In December 2019, Connecticut announced the largest purchase of renewable energy in state history. Providing 804 megawatts of offshore wind power, Avangrid’s Park City Wind Project promised the equivalent of 14% of the state’s electricity supply, $890 million in direct economic development, improved grid reliability during the winter and the opportunity to slash over 25 million tons of carbon dioxide emissions.
Four years later, it all fell apart.
Last October, Avangrid terminated its Power Purchase Agreements, paying the state a $16 million penalty and expressing its intent to re-bid the project at a higher price. For Connecticut residents who pay on average $593 per month on energy — the fourth highest bill in the nation — this loss of future electricity supply deals a devastating blow.
“One year ago, Avangrid was the first offshore wind developer in the United States to make public the unprecedented economic headwinds facing the industry including record inflation, supply chain disruptions, and sharp interest rate hikes, the aggregate impact of which rendered the Park City Wind project unfinanceable under its existing contracts,” Avangrid said in a press release that evening.
Avangrid did not respond to requests for comment.
At the state level, Connecticut is all-in on offshore wind, and for good reason. Beyond boosting electricity supply, grid reliability and emissions reductions, offshore wind can be generated in the state and procured through power purchase agreements that lock in a fixed price long-term — reducing price volatility for Connecticut ratepayers. Five years ago, Governor Ned Lamont signed legislation requiring the state Department of Energy and Environmental Protection (DEEP) solicit proposals to procure 2,000 megawatts of offshore wind by 2030.
With that support, the abrupt collapse of Park City Wind appeared very strange at first glance.
“I did [think] this seemed fishy,” said State Rep. Raghib Allie-Brennan (D-Bethel), who serves as chair of the House Select Committee on Sustainable & Renewable Energy. “Why all that investment, all we did for it to just break apart, and for it to fall apart rather quickly?”
Now, DEEP is back to the drawing board. Some Connecticut lawmakers worry if DEEP cannot procure new offshore wind in 2024, the state could lose spots in the supply chain to other developments in the U.S. and worldwide, potentially pushing back the offshore wind timeline by three to five years, or more.
Where’s favorable wind blowing
While Avangrid faced financial challenges in Connecticut, the global industry has favorable winds. Germany has 30 operational offshore wind farms, the United Kingdom has 44, and China has a whopping 144.
The United States, on the other hand, has three. Several more U.S. offshore wind farms have been proposed, but like Connecticut, states such as New York, New Jersey, Rhode Island and Massachusetts have all seen major projects flop in the last seven months.
That’s because it’s not just inflation and supply chain disruptions impeding U.S. offshore wind companies like Avangrid. It’s also federal policy.
On the surface, federal officials seem strongly in favor of offshore wind. The Biden Administration set a national target of 30 gigawatts of offshore wind energy by 2030, and the Inflation Reduction Act (IRA) offers a 30% investment tax credit and 10% domestic content bonus for offshore wind projects that use 100% U.S.-made iron and steel in non-manufactured components.
“The federal agencies are really working to support the needs of those regional groups, providing analysis where possible, providing resources where possible, and working together to see what we can put in place to actually help and move [offshore wind] forward,” said Genevra Harker-Kilmes, senior advisor to the U.S. Department of Energy’s Wind Energy Technologies Office, in a recent Reuters webinar.
Yet, other policies stand in the way.
According to Dr. Erin Baker, a distinguished professor of industrial engineering at the University of Massachusetts, Amherst, permitting laws create significant obstacles for offshore wind developers. Companies must spend significant time and resources navigating a complex labyrinth of regulations related to the environment, species and habitats, history, culture, recreation, commerce and tourism — and may face several lawsuits from opponents throughout that process.
“We want to make sure that these wind farms are environmentally responsible, but it's so disorganized right now,” Baker explained. “I don’t have the solution for that, but I think streamlining the permitting [presents] some really good possibilities.”
Baker’s not wrong. Per the Federal Infrastructure Permitting Dashboard, Park City Wind began the federal permitting process in December 2020. Over three years later, only two of the project’s nine required permitting processes had been completed. Park City Wind has also been granted three deadline extensions in the last year.
Baker said that while offshore wind projects can have adverse environmental impacts, delaying their rollout may prove worse for wear. Since fossil fuel combustion is the primary cause of climate change, rapidly deploying a clean energy source like offshore wind would fend off more damage than it causes.
“These local impacts are dwarfed by the impacts of climate change,” said Baker. “Turbines will kill individual birds. Climate change will cause species to go extinct.”
Echoing Avangrid’s October press release, Baker also examined the issue of spiking interest rates.
“You spend all this money to build the wind turbine, then the wind blows for 20 or 30 years, and you get essentially free electricity,” she said. “But you have to build them. In order to build them, you need to borrow money. And so the interest rate is really important, and these high interest rates are driving up the costs.”
On the day Connecticut announced its Park City Wind contract with Avangrid, the effective federal funds rate was 1.55%. On the day of its termination, rates had skyrocketed to 5.33%. By raising interest rates, the Federal Reserve aims to reduce money borrowing and slow inflation. But per Avangrid’s statement, both high interest rates and inflation doomed their Connecticut contract.
“I think inflation did play a role,” Allie-Brennan said. “I don't think that no one wanted to invest in it further, but [the costs] got astronomical.”
While inflation increases expenses for all energy projects, U.S. offshore wind is particularly susceptible due to its extreme reliance on foreign supply chains. Without domestic component manufacturing, offshore wind projects encounter global price fluctuations. Additionally, they may not qualify for IRA tax credits that require components to be made in the U.S.
