US Offshore Wind Projects Demand Flexibility in Subsidy Regulations to Ensure Long-term Viability

Fleet of U.S. Offshore Wind Projects Face Uncertainty Without Subsidy Requirement Changes

A group of offshore wind project developers has warned that a fleet of U.S. offshore wind projects, which are crucial to President Joe Biden’s climate change agenda, may not move forward unless the administration eases requirements for subsidies. Companies such as Equinor, Engie, and EDP Renewables, along with trade groups representing other developers, are urging officials to rewrite the requirements, citing potential job and investment losses. The developers argue that the necessary components for the projects to progress do not currently exist in the U.S., and there are no indications that the supply chain will be ready in time to meet procurement schedules.

Last week, Danish company Orsted, a leading offshore wind developer, warned that barriers to securing U.S. subsidies, combined with soaring interest rates and supply chain delays, could result in $2.3 billion in impairments for three projects, causing a significant decline in its stock value. The main issue lies with a requirement in the Inflation Reduction Act (IRA) that clean energy projects seeking bonus tax incentives must be built with American-made equipment and located in low-income communities. These provisions are crucial for supporting Biden’s goals of revitalizing U.S. manufacturing jobs through clean energy investments and directing 40% of the benefits to disadvantaged areas. The credits, worth 10% of a project’s cost, can be claimed on top of the IRA’s base 30% credit for renewable energy projects, providing a total subsidy of up to 50%.

However, meeting these standards is challenging for offshore wind projects due to their reliance on overseas equipment and materials, as well as their locations in U.S. coastal waters. For example, U.S. Treasury rules require offshore turbine towers to be made entirely of domestic steel to qualify for the domestic content credit. The first factory capable of producing such towers, located in New York, was scheduled to open in 2025 but has faced delays and cost overruns. Offshore wind projects already have looser requirements for claiming the bonus compared to other sectors, with domestic content only required to make up 20% of costs, compared to 40% for solar and onshore wind, according to Treasury rules.

Some developers are advocating for an expansion of the requirements to include the location of port infrastructure, which can provide jobs and economic benefits to a wider area. The U.S. Treasury has stated that it is focused on implementing the IRA’s subsidies in a way that aligns with the law and its underlying goals, highlighting that the incentives have already attracted billions of dollars in new investments. Labor unions, a key constituency for Biden, have pushed for strict requirements for the domestic content bonus.

The American Clean Power Association, a trade organization, has emphasized that easing the requirements for offshore wind projects is crucial for the administration to achieve its goal of deploying 30 gigawatts of offshore wind along U.S. coastlines by 2030. The industry argues that changes to the credit requirements are not only important for the success of individual projects but also for the domestic industry and the jobs it will create. The Biden administration has a unique opportunity to address the challenges faced by the industry, including inflation, supply chain constraints, and permitting delays.

In response, the White House has stated that it is utilizing all legally available tools to advance American offshore wind opportunities and that the industry is generating thousands of union jobs in manufacturing, shipbuilding, and construction. Seth Kaplan, Director of Governmental and Regulatory Affairs at Ocean Winds North America, a joint venture between Engie and EDP Renewables, emphasized that if the requirements for the bonus are too high, everyone loses. The industry is hopeful that the Biden administration will make the necessary changes to support the growth of the offshore wind sector and ensure the success of these projects.

Original Story at www.reuters.com – 2023-09-06 22:10:33