The offshore wind market has seen rough seas over the last 18 months or so. While two large projects in New York and Massachusetts have just begun delivering power, and another off the Virginia coast—the largest so far—is in early construction stages, multiple other efforts have been canceled due to changing financial conditions.

Developers say they’d now lose money selling electricity at the previously contracted prices because their construction costs have risen significantly. Now, several East Coast states are looking at ways to spread those financial risks and protect a new industry that promises good jobs and increased tax revenues.

Some wins, more losses

Given 2023’s financial challenges, offshore wind advocates were pleased the industry got to close out the year with a bit of encouraging news, as turbines started turning for New York’s 130 megawatt (MW) South Fork project in December 2023 and Massachusetts’ 800MW Vineyard Wind installation in early January. And in November, Dominion Energy actually lowered estimated electricity pricing from its 2,640MW Coastal Virginia Offshore Wind project, which began onshore construction in late 2023, with completion expected by the end of 2026. But the rest of the year was a bit of a wash, with several other utility-scale projects canceled in Massachusetts, New York, New Jersey and Connecticut.

Each canceled proposal faced its own headwinds, which in most cases were complicated by cost estimates calculated before the pandemic and the war in Ukraine. Both events drove up equipment costs and disrupted supply chains and construction schedules. Resulting bottlenecks were complicated by the fact that so many projects were scheduled to begin construction at once in an industry that’s still so new in this country. Because the United States is still building its domestic supply chain for turbines and other infrastructure, developers here still must depend on a limited number of European manufacturers, leading to delays.

Then there’s the issue of the specialized ships needed to transport equipment to the offshore site and erect the poles and turbines. Under current regulations, only U.S.-built and -registered vessels are allowed to transport goods between two U.S. locations. However, no such ships exist. Dominion Energy has commissioned the first, which is scheduled to launch by the end of this year or early 2025. In the meantime, developers must use specialized, U.S.-flagged barges to ferry components out to work sites, where they are transferred to one of the 12 international installation vessels now available for this effort.

State-level progress

While issues such as current shipping restrictions can only be addressed at the federal level, East Coast states are beginning to consider ways they can work on their own to support wind development. Offshore wind help many of them meet their own net-zero electricity targets, and project developers and others are already spending millions to develop new ports and manufacturing facilities to support this new industry.

In New England, for example, Massachusetts, Connecticut and Rhode Island have teamed up to coordinate their purchases of offshore wind-generated electricity. Previously, each state issued its own solicitation. However, because of the proximity of their respective wind resource areas—and the fact that they’re all served by the same grid operator, ISO New England—production from any single installation could easily serve any combination of the three states. Under the agreement, the states established a combined capacity target of 6,000 MW. Developers were requested to submit proposals up to that limit for review, and any two—or all three—states might choose to move forward on these efforts.

The move could cut costs and construction schedules significantly, versus each state pursuing its own new offshore wind resources. Environmental reviews could be consolidated, and a single project serving two or three states would mean a single, larger construction effort, rather than two or three projects each vying for contractors and specialized equipment.

Other states are taking note. In a January report, Delaware’s Department of Natural Resources and Environmental Control advised that state’s legislature and governor that similar partnerships with surrounding states should be considered as a way to meet its net-zero target.

States also are looking at ways to ease the proposal process and developers’ fears that rising costs could threaten profitability during the time between when a bid is accepted and turbines start spinning. In Massachusetts, for example, developers of two previously announced projects paid tens of millions of dollars last year to get out of contracts that became unaffordable due to high inflation over the last few years. In contrast, New York’s latest offshore wind solicitation includes provisions for companies with existing contracts to bid into the new offering at a higher price and, if that bid is accepted, the original contract is terminated. If that developer is outbid, the capacity is simply re-awarded. No financial penalties are assessed in either case.

Header image: Block Island Wind Farm