President Biden has signed a $430 billion economic and energy bill – an omnibus spending bill that seeks to address climate change, inflation and Medicare costs while allocating billions to cut carbon emissions and incenting clean energy production and development.
In a big victory for the Biden Administration, The Inflation Reduction Act of 2022 quickly gathered momentum in Congress in late July after Sens. Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) – two holdouts that opposed Biden’s original climate bill – agreed to lend their support.
The legislation – which aims to cut emissions 40% by 2030 – contains $369 billion in climate and energy provisions, devoting nearly $280 billion to clean energy tax incentives.
Generally speaking, renewables in the US are facing pressure from rising supply chain costs, global supply chain disruptions and spiking commodity costs. The IRA will stimulate green technologies and ramp up domestic supply chains, creating favorable conditions for US offshore wind.
The act extends and expands several new clean energy tax credits, such as the Investment Tax Credit (ITC), Production Tax Credit (PTC) and Advanced Manufacturing Production Credit. Such long-term extensions are crucial for developers and suppliers to plan future projects without the fear of tax incentives expiring.
Perhaps the most impactful measure for offshore wind is an extension of an existing ITC, which was set to expire in 2025. The bill allows for the 30% ITC available to projects placed in service after 2024. Notably, the ITC and PTC would phase out when emission reductions meet target levels of 25% of 2022 levels or after 2032, whichever is later.
“The Inflation Reduction Act provides certainty for clean energy as this legislation breaks the ‘on-again off-again’ policy cycle,” notes Doug Pfeister, Managing Director of The Renewables Consulting Group, an ERM Group company. “This game-changing legislation will set-up US offshore wind for years to come and go a long way in helping President Biden achieve his stated target of 30 GW of US offshore wind by 2030.”
A long-term extension should also help to alleviate wind developer concerns about the rising cost of raw materials. Projects meeting certain domestic content requirements are eligible for a bonus credit. The act supplements the offshore wind supply chain with a broad array of supportive tax measures, such as extra deductions for US-made content like offshore wind shipbuilding but also for production costs of critical minerals, nacelles, tower foundations, inverters, batteries, and other components in the offshore wind supply chain.
The Act also opens up wide swaths of seabed available for future leasing opportunities. For starters, the IRA will resume offshore wind leasing off the southeast seaboard, reversing a 2020 executive order issued under President Trump. The IRA also directs the Bureau of Ocean Energy Management to issue Calls for Information before September 2025 for offshore wind areas within the exclusive economic zone adjacent to US Territories such as Puerto Rico, Guam, American Samoa, the US Virgin Islands and the Northern Mariana Islands.
For the first time, the act includes significant new incentives for clean hydrogen production, such as a Clean Hydrogen PTC/ITC. The bill provides a separate credit stream for integrated hydrogen projects and is available during the first 10 years of facility operation provided projects begin construction before 2033.
Deb Haaland, US Department of the Interior Secretary, announced in October that the Bureau of Ocean Energy Management (BOEM) would hold up to seven new offshore lease sales by 2025 as part of the Biden-Harris administration’s goal to deploy 30 GW of offshore wind energy by 2030.
Many of the locations, such as the New York Bight and the Carolinas, were expected by developers and industry-watchers. However, it was the inclusion of the Central Atlantic – specifically the far-reaching area that BOEM has allocated for further study – that took some by surprise.
The Central Atlantic Initial Planning Area (IPA) – a wide swath of seabed 20 miles offshore stretching from Dewey Beach, Delaware and to Cape Hatteras, NC – is in many respects a work in progress as much still needs to be studied in the area.
Exhibit : The Central Atlantic Initial Planning Area (Source: The Renewables Consulting Group)
Based on the map’s boundaries, The Renewables Consulting Group (RCG) estimates the Central Atlantic IPA at just short of 20,000 square miles (52,000 km²). To put that massive number into some context, the zone is nearly six times larger than the total area of all offshore wind leases executed in the United States to date (3,374 square miles; 8,700 km²).
