US offshore wind gains momentum but critical policy risks signal challenge to future sector growth

Lack of joined-up policy at state level risks US offshore wind project bankability, whilst investors seek clarity on continued federal support

New York, October 22nd 2013 – Despite significant advancements in 2013, continued uncertainty regarding federal tax policy and lack of state-level incentives will, if left unchecked, present significant barriers to US offshore wind success.

This is according to the North American division of PMSS, an experienced European offshore wind consultancy firm and a part of the TV SD group – one of the world's leading technical services corporations.

With a series of offshore wind energy areas off the US East Coast already having been auctioned off by the federal government, many within the market have been reassured to witness these first-ever lease auctions as promising signs of market momentum and key progress from the federal government.

In June this year, the first grid-connected offshore wind turbine began generating electricity in US waters off the coast of Maine. The turbine was a prototype floating unit, developed by the DeepCWind consortium.

Meanwhile, the US Department of Energy has so far committed around $250m to offshore wind research and development projects and the 486MW flagship US offshore wind project – Cape Wind – continues to advance towards construction and financial close.

The Cape Wind project progress follows the confirmation and signing of power purchase agreements (PPA's) and turbine supply and construction contracts. It also follows an engagement with The Bank of Tokyo-Mitsubishi UFJ to act as its Coordinating Lead Arranger for the commercial bank portion of the total debt financing.

Meanwhile, the Obama administration's Bureau of Ocean Energy Management, a part of the US Department of the Interior, has been working to streamline site leasing and construction procedures for future projects. This has already resulted in the first two competitive offshore wind lease auctions for Wind Energy Areas off Rhode Island/Massachusetts and Virginia.

In Rhode Island/Massachusetts, Deepwater Wind, majority-owned by The DE Shaw Group, a New York-based private equity firm, has been awarded 165,000 acres following the submission of a $3.8m winning bid. While in Virginia, utility company Dominion secured 112,000 acres, with a $1.6m bid. Further auctions for wind energy areas off the coast of New Jersey, Maryland and Massachusetts are expected in 2014.

However, while these advancements reiterate a clear sense of market optimism within the industry, a number of key challenges still remain.

"Over the past twelve months, the US offshore wind sector has broken through what had become a protracted industry hiatus, with the result that a number of projects have suddenly made considerable headway and gained ground," said Sebastian Chivers, Senior Vice President and head of the New York office of TV SD PMSS.

"Indeed, with some of the most advanced projects inching closer to project finance and construction, BOEM now having a defined process and infrastructure in place for lease auctions, and having completed auctions for two states with New Jersey, Massachusetts and Maryland expected to follow, it's evident that years of hard work and dedication by project developers, AWEA and the OffshoreWindDC is now paying dividends."

"However, despite this, market challenges do remain at both state and federal level. None more critical to investor and supply chain confidence than securing greater policy incentive stability through an extension to the federal investment tax credit (ITC), without which there is a growing danger of alienating investors and reducing financier confidence in this key global energy growth hub"

"At a state level, huge progress has been made in establishing supporting legislation for offshore wind, like the Offshore Wind Economic Development Act in New Jersey. What we must do now is maintain traction through clarity of regulations and a clear schedule for both OREC applications and lease auctions, which will ensure a coordinated approach" Chivers added.

Despite this, TV, TV SD PMSS continues to signal its long-term commitment to the U.S. offshore market, with a new office in Albany, NY opened last week. The new office provides room for the business to grow and recruit new U.S. engineers and consultants for its growing roster of renewable energy project engagements.

Later in the month, PMSS will attend and exhibit at Offshore WINDPOWER 2013, October 22-23, in Providence, Rhode Island, booth number 323.

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