Choppy Seas: Will Offshore Wind Course-Correct in 2024?

The Biden-Harris administration has set ambitious goals for offshore wind: deployment of 30 gigawatts (GW) of capacity in U.S. waters by 2030, with an additional 15 GW of floating offshore wind capacity by 2035, all while protecting biodiversity and providing for ocean co-use. Over the past year, the federal government has made significant progress toward this goal. The Bureau of Ocean Energy Management (BOEM) issued its final environmental assessment regarding the effects of site characterization and assessment activities associated with leasing federal waters in the Gulf of Mexico, and the agency executed five outer continental shelf (OCS) leases for offshore wind along the coast of California. By late November 2023, six commercial-scale projects had received final approval of a Construction and Operations Plan (COP): Vineyard Wind 1, totaling 800 megawatts (MW) off the southern coast of Massachusetts; Ocean Wind 1, consisting of 1,100 MW off the coast of New Jersey; Empire Wind, planned for 2,076 MW off the southern coast of Long Island, New York; South Fork (132 MW) and Revolution Wind (704 MW), both located off the coast of Rhode Island; and Coastal Virginia Offshore Wind, boasting 2,600 MW offshore from Virginia beach.

Although faster federal environmental permitting remains necessary to attain the national goal of 30 GW by 2030, federal regulators at the 31st ABA SEER Fall Conference expressed optimism that offshore wind projects currently in the permitting pipeline will benefit from agencies’ increasing familiarity with the unique challenges of these ventures. Of the 7.4 GW of offshore wind capacity approved by BOEM to date, 6.4 GW were approved in 2023, demonstrating that federal permitting has indeed begun to accelerate.

Economic Doldrums

While 2023 was in many ways a positive year for this burgeoning industry, the rapid acceleration of offshore wind has not been without growing pains. Several of the recently approved projects had negotiated power purchase agreements (PPAs) prior to the coronavirus pandemic; facing economic conditions drastically different in 2023 than 2019, some developers have found the prior deals unworkable.

In August, Shell and Ocean Winds agreed to pay a $60 million fine to terminate three PPAs for SouthCoast Wind, a 1,200 MW project planned offshore Massachusetts. A spokesperson for the joint venture announced that COVID-related supply chain disruptions and the war in Ukraine made the project “unfinanceable.” In October, Avangrid, a subsidiary of the Spanish renewable energy company Iberdrola, paid $16 million in penalties to terminate its PPA with Connecticut after failing to renegotiate the energy purchase price in light of changed market conditions. The same month, Ørsted—a Danish energy company and global leader in offshore wind development—announced that it would cease development of its Ocean Wind 1 and 2 projects. Ørsted’s CEO cited delays in the project schedule caused by supply chain challenges, as well as lack of a vessel contract and rising interest rates, as driving the company’s decision. Despite the financial obstacles it has confronted in its U.S. portfolio, Ørsted confirmed that it does intend to continue developing Revolution Wind, which it owns in a 50-50 partnership with New England-based electric company Eversource.

Along with other offshore wind developers Equinor and BP, Ørsted was dealt an additional blow in October 2023. The three companies petitioned New York utility regulators to amend previously negotiated PPAs to pass along a greater share of costs to consumers, claiming increased subsidization was necessary to cover rising labor and equipment costs due to inflation and increased financing costs resulting from interest rate hikes. New York’s regulators denied the petition, leading the companies to reassess the profitability of the Sunrise Wind (924 MW), Beacon Wind (1,230 MW), and Empire Wind 1 and 2 (2,076 MW combined). In the wake of this decision, BP and Equinor announced a total diminishment in the value of their Beacon and Empire offshore projects of $540 million, citing “inflationary pressures and permitting delays.” Subsequently, New York Governor Hochul announced an expedited solicitation for offshore wind energy credits open to all bidders, including those with existing contracts, which would allow developers to rebid planned projects at higher prices.

Streamlining the Regulatory Framework

Nine offshore wind projects currently sit in the federal permitting pipeline, totaling nearly 16 GW of additional offshore wind capacity as proposed. Whether these projects will face smoother sailing in 2024 depends, in no small part, on a change in the economic winds that stalled Ocean Wind and others in 2023. However, improvements in federal permitting could play a key role. By shortening the timeline to approval, faster permitting could reduce the costs of regulatory compliance and increase the likelihood of economic conditions upon permitting completion aligning more closely with conditions when project financing was negotiated.

The National Environmental Policy Act (NEPA) plays an outsized role in the federal environmental permitting process, and recent efforts to streamline this regulatory framework could prove helpful to the offshore wind industry. The Fiscal Responsibility Act of 2023 (FRA), P.L. 118-5, enacted June 3, 2023, contained amendments to NEPA as part of an ongoing bipartisan effort to reform the federal permitting process for critical infrastructure. Section 321 of the FRA (entitled the Builder Act) made several key changes to the statute that may benefit offshore wind, among other industries. First, the Builder Act established new page limits and deadlines for NEPA documentation and milestones; environmental assessments (EAs) must be issued within one year and must be no more than 75 pages, while environmental impact statements (EISs) must be issued within two years and should not exceed 150 pages—unless the project is “extraordinarily complex,” in which case up to 300 pages are allowed. 42 U.S.C. §§ 4336a(e)(1)-(2), (g)(1)(A)-(B). The Builder Act grants project sponsors a right to seek judicial review of an agency’s alleged failure to meet an applicable deadline, pursuant to which the court “shall set a schedule and deadline for the agency to act as soon as practicable[.]” 42 U.S.C. § 4336a(g)(3)(a).

