Costs Are Creating Headwinds for Wind Energy

Against a backdrop of prohibitive costs and cancellations, the U.S. government gave tacit consent to a proposed windfarm off the coast of New Jersey that could power nearly half a million homes.

The Bureau of Ocean Energy Management (BOEM) completed an environmental review of a wind farm proposed by Ocean Wind LLC for a 98-turbine facility that would be positioned about 13 nautical miles off the coast of Atlantic City.

"BOEM continues to make progress towards a once-in-a-generation opportunity to build a new clean energy industry in the United States," said BOEM Director Elizabeth Klein. "Offshore wind is a critical component of the Biden-Harris administration's strategy to tackle the climate crisis, while creating good-paying jobs and ensuring economic opportunities are accessible to all communities."

The federal government set a goal of deploying 30 gigawatts (GW) of offshore wind energy capacity by 2030. The Block Island wind farm off Rhode Island and the Coastal Virginia Offshore Wind pilot already combine for 42 megawatts of capacity, and the Energy Department said last year that 40 GW of offshore wind is in the planning stages.

If the Ocean Wind project is ultimately sanctioned as planned, it could achieve as much as 1.4 GW of power, enough to meet the demands of around 500,000 average homes per year. It would also be the third commercial-scale offshore wind farm in U.S. territorial waters.

The incentives outlined in the massive Inflation Reduction Act from last year could support further development. Provided the components have a domestic manufacturing footprint, iron and steel mechanisms could be eligible for a 100% tax credit, for example.

The Congressional Research Service (CRS) provides an interesting caveat in new offshore leases that need to accompany any similar moves for offshore wind. The BOEM must offer at least 60 million acres for offshore oil and gas development in the previous year before granting similar concessions for wind.

Meanwhile, the National Renewable Energy Laboratory (NREL), part of the Energy Department, has its own doubts about forward progress, namely in the domestic manufacturing base. Reaching the government's 2030 goals, NREL said, "will require a significant ramp-up in domestic manufacturing, ports, vessels, and workforce, all of which are currently too limited to support the needed levels of commercial-scale offshore wind energy deployment."

Another issue is cost. While some prices at the wholesale level are on the decline, largely thanks to a stand-still commodities market, other goods remain expensive. For April, the Producer Price Index, a measure of prices at the wholesale level, showed prices for everything from plastic resins to carbon steel moved higher, creating potential obstacles to offshore wind.

The U.S. offshore wind sector is still in its nascent stage, and progress so far is well behind the pace set by peer economies such as the United Kingdom and China. While tax incentives are supportive, they come with a catch and expiration raises some questions of which comes first -- development or emission abatement.

"The IRA begins phasing out either in 2032 or when total greenhouse gas emissions in the power sector decline to at least 75% below 2022 levels--whichever comes last," the Energy Department said.

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