It is not yet known the number of lease sales the Central Atlantic IPA will yield. In general, BOEM follows a five-step procedure before reaching a lease auction. The Central Atlantic IPA is at the first step: planning and analysis. Here a Renewable Energy Task Force is established to coordinate among federal, state, local, and tribal governments around the leasing process and share information about the advantages and disadvantages of potential offshore wind areas. The industry observes and makes contributions to the Task Force and thereby stays abreast of developments. As BOEM works through this initial stage, the agency is meeting with stakeholders and next month plans to hold meetings with fisheries management councils and representatives from recreational fishing organizations. The next meeting of the Central Atlantic Task Force is expected in February 2022.
At-A-Glance: Central Atlantic Initial Planning Area
The origin of the Central Atlantic IPA dates back to April 2020 when the Virginia Clean Economy Act was passed into law creating Virginia’s 100 percent clean energy by 2050 Clean Energy Standard. Governor Ralph Northam, D-Va., then wrote to BOEM requesting the formation of a renewable energy regional task force that could lead to a lease sale. BOEM agreed and created a Central Atlantic Intergovernmental Renewable Energy Task Force encompassing the area defined above. The first Task Force meeting took place in February earlier this year.
Clearly, Virginia – along with other southeastern and mid-Atlantic states – is banking on offshore wind to help meet its economic and environmental objectives. In October 2020, Northam announced a three-state collaboration with Maryland and North Carolina to advance offshore wind projects in the region and promote the area as a hub for offshore wind:
“Harnessing the power of offshore wind is key to meeting the urgency of the climate crisis and achieving 100 percent clean energy by 2050,” said Gov. Northam. “Virginia is well-positioned to scale up offshore wind development with a 12-megawatt wind demonstration project already built off our coast. This agreement will help unlock our collective offshore wind resources and generate tremendous economic and environmental benefits for the region. We look forward to working with our partners in Maryland and North Carolina to grow the offshore wind industry and secure a cleaner, healthier, and more resilient future.”
As there is still much to be determined, one thing is clear: the US East Coast has yet another promising area to further develop offshore wind energy.
Doug Pfeister, Managing Director of RCG in the Americas, says, “Identifying the Central Atlantic IPA is yet another example of the Biden-Harris Administration’s unprecedented commitment to offshore wind. Though it is early in the process, the Central Atlantic presents many opportunities for this multistate effort as well as the federal government to reach all of their renewable energy and climate change goals.”
On Dec 21, the US Congress passed a massive $900 billion Coronavirus relief package bundled with a $1.4 trillion government spending bill to help with the economic fallout from the global pandemic. President Trump, after last-minute deliberations, signed the bill into law on Dec 27.
The Consolidated Appropriations Act,2021 addresses a wide array of sectors from extending unemployment insurance to small business loans, the omnibus spending bill also carves out provisions to extend deadlines for developers of terrestrial wind, solar, offshore wind, geothermal, biomass, and other renewable energy projects to qualify for federal tax credits. It is the most significant energy bill passed in the US since the Obama-era American Recovery and Reinvestment Act of 2009.
Specifically, the legislation extends deadlines for developers of terrestrial wind, solar, offshore wind, geothermal, biomass, and other renewable energy projects to qualify for federal tax credits.
Here’s how the bill impacts renewable energy:
Offshore wind. Among the biggest beneficiaries of the massive stimulus package is offshore wind.
Typically, developers have the option to elect the production tax credit (PTC) or the investment tax credit (ITC). Given the high cost of construction – relative to land-based wind farms – developers typically elect the ITC as opposed to the PTC, which pays a credit per kWh of electricity generated. The legislation extends for five years a 30% ITC for offshore wind projects that begin construction as late as 2025.
Importantly – unlike other tax credits like the PTC and ITC for solar – the ITC in offshore wind will not diminish in value over time and will remain at 30% during the eligibility period.