“[The IRA tax credits are] dependent on how much of the material and the manufacturing is done here in the U.S. [...] But right now, we do need components from abroad,” Harker-Kilmes said. “We need the security of supply and the lack of disruption when you’re dependent on international supply.”
As the U.S. offshore wind industry yearns for a domestic supply chain, yet another federal regulation has blocked that dream. Offshore wind companies must contend with the Jones Act: a World War I-era law regulating maritime transport in U.S. coastal waters and between domestic ports.
“[The Jones Act] makes everything more expensive,” said Travis Fisher, director of energy and environmental policy studies at Cato Institute, a DC-based libertarian think tank. “If you're talking about moving materials, you might not be able to move from one U.S. port to another, so then you have things coming in an unnecessarily complicated way. You might have to source things from another country that you wouldn't otherwise.”
Under the Jones Act, maritime transport from one U.S. port to another is only allowed if the ship was built in the U.S., flagged in the U.S., and manned by an American crew. The original aim was to protect national security and assist America’s shipyards and maritime fleet by eliminating competition from other countries. However, the added costs these rules impose on offshore wind installations may, in some cases, be too prohibitive to overcome.
“It’s an archaic law, and I’m not sure why we’re not budging here,” Allie-Brennan said. “I think there are reasons behind it, but [...] we’re paying for it at the end of the day.”
The offshore wind industry uses big, specialized ships called turbine installation vessels (TIVs) to assemble the turbines miles out at sea. Due to the added cost of building TIVs domestically as opposed to abroad, there is not a single U.S.-flagged ship that can perform that task. In 2020, Dominion Energy set out to build the first Jones Act-compliant TIV — which will cost at least $200 million more than if built abroad.
Some offshore wind developers have managed to find workarounds. Ruth Marsh, offshore wind principal project manager, North America at DNV, the energy arm of a Norwegian risk management firm, shared in the Reuters webinar that they’re using smaller U.S.-flagged ships called feeder barges to transport turbine components from U.S. shores to the construction site, where a larger foreign TIV will receive and install them.
“How we’re handling it right now while we are waiting for our first wind turbine installation vessel is using barges to transport components from shore to the project sites, and then using international flagged wind turbine installation vessels to [pick] up the component and [install] the turbine there,” she said.”
Baker at UMass Amherst said looking at the lackluster U.S. offshore wind industry today, it appears many offshore wind companies have chosen not to bother.
“There's 60 gigawatts [of offshore wind] worldwide. But less than a half of a gigawatt in the U.S.” said Baker.
Reviewing the costs of a Jones Act workaround, a 2018 study from the New York State Energy Research and Development Authority found that when constructing an offshore wind farm, only using a TIV costs 7% less than using a feeder barge system — saving over $41,000 for a single turbine. Smaller feeder barges are also more susceptible to meteorological delays, and lifting heavy components from the feeder barge to the TIV brings risks of vessel damage, marine pollution, and even human casualties.
In contrast to these long-standing environmental permitting and maritime shipping laws, incentives like the IRA face far more political vulnerability.
“[The IRA] was a budget action, instead of a formal policy [that] would have required 60 Senate votes. So I think that makes it vulnerable to being overturned,” Fisher said. “If you have a 20-year contract, you have to sort of hedge on the availability of the subsidy.”
Making offshore wind a breeze
Today, many renewables outcompete fossil fuels. It is now more expensive for 99% of U.S. coal plants to keep running than it is to build an entirely new solar or onshore wind energy operation nearby. But offshore wind lags behind, costing 6-7 cents per kilowatt hour to coal’s 4 cents and onshore wind’s 3 cents.
“Right now, it just doesn't pencil out in terms of turning a profit in U.S. markets,” Fisher said. “If the goal is clean energy, we shouldn't be too prescriptive about the resource that we want. It should be as open ended as possible, and that is really not what we've seen. Especially in the case of a specific offshore wind mandate, that's kind of the opposite.”
While Fisher argued for a more free market approach, some policy analysts expressed optimism that offshore wind’s hurdles can be overcome with new policy support. Without federal regulations impeding offshore wind, the cost of new projects could fall, and states like Connecticut could finally provide answers for ratepayers.
At UMass Amherst, Baker said offshore wind would play a critical role in a carbon-free electric grid by balancing out the limitations of other energy sources.
“A nice aspect of offshore wind is that it tends to blow most in the afternoon and early evening, when demand for electricity is very high. And it also works really well combined with solar, which works during the day, and onshore wind, which has a tendency to be strongest at night,” she said. “So all of these technologies — onshore wind, offshore wind, solar — are really crucial for addressing climate change. As they substitute for fossil-based generation, they reduce emissions.”
In addition to streamlined permitting, Baker suggested green bonds as a way governments could skirt federal interest rates and make offshore wind investment more attractive. Others have argued for more efficient designs, Jones Act waivers, or even repealing laws like the Jones Act altogether.
As for Connecticut, Allie-Brennan acknowledged that the broken Park City Wind contract was disappointing. But he reassured that Nutmeggers can still expect major strides toward clean, affordable, reliable energy.
“The cancellation of Park City Wind definitely is a setback. But we've got other projects, like solar fields. We're doing windmills on land. There's hydroelectric dams. ... We're joining forces with Massachusetts and Rhode Island to procure future [offshore wind] projects,” Allie Brennan said. “It’s taken some time, but I feel like we’re in a good place.”
The Danish developer Ørsted was awarded a contract from New York to build another offshore wind farm near its recently finished South Fork Wind, the nation’s first utility-scale project to deliver power to the electric grid. The projects are being assembled at State Pier in New London, Connecticut.
The developer also was given federal approval last August for another project Revolution Wind, which would deliver power to Rhode Island and Connecticut.
