated.
The Department of the Interior unveiled in October 2021 its plans for offshore wind over the coming decades at the American Clean Power conference, sharing a map outlining when future auctions will be held, and for which plots of land. On the list is the Gulf of Mexico, the Puget Sound and more.
Winds of change
Though the US is bringing up the rear of the global offshore market, investors like David Foulon, head of US offshore wind at TotalEnergies, whose subsidiary Attentive Energy was among the winners of the New York Bight auction, see it as the region with the highest potential for future growth. “The US offshore wind market is a symbol of what investors are willing to do to get to net zero by 2030.”
Other firms, like Atlantic Shores, are even more specific. “The East Coast is clearly the most mature offshore wind market in the country, and most attractive part of the market that’s growing,” Veldhoven says. “There are developments on the West Coast, the Gulf of Mexico, but they’re not as mature.”
Hopefully with further development, the building of local supply chains will induce cost savings for market players. At the moment, it is too early, and thus costs of building in the US will likely be higher than those seen in Europe.
“I think the US’s costs will come down with more infrastructure, of all kinds – the human infrastructure in terms of the workforce, the physical infrastructure in terms of the plants that supply things,” Kaplan says.
Foulon is of the same volition, pointing out that Attentive Energy was in possession of a “costly” plan A for production of facilities off the New York Bight, and then another plan B. Both plans were priced out looking to the then joint venture’s managing firms TotalEnergies’ and EnBW’s operations in Europe thus far, while keeping in mind the additional (though limited) cost that building in New York would provide in terms of dollars per watt.
On 25 February, Attentive Energy was awarded the second-most expensive lease in the New York Bight auction. Three days later, the German energy supplier announced its exit from the US market to focus on European offshore wind and its decision to sell EnBW North America and its assets to TotalEnergies.
A new wheelhouse
Despite the ample optimism, some serious concerns remain as the market continues to develop. In an interview with TV broadcaster NBC Philadelphia, energyRe chair Jeff Blau, an associate of New York Bight auction winner Invenergy Wind Offshore, said: “We do think maybe the government needs to rethink how [offshore wind] auctions are done, so we can have more American companies brought into the fold.”
Of the six companies awarded lessee status post-New York Bight auction, only two had any American ownership at all.
Blau added: “There are many auctions where it becomes [about] more than just price. Price may be 70 percent of the decision, 20 percent may be expertise and experience, and 10 percent is country of origin. If you’re trying to push more American companies, that would be the better way to do these auctions.”
The current system, Blau argued, works to the advantage of European firms, who have much more capital and experience to shell out due to decades of presence in the industry.
However, while the issue of energy security has been the hot topic after Russia’s invasion of Ukraine, most multinational companies involved with the auctions have pointed out that their histories of operating in the US are long.
Kaplan of EDP-owned Ocean Winds says: “EDP Renewables is now the largest part of the EDP Group, and the largest territory for EDP Renewables is the United States. What does it mean to be a European or an American company? That’s a little tricky to say. EDP is the largest onshore wind company in Indiana and New York State. It didn’t just set foot in the United States. And ENGIE has got a long history in the United States. But that’s the thing – what we’re talking about is substance.”
Perhaps the trickiest major concern? Timing. As Kaplan puts it: “We’re not going to rush this. We’re going to do it right and that’s going to require consultation with our fellow users and with all of the stakeholders. But that’s a central tension – given climate needs and given the need to reduce our dependence on natural gas, there’s a real need for us to get this done. But again, we can’t rush it.”