The Builder Act also codified the current regulatory definition of “reasonable alternatives” by limiting the alternatives agencies are required to consider to only those that are “technically and economically feasible and meet the purpose and need of the proposal.” 42 U.S.C. § 4332(c)(iii). Moreover, the NEPA as amended now requires an analysis of the negative impacts of taking no action, whereas the prior statutory language only required the formulation of reasonable alternatives to a project. Id. Together, these changes could prove helpful in reducing litigation delays for approved projects and bolstering alternatives analyses that consider the impacts of continued reliance on fossil fuels under a no-action alternative. Furthermore, the new law enables agencies to issue more Categorical Exclusions (CEs) by allowing agencies to adopt CEs from other agencies. 42 U.S.C. § 4336c.

The Builder Act also allows agencies to rely on programmatic environmental documents for five years, absent “substantial new circumstances or information about the significance of adverse effects” relevant to the analysis. 42 U.S.C. § 4336b. Increased agency utilization of programmatic environmental analyses and mitigation measures could offer both economic and ecological benefits. Adopting a programmatic approach, as BOEM elected to do for the New York Bight, confers not only an advantage in the speed of subsequent individual project reviews, alleviating developer and agency costs, but also allows agencies to consider environmental impacts and mitigation measures across a greater geographic scope. In a dynamic ocean environment, where climate change drives continuous changes to species habitat and distribution, such a macro-level, regional approach could be ecologically beneficial, too.

Panelists at the ABA SEER Fall Conference indicated that the offshore wind NEPA process might also benefit from increased utilization of the FAST-41 permitting process in 2024. All offshore wind projects currently pending federal permitting qualify for and have opted into FAST-41, which is a voluntary program administered by the Federal Permitting Improvement Steering Council (FPISC) for projects of a “size and complexity” likely to benefit from enhanced oversight and coordination. FAST-41 projects are entitled to a comprehensive, integrated federal permitting timetable that is publicly posted on the permitting dashboard and contains all federal environmental reviews and authorizations needed to begin construction of the project. In addition to augmenting interagency collaboration and efficiency, the FAST-41 program is expected to enhance the transparency, clarity, and predictability of the NEPA process for offshore wind.

Finally, BOEM’s Renewable Energy Modernization Rule is likely to become effective in the coming year, further reducing regulatory hurdles in the early stages of the offshore wind NEPA process. The proposed regulations would require BOEM to publish a schedule of the OCS leases it plans to offer over the next five years, allowing developers to better plan where and when to allocate their resources. 88 Fed. Reg. 5968, 5970. Acknowledging that wind turbine placement frequently changes after COP submittal, the proposed rule would defer certain geotechnical survey requirements, such as site-specific engineering surveys, until after COP approval. 88 Fed. Reg. 5968, 5969–70. Among other changes, the new regulations would eliminate the current site assessment plan requirement for meteorological buoys and the limited lease requirement for installing such buoys beyond the lease area; codify the use of project design envelopes in COP submissions; and tailor financial assurance requirements to more closely track actual risk by allowing incremental funding of decommissioning accounts. 88 Fed. Reg. 5968, 5969–70. By offering increased flexibility and an iterative approach to both data collection and financial commitments, the new regulations are better adapted to the current realities in these newly charted waters.

Looking Ahead

New opportunities lie on the horizon for offshore wind in 2024. State laws and policies continue to support offshore wind as a way of reducing dependence on fossil fuels. The federal government has made a concerted effort to assist the fledgling industry, and the effects of these efforts will hopefully begin to materialize in 2024. Earlier this year, the Department of Energy issued a Supply Chain Roadmap, summarizing major barriers and potential solutions to achieving sustainable growth of offshore wind energy through creation of a resilient domestic supply chain. Enhanced manufacturing capabilities, along with development of port, vessel, and workforce infrastructure could help ease supply chain pressures lingering from the pandemic. The Department of Transportation recently announced its award of $653 million in funds from the Bipartisan Infrastructure Law to improve port infrastructure, nearly $121 million of which is intended to directly advance offshore wind deployment. And the Department of the Treasury and Internal Revenue Service have clarified regulations applicable to the energy credit under Section 48 of the Internal Revenue Code, confirming that offshore wind facilities are “energy property” and that, once operational, the cost of components up to and including the transformer and switchgear of onshore substations can be included in the basis of calculating the tax credit. 88 Fed. Reg. 82188, 82216.

While it remains to be seen whether these federal policies are enough to bail out the offshore wind industry in the year ahead amidst ongoing economic woes, the Biden-Harris administration’s approach to offshore wind will likely continue to be “all hands on deck.”