U.S. Offshore Wind Projects Face Hurdles as Developers Urge Easing of Subsidy Requirements

Project developers warn that stringent subsidy requirements in the Inflation Reduction Act may hinder the progress of U.S. offshore wind projects, impacting jobs and investments.

Introduction: President Joe Biden's ambitious climate change agenda, which includes the development of a fleet of offshore wind projects, is facing potential setbacks due to stringent subsidy requirements. Developers of these projects are urging the Biden administration to ease the requirements outlined in the Inflation Reduction Act (IRA), citing challenges in meeting the criteria for subsidies. The potential consequences include job losses and a decline in investments. This article explores the concerns raised by project developers and the implications for the future of offshore wind in the United States. Supply Chain Challenges and Equipment Shortages: Norway's Equinor, France's Engie, Portugal's EDP Renewables, and other offshore wind developers are expressing concerns about the lack of available components and equipment needed for their projects to progress. The current supply chain in the United States is not equipped to meet the procurement schedule required for these projects. For instance, the requirement for offshore wind turbines to be built with American-made equipment poses a challenge, as the necessary components are not readily available domestically. The reliance on overseas equipment and materials, combined with the unique locations of offshore wind projects in U.S. coastal waters, further complicates meeting the subsidy requirements. Impact on Offshore Wind Developers: Denmark's Orsted, one of the leading offshore wind developers, has warned of potential impairments totaling $2.3 billion for three projects due to barriers in securing U.S. subsidies under the IRA. These challenges, along with soaring interest rates and supply chain delays, have led to a significant drop in Orsted's stock value. Other developers echo these concerns, emphasizing the need for the Biden administration to reconsider the subsidy requirements to ensure the viability of offshore wind projects. The Importance of Domestic Manufacturing and Low-Income Communities: The subsidy requirements outlined in the IRA aim to support President Biden's goals of revitalizing U.S. manufacturing jobs through clean energy investments and directing 40% of the benefits to disadvantaged areas. However, these requirements pose significant challenges for offshore wind projects. The current Treasury rules specify that offshore wind turbines must be made entirely of domestic steel to qualify for the domestic content credit. While a factory in New York was scheduled to produce such steel by 2025, delays and cost overruns have hindered its progress. Offshore wind projects already face looser requirements compared to other sectors, with domestic content accounting for only 20% of costs, compared to 40% for solar and onshore wind. Expanding the Definition of "Energy Communities": Developers are advocating for an expansion of the definition of "energy communities" to include the location of port infrastructure, which can provide jobs and economic benefits to a wider area. Currently, the credit for siting projects in energy communities is determined by the connection to an onshore substation. By including port infrastructure in the definition, developers argue that more areas could benefit from the economic opportunities associated with offshore wind projects. Conclusion: The future of U.S. offshore wind projects hangs in the balance as developers urge the Biden administration to ease the subsidy requirements outlined in the Inflation Reduction Act. The challenges posed by the current requirements, including supply chain limitations and equipment shortages, threaten the progress of these projects and could result in job losses and reduced investments. While the subsidy requirements aim to support domestic manufacturing and disadvantaged communities, offshore wind developers argue that the standards are unrealistic given the industry's reliance on overseas equipment and materials. Balancing the need for domestic manufacturing and the growth of the offshore wind industry will be crucial for the Biden administration to achieve its goal of deploying 30 gigawatts of offshore wind along U.S. coastlines by 2030.