A number of offshore wind project developers, including Norway’s Equinor, France’s Engie, and Portugal’s EDP Renewables, has raised concerns that a fleet of critical offshore wind projects central to President Joe Biden’s climate change agenda may be at risk unless the administration eases subsidy requirements outlined in the year-old Inflation Reduction Act (IRA).
The developers, along with trade groups representing others in the industry, have urged officials to reconsider and rewrite these requirements, citing potential job losses and investment setbacks if changes aren’t made, Reuters news report said.
David Marks, a spokesperson for Equinor’s U.S. renewables division, stated, “The components needed for our projects to progress simply do not exist in the U.S. at this time, and we see no signs that the supply chain will be ready in time to meet our procurement schedule.”
Denmark’s Orsted, a major offshore wind developer, recently issued a warning that obstacles to securing U.S. subsidies under the IRA, combined with rising interest rates and supply chain delays, could result in $2.3 billion in impairments for three projects, leading to a significant decline in its stock value.
At the heart of the issue is a requirement within the IRA that mandates clean energy projects seeking bonus tax incentives to be built using American-made equipment and to be located in low-income communities. These provisions are crucial to President Biden’s goals of revitalizing U.S. manufacturing jobs through clean energy investments and directing 40 percent of these benefits to disadvantaged areas. The tax credits amount to 10 percent of a project’s cost and can be claimed in addition to the IRA’s base 30 percent credit for renewable energy projects, potentially providing a total subsidy of up to 50 percent.
However, offshore wind projects face difficulties in meeting these standards due to their reliance on foreign equipment and materials and their coastal locations. For example, U.S. Treasury rules specify that offshore turbine towers must be constructed entirely of domestic steel to qualify for the domestic content credit. The first factory capable of producing such towers in the U.S., located in New York, was scheduled to open in 2025 but has encountered delays and cost overruns.
Developers argue that these requirements are unrealistic and that it is essential to adapt them to the unique challenges of offshore wind projects. Currently, offshore wind projects have lower domestic content requirements compared to other sectors, with only 20 percent domestic content required, while solar and onshore wind projects require 40 percent, according to Treasury rules.
Additionally, the credit for locating projects in “energy communities” depends on the connection to an onshore substation. Developers are advocating for expanding this to include port infrastructure locations that can create jobs and economic benefits across a wider area.
The U.S. Treasury has emphasized that its approach aims to encourage investment in a U.S. clean energy supply chain over time while complying with the IRA’s goals. Labor unions have played a role in pushing for stricter domestic content requirements, a key constituency for the Biden administration.
The White House has expressed its commitment to advancing offshore wind opportunities in the U.S. and highlighted the industry’s role in creating union jobs in manufacturing, shipbuilding, and construction.
Industry representatives stress that adjustments to the subsidy requirements are not only vital for individual projects but also for the domestic industry’s growth and the jobs it will generate. They see this as an opportunity for the Biden administration to overcome challenges related to inflation, supply chain constraints, and permitting delays while achieving its ambitious goal of deploying 30 gigawatts of offshore wind along U.S. coastlines by 2030.
The global offshore wind market size was valued at $31.8 billion in 2021 and to reach $56.8 billion by 2026, growing at a compound annual growth rate (CAGR) of 12.3 percent from 2021 to 2026.