(Bloomberg) -- Six US governors have implored President Joe Biden to boost support for the fledgling offshore wind industry amid growing concerns that surging costs imperil multi-billion dollar projects planned for coastal Atlantic waters — and the nation’s climate goals.
The governors, including those from Connecticut, Massachusetts, New York and New Jersey, made their plea in a letter to Biden obtained by Bloomberg News. It follows recent lobbying by Orsted A/S to claim bonus tax credits under the Inflation Reduction Act, with the Danish company warning that without additional support to offset rising costs and supply chain hurdles, it could “walk away” from some of its US offshore wind projects.
“Absent intervention, these near-term projects are increasingly at risk of failing,” the governors said in the letter dated Wednesday. “Without federal action, offshore wind deployment in the US is at serious risk of stalling because states’ ratepayers may be unable to absorb these significant new costs alone.”
States are already under pressure to renegotiate power purchase agreements that were inked before a runup in costs for everything from financing for offshore wind farms to the towers, turbines and foundations needed to support them. Shell Plc, Avangrid Inc., and other companies are paying tens of millions of dollars to exit contracts, while Equinor ASA and BP Plc asked New York to approve a 54% price increase for power from two of their projects.
But the governors warn “offshore wind faces cost increases in orders of magnitude that threaten states’ ability to make purchasing decisions.” Failed projects would threaten not just state deployment goals but also further challenge Biden’s bid to get 30 gigawatts of offshore wind production capacity installed by the end of the decade. And because of their sheer scale, offshore wind farms are seen as critical to supplying carbon-free power and helping the US meet its climate commitments.
Read More: Spiraling Offshore Wind Costs Show Limits of Biden Inflation Act
The effort “comes at a pivotal time, with the industry seeking to scale up rapidly but meeting headwinds due to inflation, supply chain constraints and permitting delays,” said Jason Grumet, head of the American Clean Power Association. “The success of offshore wind development in these states will go a long way towards determining whether we achieve the Biden administration’s 30 gigawatts” goal.
The governors argue the administration must act urgently and “utilize every federal tool available” to keep offshore wind projects competitive. Their top request is for updated Treasury Department guidance that makes clear offshore wind projects will be “fully eligible” for new clean energy tax credits, including bonus incentives under last year’s sweeping climate law.
To ensure offshore wind projects “are able to move forward in the current economic climate,” they argue the Treasury Department must provide “achievable pathways” to qualify for those added tax credits, including a bonus credit of as much as 10% that’s tied to the use of domestically manufactured equipment. Using some made-in-the-US equipment is challenging as domestic offshore-wind supply chains still need to be cultivated.
The governors also argue the US government can do more to help by streamlining the permitting of offshore wind projects and sharing revenue tied to offshore wind leasing that otherwise is funneled into federal coffers.
(Updates with comment from American Clean Power Association CEO in sixth paragraph.)
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