As the U.S. advances its offshore wind ambitions to install 30 gigawatts by 2030, industry players and watchers are awaiting the Biden administration’s next move.
The Gulf of Mexico (GoM) is among the areas being eyed after the U.S. identified nearly 735,000 acres offshore Texas and Louisiana for potential wind energy development. The areas—one about 24 nautical miles off the coast of Galveston, Texas, and the other about 56 nautical miles off the coast Lake Charles, La.—were unveiled July 20 by the Bureau of Ocean Energy Management (BOEM).
In the months since, the BOEM has completed an environmental review of offshore wind leasing in Central California’s Morro Bay Wind Energy Area and put out requests for interests in wind energy for the Gulf of Maine. It has also opened the public comment period, which ends Oct. 17, on draft environmental analysis for the proposed Revolution Wind project offshore Rhode Island.
Decisions have not been made yet on which parts of the identified acreage would ultimately become part of future leases. Officials have said a lease auction could happen summer 2023.
“There’s definitely opportunity for people who are interested in investing in offshore wind.”—Keith Letourneau, Blank Rome
As part of the maritime counsel that assisted with Block Island Wind Farm—the first offshore commercial wind farm in the U.S., Blank Rome partner Keith Letourneau is familiar with challenges that may surface for wind farm developers considering the GoM. Though the Block Island project offshore Rhode Island was in state waters more than six years ago, there are still some lessons learned that could apply in terms of contracting in the GoM, he said.
Letourneau, whose comments have been edited for length and clarity, shared insight on offshore wind potential in the GoM.
VA: What are some of the challenges that could arise for developers of offshore wind farms in the Gulf of Mexico?
KL: The challenges are numerous.
One is getting adequate capital, obviously. Whether or not people are interested efficiently to invest; the risks attendant to the construction; risks attendant to environmental assessments through BOEM. Then you have capital construction costs, and where are you going to build the structures.
You have public concerns about the impact on migratory species. … In the Gulf of Mexico, shrimpers are potentially adversely affected by continued offshore construction. You also have the impact of hurricanes and the engineering that is required to make sure that wind turbines are structurally sound and whether they’re going to be able to withstand them. That engineering has taken place on the East Coast, but the frequency of hurricanes in the Gulf of Mexico is typically more pronounced.
You’ve got challenges with respect to the use of vessels. The Jones Act applies to the construction of offshore wind towers on the Outer Continental Shelf, which means that if you’re moving equipment and goods from the coast of the United States, they have to be carried aboard a U.S.-flagged vessel and there aren’t that many that are specifically equipped to carry those. There’s one [Dominion Energy’s offshore wind turbine installation vessel with delivery planned for late 2023] being constructed right now at the Keppel shipyard in Brownsville. That will be the first U.S.-built wind turbine that basically designated vessel to assist in constructing offshore facilities. Otherwise, they are all foreign-flagged vessels, which means you would have to be transporting in all of your equipment from overseas in order to install it in the U.S., unless you’re transporting it from the U.S. site to the offshore site aboard a U.S.-flagged vessel.
The other issue with respect to the Jones Act is the vessels have to be manned by U.S. merchant seamen. The question then becomes whether or not there are adequate numbers of U.S. merchant seamen that are sufficiently skilled to do the work constructing and maintaining these offshore wind towers. So those are considerable challenges right there.
VA: Are you expecting to see many companies pursue offshore wind in the Gulf of Mexico when the leases are called? Could companies, if they’re based abroad, partner with a U.S. company to help overcome some of the issues related to the Jones Act?
KL: I think the answer to both of your questions is yes. Right now, there are reports that there are nine companies that are very interested in potentially taking leases in the Gulf of Mexico. Those leases are likely going to be issued. A sale will likely take place in 2023. So, yes, there’s definitely a lot of interest.
The last sale that BOEM did for offshore New York—the New York Bight area—the federal government earned close to five $5 billion in revenue. So, there’s definitely interest in developing offshore and there certainly is more available funding from the federal government through a variety of programs that exist, not the least of which is the Inflation Reduction Act, the Infrastructure Investment and Jobs Act and the Port Infrastructure Development Program.
VA: Are there enough incentives to make it worthwhile to pursue such developments?
KL: I would say yes, definitely now, because and there’s also incentives for the states to encourage it.
Congress is looking at some revenue-sharing provisions; some bills have been introduced that would permit as much as 38% of the revenue that the federal government earns to be shared with the state. So, let’s say you had a $5 billion lease sale for the one off of the state of Texas, the state of Texas would stand to gain in excess of $1 billion on that project alone. So, there’s definitely incentive for the states to participate and in that process, the states are going to facilitate the construction of staging areas and production facilities on the coasts of Texas and Louisiana. … The Inflation Reduction Act is giving significant tax credits for investment in offshore wind. The Infrastructure Investment and Jobs Act is going to be depositing $450 million annually for the next five years. The Port Infrastructure Development Program, being managed by the Department of Transportation, is looking for projects that align with the president’s greenhouse gas reduction goals.
There’s definitely opportunity for people who are interested in investing in offshore wind.
VA: How should developers and other stakeholders plan for when these incentives are gone? What should they be thinking about?
KL: I guess that’s the big issue for them is the duration of those tax credits. We’re all at the mercy of which party is in control of Congress, and I think everybody is going to be closely watching what happens in November to see whether there are any changes in the wind in terms of direction.
If the Democrats retain control of Congress, I think you’ll continue to see additional efforts to enhance offshore wind development. If the Republicans gain control of Congress—either the House of Representatives or Senate or both—I don’t think you’ll see any additional progress. But I don’t think you’ll see any additional regression—at least for the next two years.
I don’t think the president would rescind anything that’s been promulgated thus far. Now through the general election in 2024, it’s clear sailing to invest.
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