Given the complexity and long lead time involved in permitting, procurement and financing for offshore wind power projects, the five-year extension should enhance the financial viability of US offshore wind.
Terrestrial wind. The legislation extends PTC eligibility by one year at the current 60% level for wind projects that start construction before the end of 2021 – meaning the PTC provides for a credit of $0.015/kWh to wind project owners for energy produced during the first 10 years after a project is placed into service.
Given the complexities of the US tax law, developers must meet specific conditions to qualify – namely beginning construction before the end of 2020 and achieving commercial operation starts by 2024.
Solar: For solar projects that begin construction in 2020, 2021 or 2022, the new law says that developers of solar projects will qualify for a 26% ITC, rather than 22%.
Solar projects that begin construction in 2023 will qualify for a 22% ITC. For any solar project to qualify for more than a 10% ITC, it must be in service before 2026, as opposed than before 2024.
Aside from renewable energy technologies, the legislation carves out provisions for energy efficiency programs in data centers, schools and federal buildings. Further, the legislation sets a goal that federal lands produce 25 GW of electricity from wind, solar and geothermal sources by 2025.
To read the full text of the 5,593-page document, click here.
For a deeper understanding of how RCG and its services can assist, visit www.thinkRCG.com
Having secured more than the necessary 270 electoral votes, Democratic presidential nominee Joseph R Biden was elected President of the United States on November 7, 2020 – four days after the US election.
According to the Associated Press, Biden received 290 electoral votes while Trump gained 214 electoral votes. Biden received 50.6% of the popular vote compared with 47.7% for Trump.
The protracted contest – which saw a record number of Americans cast ballots by mail or in person in a presidential election – is not yet completed as a number of states have presidential races that are too close to call. For his part, Trump has refused to concede the election and has vowed to fight the result in court.
While Democrats will hold a narrow majority in the House of Representatives, the final makeup of the Senate is not yet clear. On January 5, 2021, Georgia will hold two runoff elections. Democrats would need to win both races to effectively have control of the Senate — with Vice President Kamala D. Harris serving as the tie-breaking vote — while Republicans would retain a narrow advantage by winning at least one.
President-elect Biden will be officially sworn in as the 46th US president on January 20, 2021.
Biden’s triumph spells victory for renewable energy in the United States. Throughout the campaign, Biden emphasized the importance of using renewable technologies such as wind and solar to transition the US to a clean energy economy while reducing carbon emissions.
In a largely bipartisan acceptance speech, Biden pledged to “marshal the forces of science and the forces of hope” in the battle to “save our planet by getting climate under control”.
As Biden will not be officially sworn in until after the new year, the truest indication of how renewable energy will factor into his administration can be gleaned from the president-elect’s energy plan.
Among other measures, Biden will call for the US to achieve a 100% clean energy economy and reach net-zero emissions no later than 2050. Biden campaigned on the promise that he will sign a series of new executive orders “with unprecedented reach” that go beyond the Obama-Biden Administration.
Biden says he will urge Congress to: establish an enforcement mechanism that includes milestone targets no later than the end of his first term in 2025; make historic investment in clean energy and climate research and innovation; and incentivize the rapid deployment of clean energy innovations across the economy, especially in communities most impacted by climate change.
However, Biden’s latitude for action could be constrained as he requires Senate approval to fund renewable and alternate energy programs. If Republicans retain control of the upper chamber, they will likely restrain Biden’s ability to pursue such programs.
Regarding climate change, Biden says he will recommit the US to the Paris Agreement on climate change. The US formally exited the 189-nation accord, two-and-a-half years after President Trump announced plans to pull out of the world’s most ambitious environmental pact. Biden has said the US could rejoin the Paris accord quickly; as soon as his first day in office.
The President-elect says he will fully integrate climate change into US foreign policy and national security strategies, as well as its approach to trade. His plan calls for numerous climate resilience efforts by developing regional climate resilience plans and work with local universities and national labs, for local access to the most relevant science, data, information, tools, and training.
