The U.S. has lagged behind Europe in building offshore wind for decades. That’s often attributed to uncompetitive pricing and lack of political will. But as more developers work to get U.S. offshore wind projects off the ground in the coming years, the century-old Jones Act has raised concerns that even with improving economics and technological innovation, the process could remain onerous and the costs exorbitant.
“You look at the convergence of cost of energy for American offshore and European offshore, and that’s never going to be able to converge as tightly as we’d like to see it until we no longer have the Jones Act or we have a strong American supply chain,” said Anthony Logan, an analyst at MAKE consulting.
Because offshore wind installation requires what Logan calls “complex and purpose-built” vessels, Europe’s edge is difficult to surmount. The Jones Act, which has been in the news of late because of the disaster in Puerto Rico, requires that goods shipped between U.S. ports be carried on ships that are U.S.-built, U.S.-flagged and U.S.-crewed. That means for installing turbines, a U.S. ship must carry supplies from a port to the project offshore, and if a European ship is working on the project, it cannot dock at a U.S. port before delivering supplies.
The requirement hurts competition, thus raising prices. It also throws up a huge technological barrier. Europe has dozens of ships equipped to install turbines. The U.S. has none.
“It's a problem we know is creating issues for the industry,” said Ron Flax-Davidson, chairman and CEO at PNE Wind USA, on the sidelines of the ACORE Finance West conference last week.
Thus far, just Rhode Island’s five-turbine, 30-megawatt Block Island project has been able to shimmy around the Jones Act restrictions. Logan said developer Deepwater Wind, which declined to comment for this story, shipped turbines from France on an installation vessel that was never able to dock in the course of construction. Other components were shipped out from a U.S. port.
“You have to do these logistic gymnastics with your European vessels to make it work. It’s almost like you’re playing a game -- [except] that the floor is lava,” said Logan. “This strange dance worked for Block Island, but it’s going to require some creative thinking on the part of the developers to make this work for larger projects.”
Projects in Massachusetts and Maryland will be a test of whether that strange dance holds up to larger installs. The two projects in Maryland, Deepwater’s Skipjack and U.S. Wind 1, will be the first two large-scale projects in the U.S., with a combined potential capacity of 870 megawatts. They could be completed in the early 2020s.
They may be able to be installed using European ships, as with the Block Island project, or with U.S. vessels -- if the U.S. maritime industry develops ships with the right capabilities. Logan offers an estimate that two U.S. installation turbine vessels would be sufficient to install the projects currently on the U.S. docket.
But both European and U.S. ships present unique challenges. If Europe was able to spare a vessel to work on several installs in the U.S., that leaves projects highly dependent on the schedule of the others. If a project runs late, it could severely impact the timeline and budget for others down the line that are relying on the same installation vessel.
At the same time, because offshore wind is advancing so rapidly and turbine sizes increasing steadily, it would be difficult for U.S. ship builders to develop vessels equipped to install turbines five years into the future. Logan notes, however, that when a ship does become obsolete, it can be used for operations and maintenance.
How the industry tackles these challenges will define the competitiveness of the U.S. offshore market going forward. While costs in continental Europe have fallen under €100 ($118.05) per megawatt-hour, the Block Island’s PPA starts with prices of $244 per megawatt-hour.
Although economies of scale come into play and Block Island is largely a demonstration project, Europe is far and away ahead of the U.S., in part because of the Jones Act’s chilling effect on the industry. When asked if he believes the law has posed impediments and slowed development for offshore wind in the U.S., Flax-Davidson’s response is unequivocal. “Absolutely,” he said.
Even if U.S. offshore wind is “on the cusp of a very large market,” as Logan put it, with MAKE expecting a 2-gigawatt market over the next 10 years, the Jones Act challenge is unlikely to change. President Trump is notoriously unfriendly to the wind industry and famously fond of his made-in-America slogan -- at least insofar as it benefits his base.
And while Trump swiftly lifted the Jones Act for delivery of aid to Florida and Texas, he was slow to do so in the case of Puerto Rico. He kept the island’s exception in place for just 10 days. Lawmakers had pushed for a one-year waiver.
Interestingly, many Republicans, as well as oil companies, dislike the law. In past years, Sen. John McCain has introduced legislation to repeal the act. He tried again in July. “I have long advocated the repeal of the Jones Act, an archaic and burdensome law that hinders free trade, stifles the economy, and ultimately harms consumers,” said McCain in a statement announcing the legislation. It’s now sitting in committee.
Even in the wake of federal action, Logan is confident that the industry can find a workaround. “I don’t think anyone is denying it's an issue -- it’s just whether people are capable of overcoming it,” he said. “I think the broad answer is yes.”-
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