Political Risk in the US Offshore Wind Industry
The long-term outlook for US offshore wind is promising, but the industry faces challenges in the near-term.
The prospects for the US offshore wind industry continue to look bright. Recent US government research predicts that installed capacity offshore the US will reach 16 GW by 2030, a 45% increase from today's levels. And state-level commitments to purchase electricity from offshore wind sources continue to roll in: Massachusetts has committed to increase its offshore wind power purchases by 1,600MW by 2035, New York plans to purchase an additional 6,600MW by 2035, and New Jersey will add 2,400MW in purchases by 2030.
But while the long-term outlook in the US offshore wind market is promising, developments in the last month show that the industry faces challenges in the near-term. Local media in the US have reported that Vineyard Wind, one of the largest and most publicized US offshore wind projects under development, is facing delays resulting from government infighting. The National Marine Fisheries Service (the "NMFS") is refusing to join another agency, the Bureau of Ocean Energy Management ("BOEM"), in issuing an environmental permit necessary for project construction to start. The NMFS has explained that the proposed project design does not adequately protect the interests of the fishing industry, a view the BOEM has rejected. The developers of Vineyard Wind have warned that it will be "very challenging" to proceed with the project as planned if they do not receive the permit by the end of August.
The disagreement between the two agencies is a reminder of the political risk that companies active in the US offshore wind industry face. This risk can be surprising because elected officials in the US often make announcements giving the impression that offshore wind projects can be developed without obstacle. However, the reality is that these politicians are not actually responsible for implementing the projects they announce. This responsibility lies with a wide range of federal, state and local government bodies that often fail to coordinate with one another.
As seen in the Vineyard Wind case, one reason that the government bodies fail to coordinate is because they have competing interests. At the federal level, the BOEM—which is part of the Department of Interior—has a mandate to develop new sources of energy, while the NFMS—which is part of the Department of Commerce—is tasked with conserving the nation's fisheries. This type of conflict repeats itself at the state-level, where state authorities must coordinate with the cities, towns and villages through which materials will be transported and cables laid. These coastal communities are often reluctant to approve projects that will change their coastlines and sea views. As the layers of agency and municipal involvement mount, so does the potential for disputes and conflicts of interest.
However, some of the political risk results from a simple lack of clarity about the laws and regulations that apply to US offshore wind development. One recent example involves different government bodies taking conflicting positions on crewing regulations relevant for offshore wind projects. The US Coast Guard—which has authority to waive certain crew nationality requirements for foreign vessels working on oil and gas projects on the US's outer continental shelf—has concluded that it does not have the same authority when it comes to waivers for seamen working on offshore wind projects. But the State Department and US Customs and Border Protection ("CBP") have not taken the same position; they expect foreign seamen applying for US visas and entering US ports to demonstrate that they have received a Coast Guard waiver. When the seamen have been unable to show that they have a waiver, the State Department and CBP have delayed visa and border entry processes.
There are reports that government bodies are working to develop common interests and to harmonize their interpretations of offshore wind laws and regulations. But until this work is complete, participants in the US offshore wind industry need to factor political risk into their business planning.