Doug Pfeister, RCG’s managing director, Americas said, “This is an exciting time for renewable energy in the US. We envision renewables playing a major role in a Biden-Harris administration and we stand ready to assist our clients in the transition to a low carbon economy.”
Ørsted’s 30 MW Block Island Wind Farm, located four miles off the coast of Block Island, Rhode Island, remains the only offshore utility-scale wind farm spinning in United States waters. Dominion Energy is currently commissioning its 12 MW demonstration project off the coast of Virginia. But given several market developments this year, the US offshore wind market is poised for expansion.
Buoyed by abundant wind resources, vast seabed areas available for lease, and power-hungry load centers nearby, the US has long possessed such attractive development criteria. And thanks to a string of lease and procurement announcements in several East Coast states, and state-mandated renewable energy targets, the US market is signaling to the world that it may finally be ready to take its place among the world offshore wind leaders, such as the United Kingdom, Germany, China and Denmark.
The positive market signals have captured the attention of international energy players, such as BP, who spent a whopping $1.1 billion to purchase a 50% stake in Equinor’s Empire Wind and Beacon Wind, two fixed foundation projects being planned for waters off the coasts of New York and Massachusetts, respectively. The deal – which supports BP’s decarbonization corporate mandate – marks its first tangible foray into offshore wind. In announcing the September deal, BP says it is forming a strategic partnership with Equinor to “pursue other offshore opportunities together in the fast-growing US market.”
But BP’s leap into US waters is only the latest in a string of deals involving everything from the supply chain to lease areas to the projects themselves. Such transactions underscore the vibrancy of the US market, according to Renewables Consulting Group (RCG).
According to data compiled from RCG’s GRIP market database, the US is in number one position when it comes to mergers and acquisitions (M&A)– outpacing established offshore wind markets.
Since 2016, M&A activity in the United States has totaled 11.2 gigawatts (GW) in nameplate capacity – surpassing the UK (10.3 GW), Poland (5.5 GW), Taiwan (4.8 GW) and Sweden (4.5 GW).
Exhibit 1: Offshore wind mergers and acquisition activity, 2017 – present
Doug Pfeister, RCG’s Managing Director – Americas, based in New York, says there’s no mystery behind the recent interest in the US offshore wind market.
“There is demand from states up and down the East Coast and still vast areas to be leased off the US Outer Continental Shelf,” he explains. “The state-level demand is there as is the technical potential.”
Data supplied by RCG reveals the US pipeline features 24 GW of offshore wind projects at various stages of development.
This large pipeline should imply a great deal of M&A activity to come. The UK offshore wind market has just over 10 GW of offshore wind spinning and a further 29 GW in development. There are 48 unique investors currently with equity positions in those 75 projects. By comparison, the US market currently has only 15 players.
Exhibit 2: Offshore wind developer rankings by country
“We would expect a similar ramp-up in the buying and selling of shares in projects in the US,” Pfeister predicts. “We expect future growth across all offshore wind technologies, including floating wind. There is enormous potential.”
Floating offshore wind – which moors turbines to anchor lines in the seabed in waters deeper than 200 feet (60 metres) – is not only gaining traction globally but also in the US. Because floating wind works best in deeper waters, vast areas of the ocean suddenly open up for development.
Despite the potential, it is important to remember that floating wind in the US is only in the beginning stages.
“It is reasonable to expect that the early projects will be off the coast of California and future BOEM leasing rounds in the Atlantic could start to extend into floating-technology depths.”
With all the happenings and activity, US offshore wind proponents are confident such momentum will continue regardless of the outcome of the US presidential election.
“We may encounter challenges and headwinds from time to time,” Pfeister says, “but the fundamentals of US offshore wind are so strong that we will prevail and provide tens of millions of homes with renewable energy and meet climate goals across the country in the coming decade.”
For more information on US offshore wind or RCG’s market intelligence and forecasting services, contact the RCG team.