In September, following months of increasingly bad news in nascent offshore wind sector, six East Coast governors warned that, without federal action, the industry was at risk of stalling. Project developers have pointed out that supply chain constraints, inflation, and high interest rates are threatening to derail proposed projects. Some developers have looked to renegotiate their offtake agreements with state utilities and regulators, citing increased costs as a key contributor to the loss of project profitability. Others have withdrawn from projects that they see as commercially unviable; Avangrid recently terminated its power purchase agreements with the Connecticut Electric Distribution Companies for Park City Wind, and Orsted has indicated that it may walk away from projects without federal support.
Despite these challenges, the net-zero goals of many East Coast states and the Biden administration’s target of net-zero electricity by 2035 depend on the rapid deployment of offshore wind. Recent analysis estimates that offshore wind could account for 1–8% of U.S. power generation by 2050, and much of this potential lies on the East Coast. The Biden administration’s goal of deploying 30 GW by 2030 was always ambitious; the recent challenges make this more difficult to achieve. Addressing some of the industry headwinds is not only important for the 2030 goal, but it will also set the stage for the longer-term industry. The Department of Energy has outlined ambitions for deploying 110 GW of offshore wind by 2050. The industry also represents a key element in states’ economic development plans as the supporting supply chain is a driver of investment and employment opportunities.
While the Inflation Reduction Act offers significant tax incentives for offshore wind projects and manufacturing facilities through the production, investment, and advanced manufacturing tax credits, these subsidies do not meet the rapidly rising costs in the industry. Analysis from Bloomberg NEF showed that the levelized cost of energy from offshore projects rose from $77.3/MWh in 2021 to $114.2/MWh in 2023. Tax credits from the IRA tax credits lowered costs by $7.20/MWh. Thus, subsidies have not been able to counteract macroeconomic headwinds. The question is whether there are any other federal or state interventions that can support the offshore wind sector.