Offshore wind, on the verge of becoming a major national industry, will need the investment of the U.S. supply chain in order to offset the reduction of the investment tax credit (ITC), explains a new financial report issued by the Business Network for Offshore Wind and Société Générale, a French multinational banking and financial services company.
The higher costs for the companies that often must transport components from Europe can be significantly reduced by establishing a robust U.S. supply chain, the report explains.
The report also finds that the federal government is helping to pave the way for getting this industry rolling by issuing lease areas that today offer up to 17 GW of offshore wind capacity that can power millions of homes.
Liz Burdock, the executive director of the Business Network for Offshore Wind, praises the Bureau of Ocean Energy Management (BOEM) for continuing its effort to “avoid potential slowdowns and plan for future leases of new areas for offshore wind while states are signing agreements with developers.”
“Thanks to BOEM, sufficient federal lease areas exist to support a pipeline of early projects,” she says.
The report also shows that the growth of capital markets in offshore wind has become “very intensive,” according to Burdock.
The report’s most important finding relates to the sunset of the ITC:
“The winding down of the U.S. federal production tax credits and investment tax credits will change the medium-term future balanced cost of capital for U.S. offshore wind projects,” it says. “However, again underscoring the importance of the U.S. businesses, the expectation that the potential for the shortfall in savings from the low cost of tax equity is to be offset from a more robust, efficient domestic U.S. supply chain. The next phase is ensuring adequate financing with the appropriate finance instruments to support development of the project pipeline.”
To address cost and supply-chain issues, the Business Network for Offshore Wind brought together global financial stakeholders for a “Finance Forum” in New York City to compare differences and similarities for financing offshore wind in global markets and discuss ways in which to bring additional capital to the accelerating U.S. market. The report highlights the start of this process by taking a deeper look at the needs of the finance industry in order to improve the case for investment into the U.S. offshore wind sector.
“The U.S. is in the most enviable position,” says Ross Tyler, strategy and development director for the Business Network. “The U.S. has scale, the Europeans have developed the technology and we have lease areas, while states are beginning to issue power purchase agreements. We have the major building blocks, but the most important is the financing which cements them all together.”
According to the report, the U.S. financial market may be more conservative with respect to the contracting structures, yet the finance community has a good finance stack and appetite for investment.
“The timing is good, and we might expect increasingly competitive banks and expansive lending limits for debt, suitable for the offshore wind industry as more projects are completed,” adds Chris Moscardelli, director of energy project finance at Société Générale.
Over the past few months, BOEM has approved four site assessment plans and started the review process for a Construction and Operation Plan, furthering the industry’s momentum. The report says BOEM intends to improve the federal review process by simplifying marine buoys approvals; reducing the length of time for geotechnical surveying results; and allowing developers to incorporate an element of flexibility in applications with a voluntary option to use a project “design envelope.”
The report notes that the upcoming 18 months will be significant for the U.S. offshore wind industry. Advances are expected for permitting the West Coast, and progress will be seen for the existing leased and new lease areas along the Northeast Coast (New York, New Jersey and Massachusetts).
Importantly, the report highlights that equity investors for offshore wind will continue to seek reassurances from the risks associated with permitting, a lack of social acceptance and potential litigation. The industry has done well in its outreach to policymakers and businesses, but more work needs to be done with clarifying public perception, the report says.
The full report can be found here.
