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S&P Podcast: US poised for Atlantic Coast offshore wind power boom

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S&P Podcast: US poised for Atlantic Coast offshore wind power boom

Between extended federal tax credits, states' renewable energy commitments and the recent approval of the country's first utility-scale installation off the shore of Massachusetts, the U.S. offshore wind sector is on the cusp of an Atlantic Coast construction boom, several experts told S&P Global's "Energy Evolution" podcast.

With U.S. President Joe Biden's administration setting a goal to build 30 GW of capacity by 2030, the joint venture Vineyard Offshore Wind Project between Copenhagen Infrastructure Partners K/S and Iberdrola SA's Avangrid Inc. will provide a blueprint for any regulatory issues the expanding pipeline of projects may face, according to General Electric Co.'s Christy Guthman.

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"I think the industry can scale up very quickly ... once that first project, Vineyard Wind, is fully permitted, built and operating," Guthman, GE Renewable Energy's North American offshore wind commercial lead, said in an interview. "It will establish a permitting template and provide lessons learned that can be applied to future projects. ... and there are over 14 GW of offshore wind projects that have been awarded already with power purchase agreements."

GE is the official wind turbine manufacturer for Vineyard Wind, which closed on $2.3 billion in senior debt from nine banks Sept. 15, and several other planned offshore projects.

Given hurdles that include an arduous permitting process, however, offshore wind development in the U.S. will likely remain far behind Europe's trajectory.

"The permitting process itself for the early projects has taken more than four years from initial submittal to an anticipated final project approval and then still two years to get built," Troy Patton, COO of Ørsted A/S's offshore North American region, said. "That takes two or three times what it takes in Europe."

Ørsted, the world's largest offshore wind developer, owns the first commercial wind farm offshore the U.S. Since Block Island Offshore Wind was developed, a steep decline in wind power purchase agreement prices is fueling optimism about the industry's future.

"The first offshore [power purchase agreement] from Block Island was priced at about $240/MWh back in 2016, but current projects are pricing out at a fraction of that," Regulatory Research Associates' Adam Wilson wrote in March. "Notably, the Vineyard and Mayflower offshore projects announced levelized [power purchase agreement] prices between $58/MWh and $74/MWh. While this is still considerably higher than onshore prices, the gap is closing."

In November 2020, the Massachusetts Department of Public Utilities approved long-term contracts for the Mayflower Wind Offshore Project, a joint venture between Royal Dutch Shell PLC's Shell New Energies US LLC and EDP - Energias de Portugal SA affiliate EDPR Offshore North America LLC, to supply the state's electric distribution companies.

At the same time, financing offshore wind development is a new front for even the biggest Wall Street banks when it comes to using federal tax credits to fund returns, given the scale of the projects.

"Most offshore wind projects that we're seeing in our sponsors' pipeline require over $1 billion of tax equity investment," Samantha Buechner, a director on Wells Fargo's Renewable Energy and Environmental Finance team, explained. "You will usually need between two and three very large tax equity investors that can write very large checks ... and so we do have some experience already negotiating with multiple parties and working with other bank partners."

Still, Dominion Energy Inc.'s Mark Mitchell emphasized that U.S. offshore wind remains a very attractive investment proposition as decarbonization progresses.

"The wind blows pretty constantly, and ... as it pairs with solar in particular, the generation patterns actually complement each other," the utility's senior vice president of project construction noted. "You're getting closer to 24/7 renewables."

Dominion announced plans in 2019 to develop more than 2,600 MW of offshore wind capacity by 2026 off the coast of Virginia. Construction on the $8 billion Virginia Beach Offshore Wind Project's first phase is scheduled for completion in 2024 pending a record of decision from the U.S. Bureau of Ocean Energy Management.

Regulatory Research Associates is a group within S&P Global Market Intelligence.