Rising inflation and interest rates are impacting the economics of US offshore wind projects, leading to cancellations and contract renegotiations.
Texas stands out as a leader in wind farm development with faster timelines, thanks to privately-owned land, an independent grid, simplified negotiations for land leases, and easy access to wind energy equipment.
Deep dives
US offshore wind industry faces challenges in reaching ambitious targets
The US Biden administration aims to install 30 gigawatts of offshore wind capacity by 2030, but meeting this target is becoming increasingly uncertain. The US offshore wind sector has historically faced several obstacles, including permitting delays, complex regulations, and nascent supply chains. Additionally, rising inflation and interest rates are impacting project economics, leading to cancellations and contract renegotiations. As of now, over 12 gigawatts of offshore wind projects have been canceled or are being reevaluated, representing more than half of all contracted US offshore wind capacity. Despite these challenges, the US onshore wind sector shows promise, with an expected addition of 112 gigawatts of new onshore wind projects by 2030, nearly doubling the total installed wind capacity in the country. However, the US is more likely to install around 15 gigawatts of offshore wind capacity by 2030, less than half of the target set by the Biden administration.
Wind power's reputation and advantages in the US
Wind power in the US has enjoyed a strong reputation within the renewable energy industry. Historically, wind power has been supported by subsidies, such as production tax credits, which have made it a profitable business for developers. A local supply chain for onshore wind has also generated jobs and economic benefits for communities. Wind power has significant advantages, including its ability to generate electricity consistently without being affected by nighttime or fuel price volatility. Although the levelized cost of electricity (LCOE) for offshore wind is higher compared to onshore wind and solar, it remains competitive due to its zero variable cost and environmental benefits. Wind power's reputation and advantages have garnered bipartisan support and contributed to job growth in the US.
Challenges and delays in US wind farm development
Wind farm development in the US, both onshore and offshore, faces challenges and significant timelines. Offshore wind projects can take 8 to 14 years, primarily due to rigorous federal and local permitting processes, complex supply chains, and reliance on components from Europe. Onshore wind projects typically take 4 to 10 years, with permitting restrictions being a major hurdle in many states. Local restrictions often involve setback distances between turbines and property lines. However, Texas stands out as a leader in wind farm development, with faster timelines of around 2 years for projects. Factors contributing to Texas' success include privately-owned land, an independent grid, simplified negotiations for land leases, and easy access to wind energy equipment through existing wind factories and neighboring states' supply chains.
Outlook for US wind industry and the global renewable energy landscape
While the US faces challenges in reaching its offshore wind target, the onshore wind sector is expected to drive growth, potentially adding 112 gigawatts of new capacity by 2030. In comparison, the US is more likely to install around 15 gigawatts of offshore wind capacity by that time. The global wind power generation stood at 8% of global generation in 2022, up from 4% six years prior. Wind power continues to be a crucial technology for achieving zero-carbon electricity, generating electricity at scale, and remaining relatively competitive in terms of cost. To meet net-zero targets, wind power needs support from policymakers, including streamlining permitting processes and addressing transmission hurdles. Additionally, advancements in battery storage and grid infrastructure will be vital to enhance the flexibility and reliability of wind power.
With a quarter of offshore wind project deals having been canceled in the US this year, the Biden administration’s target of having 30 gigawatts of installed capacity by 2030 is looking even further out of reach. But why are developers coming under so much pressure and are these strains also being felt onshore?
On today’s show, Dana sits down with Chelsea Jean-Michel and Atin Jain from BloombergNEF’s wind team. Together, they discuss the impact of inflation and interest rate hikes on US offshore wind projects, why some developers are allowed to re-bid on contracts they’ve canceled, and also why Texas is a bright spot for the rollout of onshore turbines.
Complimentary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal, on bnef.com or on the BNEF mobile app.
