European Progress Blazes Trail for Investment in US Offshore Wind

Illustration (Image: Block Island Wind Farm/ Deepwater Wind)

The progress offshore wind industry has made in Europe is making things easier when it comes to investments into such projects in the United States.

The European offshore wind market has entered “an early, mature phase” and attracted more investors, and now the US can benefit from the offshore wind achievements of The Old Continent in establishing its own industry, according to Nick Gardiner, the UK Green Investment Bank’s Head of Offshore Wind.

“During the last 12 months, what is happening internationally in this sector is extraordinary… the market is becoming more and more liquid. We are seeing more partners willing to invest during the construction phase,” Business Network for Offshore Wind (BizMDOSW) quotes Gardiner as saying. In particular, investors have started expressing strong interest in offshore wind projects in the northeastern US and Taiwan, he added.

The growing interest is largely due to advances made within Europe’s offshore wind sector, including technology advancement, supply chain expansion, improved investment and risk-management arrangements, as well as a string of projects having developed financial and operational track records.

Several factors make offshore wind developments in the northeastern US attractive to investors, said Bob Haight, Vice President/Senior Equity Advisor for Siemens Financial Services. There is a robust project financing market centred in New York City. Government initiatives such as renewable portfolio standards, investment tax credits and one-stop-shopping for offshore wind permitting provide incentives to investors.

Challenges

However, American offshore wind developers will still face challenges securing financing for their projects, with several factors particularly concerning to investors.

“The Jones Act is a very big challenge,” Haight said. Its restrictions on vessel use will create logistical challenges in offshore wind construction and likely require developers to heighten equipment redundancy levels (and equipment costs) in order to stay on schedule.

Other challenging factors named by investors include the current supply chain that would require American developers to contend with the cost and timelines of sourcing equipment from Europe, political risks that tax incentives or renewable energy standards might change, difficulties with monetising investment tax credits, the litigious nature of the American market, and competition from low-cost natural gas developments.

Haight suggested a few things that American offshore wind developers can do to make their projects more attractive to banks and other investors. “First, you develop scalable projects. You don’t go out with a 400-MW wind farm and immediately try to get that one financed. That’s a big bite. It’s a lot to ask utilities to take a flyer on a 400-MW farm to meet their clean energy objectives. It is a lot to ask the bank financing market to do something with 400 MW or the tax equity market to bridge tax equity for 400 MW. If you can do things that are scalable and digestible, that makes a lot more sense.”

Second thing Haight suggested is to look internationally for bank financing. Securing financing from American banks might be challenging initially, and European banks are more comfortable with and enthusiastic about offshore wind. Furthermore, they “are more than happy to take on contracting risk in the United States,” Haight said.

Finally, monetising tax credits on projects with three-year construction schedules is bound to be challenging, so offshore wind developers should plan to spend time seeking out and impressing those relatively rare investors who have the tax capacity to handle those credits, he explained.

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