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13 February 2020

Race to the US: Siemens considers establishing offshore wind hub

It’s an open race as to who will lead each sector of the supply chain through the buildout of offshore wind in the US, with state-led promises now amounting to 28 GW by 2035. Offshore turbine leader Siemens is the latest to pipe up with eyes on a state-side manufacturing plant, but could face competition from General Electric (GE).

In a testimony on Friday, Siemens Gamesa’s head of government affairs claimed that the company was “actively examining” a $200 million blade manufacturing facility in the Hampton Roads area, in either North Carolina or Virginia. The new plant would employ 750 people and would most likely serve the initial purpose of supplying the three-phase 2.64 GW Dominion Energy project off the coast of Virginia.

This provides the largest chunk of Siemens’ current 4.3 GW backlog of offshore wind projects in the US, a figure that will almost certainly rise as the industry continues to gather pace in the country.

If this news rings any bells, you’ll be thinking of the move that GE hinted at in October last year. But with plans to supply its current pipeline of US orders from existing manufacturing facilities elsewhere, the company has kept its cards close to its chest – and Siemens will probably do the same.

As the only major turbine-maker not sounding US-based intentions, MHI Vestas could either be trying to slip under the radar, or simply be doing nothing at all. The US market still lingers in uncertainty and needs a move from a major player to really kick things off, but no one wants to be at the bleeding edge if it means losing money. Turbines are the headline constituent of any offshore wind farm, and with the US currently in a bit of a deadlock in terms of supply chain players and shipbuilders committing to building out production capacity, a turbine-plant in the US could provide the much needed spark to initiate the offshore wind boom there.

In projects where turbine-makers have been announced in the US, Siemens’ backlog amounts to a lion’s share of 68% – well ahead of GE (19%), and MHI Vestas (13%). While the impetus for Siemens to move state-side might not seem that high, with business going well as it is, if GE makes the move back to its home country first, things could shift very quickly as turbine-makers compete for the country’s ever growing pipeline. Vestas will probably look to capitalize on markets elsewhere.

The share of the new turbine orders will be largely driven by cost, as developers try to grab margin gains wherever possible in the US – especially with renewables subsidies like the Production and Investment Tax Credits wobbling under the current administration. Local turbine supply can reduce Capex from transportation significantly, with European feeder barges costing in excess of $150,000 per day for turbine shipment across the Atlantic.

A new production facility will also largely protect a turbine manufacturer against any local content demands or trade tariffs which could pop up over the coming years. Such regulations wouldn’t be surprising – the industry is currently following a cost reduction path similar to that seen within the tariff-plagued solar industry in the past few years.

The renewables supply chain often follows its nose, setting up shop close to the orders. You’d therefore assume that once one turbine-maker moves, the other major players will follow to stop one company gaining a stranglehold over the market.

However, while the US will only account for 11% of the global market by 2040, behind only the UK and China, the early stage development of the 2020s will be on the east coast, before floating wind causes a surges of installations on the west coast from 2030 onwards. Setting up an offshore wind ‘hub’ on the east coast may not be sustainable if the long-term future of the technology lies over 2,500 miles across the country. Suggestions of two hubs in the US – one in Massachusetts and one in Virginia – are therefore ludicrous in the short term, as more certain markets emerge elsewhere.

Currently several locations are ‘bidding’ to become the epicenter of the early industry, with developers now having an unwritten obligation to develop infrastructure surrounding their projects. Through the development of the 800 MW Vineyard Wind project, Bridgeport in Connecticut will receive an $890 million injection into its local infrastructure and supply chain, including local cable supplier Kerite, which Vineyard claims will become “America’s first Tier 1 offshore wind supplier”. Vineyard will also facilitate the development of Barnum Landing as an onshore operations site, with many current east-coast ports falling short of the heavy-industry requirements for offshore wind construction.

However, this project is now facing a new wave of pressure, compounded by BOEM’s prolonged cumulative impact assessment, and the project will now not be completed by its initial deadline of 2022. The project will now have to push for an extension of its qualification for the federal Investment Tax Credit to maintain its promising economics. These stumbling blocks may leave some room for Dominion Energy to swoop in and establish the US’s offshore wind hub in its home state of Virginia, with areas like Hampton Roads benefitting from an abundance of skilled labor through Newport News Shipbuilding and Norfolk Naval Shipyard, as well as strong truck and rail access.

This shipbuilding capacity is also likely to be at the forefront of locating a hub for the US industry. The Jones Act mandating that all goods transported between ports in the US (including wind farms) must take place on a US-flagged and US-manned vessel – and currently there is only one ship in the country capable of installing turbines. For the current proposed buildout to 2030, Rethink Energy estimates that at least 8 large installation vessels will need to be developed in the US, along with over 200 smaller support vessels. Some of these ships are likely to exceed $300 million in cost, with a lead time of nearly 3-years – so the US really must get going if it wants to cut costs for its early projects.

This is particularly prevalent given the promised low-cost of offshore wind in the US. This week, Shell and EDPR announced that the Mayflower Wind project, Massachusetts will come online in 2025 with a record-breaking price of $58.47 per MWh, cutting beneath the Vineyard project with $67.59 per MWh. Achieving these costs will be heavily dependent on the cost of supplying turbines – ideally from a US facility – and will be essential in providing investors with confidence that the US offshore industry will continue to grow consistently, at the costs promised by developers.

The US industry also received a minor boost this week, with offshore wind among a dwindling number of energy-related beneficiaries from Trump’s budget proposals for the 2021 financial year. BOEM’s fund to “advance offshore renewable energy development” is one of the only sections to have seen a specified budget increase, with the new $26.5 million level up from $21.3 million last year.