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28 November 2019

Bold shipbuilder wanted: Lack of vessels choking US offshore wind

With headlines always full of American states updating their offshore wind ambitions, the US is currently committed to a cumulative capacity of 28 GW. While most targets would see this installed by 2035 at the latest, the US supply chain is wildly unequipped to build-out at this rate. With a restrictive policy in place, the lack of US vessels is probably the largest sticking point, and the first US shipbuilder to make installation vessels is likely to reap the benefits.

Only 30 MW of offshore wind capacity is currently installed in the US, and the lack of supply chain is largely due to the fact that large-scale projects are only just coming into view. With states like New York legally committing to expand capacity to 9 GW by 2035, many projects have been awarded to European giants like Orsted, and while the European supply chain can largely hold the fort until the US is ready to look after itself, using European vessels will not be an option. This is not due to the distance across the Atlantic however, but due to the Jones Act.

The Jones Act is part of the Merchant Marine Act of 1920 and regulates that all goods shipped between US ports must be transported on a US built ship, owned by a US company, with a US captain and a US crew. With its 100-year anniversary next year, the Act is here to stay, but unfortunately for offshore wind developers, offshore wind farms are included in the act’s definition of ‘ports’. The only loophole around this is to apply for a waiver on the grounds that the ships used are not currently available in the US, but the terms of such waivers are tricky, and the application process uses up a lot of time and, by association, money.

In terms of installation vessels like jack-ups, or even those with the capability of carrying blades of 100+ meters long, appropriate ships simply don’t exist in the US, and none appear to be in current development. While the Block Island Wind Farm in Rhode Island transported its Alstrom (now GE) Haliade blades across from Europe on a feeder barge, doing this for the intended GW-scale projects, either in a back-and-forth manner or by increasing the number of vessels used, would be terrible for Capex costs, and US-based vessels will be needed.

Another problem lies in the uncertainty of the offshore wind industry in the US, with tax credits and subsidies not-yet finalized. Vessels produced in the US will ONLY be acceptable for use in North America as they are highly unlikely to be cost competitive for use in projects across the Atlantic or Pacific. But with the US market yet to take off, many market players at WindEurope’s Offshore 2019 conference this week described the problem as a ‘chicken and egg’ situation: Without a pipeline no vessels will be built, and without vessels large scale projects cannot go ahead in the specified time frame.

There has been some interest shown by potential US ship builders to partner with European companies, where the latter could benefit from a 25% share in ownership. Netherlands maritime provider Acta Marine is among those which has been approached, but remains skeptical to risk the US market when it will have more than enough business in Europe. Is the 25% share really worth it when it will be providing nearly all of the expertise? And why risk going abroad just to leave a gap for competitors to fill in Europe? US companies are likely to have to acquire a European player, or simply go at it alone.

One of the key contenders for this has to be US power company Dominion Energy, which is the only US developer that plans to be the sole beneficiary of its own project – the 2.6 GW Coastal Virginia Offshore Wind project which aims for commission in 2022. With this self-contained approach on a project of such a massive scale, developing its own vessels may possibly provide long-term savings, and bring in income from outside its home state of Virginia.

General Electric should also consider the leap into the market. With a pedigree in maritime through its Marine Solutions, including oil and gas projects and projects in the US, this move would surely complement the company’s ‘inevitable’ selection of the US for the destination of its next production facility for its Haliade X blades. This may however depend on its willingness to further harm its relationship with the French government, after so far failing to create the jobs it promised in exchange for acquiring Alstrom in 2014, by doing this in the US instead.

Another possibility is that other oil and gas companies try to join the party, as they shift their operations away from fossil fuels and the number of non-renewable projects being denied approval continues to grow. Ship builders like Bordelon Marine showed early signs of this with its attendance at Offshore 2019 and a small involvement in the exploration process for the Dominion project last year. Players like this are likely to be slightly tentative rather than go all-guns-blazing into building a massive installation vessel, but the less-risky strategy of repurposing existing ships for offshore wind projects in the meantime is looking more and more attractive.

The irony is that the longer the US has to wait for offshore wind vessels, the smaller the drive to build them will be. US oil and gas companies already have ships which will be more than capable of installing floating wind turbines, and as costs fall to become competitive towards the end of the 2020s, the uptake of this technology, especially on the west coast, could see as much as 3.2 GW installed by 2030. However, if the US is serious in capitalizing on its vast east coast resource, not letting current pipeline projects fall into a backlog and avoiding the financial penalties, someone will have to make the first move in shipbuilding and accept that the associated risks must be worth taking, with a potential monopoly up for grabs.

A large consideration when doing this must also be the number of acceptable ports in the US for vessels of this scale, with the government already acknowledging that ports will need to be significantly upgraded if ambitious targets are to be met in all states.