'Risk of failing' | US governors of leading offshore wind states urge support for struggling sector
Northeastern regional heads say tax clarity and permitting reform needed as ratepayers may be ‘unable to absorb’ rising costs
Six governors of pioneering states in US offshore wind signed a letter urging President Joe Biden to rescue the faltering sector by releasing critical tax credit guidance as well as streamlining project permitting and enabling federal-state revenue sharing.
The governors of Connecticut, Maryland, Massachusetts, New Jersey, New York, and Rhode Island, collectively “responsible for 100% of the commitments to build offshore wind in the US to date”, warned that “inflationary pressures, Russia’s invasion of Ukraine, and the lingering supply chain disruptions resulting from the COVID-19 pandemic have created extraordinary economic challenges”.
“Instead of continued price declines,” the governors said, offshore wind faces “cost increases in orders of magnitude” that threaten not only future procurement but also the current slate of contracted projects.
US states have contracted some 12GW of offshore wind capacity, but two thirds of this is jeopardised by inflation and rising interest rates.
“Absent intervention, these near-term projects are increasingly at risk of failing,” the governors wrote.
To head off disaster, the governors urge guidance from the US Treasury Department “to ensure offshore wind projects are fully eligible for federal clean energy tax credits”.
US landmark climate legislation Inflation Reduction Act (IRA) includes generous investment tax credits (ITC) that can reach 50% of capex, but projects already under contract have been largely shut out of domestic content and energy community ITC adders due to lack of clarity from Treasury.
The nascent US offshore wind supply chain is unable to provide components for projects already engaged in or nearing construction.
Meanwhile, the industry awaits clarity on how to gain the 10% tax credit for development in ‘energy communities’, which are areas that have been impacted by fossil fuel production and generation.
The governors urged the federal government to provide “achievable pathways to qualify for the bonus tax credits” while ensuring that ITC is available for all project components, including onshore transmission.
The governors likewise advocated for revenue sharing between federal and state governments for costs of leasing sea space.
While state ratepayers solely bear the cost of offshore wind, all commercial scale projects are being developed in leases purchased from the federal government.
“A portion of these revenues should be re-distributed back to the proximate States that bear these costs,” the governors said.
They encouraged passage of the Reinvesting in Shoreline Economies and Ecosystems (RISEE) bill to achieve this.
The US’ sluggish permitting regime is a constant challenge for the sector and contributes years to development timelines which now average eight to 10 years. This has directly contributed to the rash of challenges facing the current portfolio as most were contracted with cost assumptions that have been obliterated by inflation and rising interest rates.
“We ask that you work with your agencies to ensure permitting processes are expedited and streamlined for these projects to avoid unnecessary cost increases,” the governors wrote.
Jason Grumet, CEO of industry advocate American Clean Power Association (ACP), likewise urged the Biden administration “to fully deploy the tools provided by the IRA and address bottlenecks in the federal permitting process hindering the industry’s ability to meet state and federal deployment goals.”
The governors, all Democrats, included: Ned Lamont, Connecticut; Wes Moore, Maryland; Maura Healey, Massachusetts; Phil Murphy, New Jersey; Kathy Hochul, New York; and Dan McKee, Rhode Island.
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