Offshore Wind Finance Forum 2019: Winds Look Favorable In The US

How big can it be? Try these numbers.

• Global offshore wind power generates about 20 GW of power today, and is forecast to produce 521 GW by 2050, according to the International Renewable Energy Agency
• By comparison, the Hoover Dam is a 2 GW facility, according to Climate Central
• Cumulative investment in the sector will reach $350 billion by 2030 and $1.7 trillion by 2050
• Nearly 20% of global offshore wind power will be generated by the US, according to The Business Network For Offshore Wind
• On the US East Coast, 10 states approved or are pursuing offshore wind, along with California, Hawaii and Oregon
• 16 offshore areas have been leased in the US, contributing potentially 21 GW

Ross Tyler, Executive Vice President of The Business Network For Offshore Wind, speaking at the second annual Offshore Wind Finance Forum hosted by Societe Generale Americas in New York in February, said the global and US offshore wind market is poised for massive growth.

"It has taken virtually 30 years for the world to get to 20 GW and look where we're going to be in the next 30 years, over 520 GW if the prediction is correct," Tyler said. "So, we need to be thinking about offshore wind as a global industry, of which the United States will be a major contributor. We have huge growth in front of us and a great opportunity."

The Green Wave

There is good reason for optimism. For starters, more states are ramping up clean energy production goals (often called renewable portfolio standards). Take New York for example. In January, Governor Andrew Cuomo called for 100 percent carbon-free electricity by 2040 and 70 percent clean energy by 2030. California, meanwhile, plans to reach 100 percent clean electricity by 2045 while New Jersey has committed to the same target by 2050. Even states that have not pledged such goals are leasing areas off their coasts and approving offshore wind projects from Maine to Virginia.

To make that happen, offshore wind power will be a major contributor. New York has targeted about 9,000 MW by 2035, New Jersey plans for 3,500 MW by 2030 and Massachusetts is aiming for 3,200 MW of offshore wind by 2027.

"They are really aggressive targets, so that has been a real plus for the offshore wind space," said Chris Moscardelli, Director, Energy Project Finance at Societe Generale Americas. "There have been purchases of leases and even though they have not yet been installed, there is a wave of activity coming our way in the US."

US offshore wind generation is small today, with just a 30 MW project called the Block Island Wind Farm off the coast of Rhode Island. Financed by Societe Generale Americas for $298 million and completed in December 2016, it is the first offshore wind project in the United States.

But the interest in leasing areas for offshore wind has grown dramatically since then. In December 2016, Statoil (renamed Equinor in 2018) won the first federal offshore lease off of New York for $42 million. A 600 MW wind farm called Empire Wind is now planned for that area. In December 2018, two lease auction prices for offshore areas off of Massachusetts and Rhode Island jumped to $135 million each and a third hit $140 million.

Moscardelli said that is a good sign because "it means that people are really, really committed to building offshore wind here and capitalizing on what is soon to be a very robust industry."

Another positive indicator is in the number of banks getting into the US market. Estimates are that at least 45 banks are interested in financing offshore wind. Societe Generale Americas, however, sees itself as a frontrunner based on its extensive experience in Europe and Asia, not to mention being the pioneer on the first Block Island project. Project finance structures are still new and need to be built out, but Moscardelli said the strong interest will help forge that framework quickly.

Natalie Lemarcis, Managing Director, Co-Head of Advisory & Project Finance for Societe Generale in London, said the US market can learn from the European offshore wind finance sector which grew from about 10 banks to more than 40 in the past four years. Regional banks from countries like Germany have entered the space as well as banks from Japan, illustrating how this space is truly global and mature. Lemarcis commented that there is increased appetite from institutional investors who want exposure to clean energy investments.

"It will be interesting to see if there is interest specifically in the US from institutions, and then bank debt for construction and financing in the capital markets," Lemarcis said.

One of the challenges for offshore projects is that they take two-plus years to build, which may not be as suitable for institutional investors. Because there are no large-scale projects yet in the U.S., there also isn't a credit rating system in place for US projects, which may be required for some institutions and pension funds to participate.

Ocean Barriers

While most of the manufacturing, infrastructure, financing, rating and insurance issues have been worked out in Europe, offshore wind in the US is essentially just beginning. Everything from the vessels used to build the offshore wind structures to sea ports that can accommodate them, to wind turbine blade manufacturers and electrical cable and grid installers must be addressed or newly created.

Complicating matters are US state laws and electrical grid processes that are new for many states, as are established federal laws that make foreign participation in offshore construction difficult, if not illegal at this point. The Jones Act, which traces its roots back to the 1920 Merchant Marine Act, restricts the transportation of merchandise between two points in the US to qualified US vessels. Simply put, the act may allow non-US vessels to create the foundations for offshore wind structures but then prevent non-US vessels from delivering the parts and components to that structure. These are practical and legal matters that need to be addressed as well.

Tax equity is also a work in progress. Because the construction duration for such projects is typically about two years, firms are still weighing the impact of how and when tax equity is applied. Finally, insurance for such projects is an issue. Projects often experience damages, especially with cables that are frequently broken or damaged during installations, and insurers are trying to determine how best to cover such projects in a cost-effective way.

What this means for US offshore wind power is that an entire industry is now being built from the ocean floor up. The US push into offshore wind and more renewable energy also fits with Societe Generale's pledge to help raise €100 billion in financing for the energy transition between 2016 and 2020 and align its activities with the 2015 Paris Agreement. Fortunately, Societe Generale’s experience with multiple projects in many jurisdictions provides a wealth of experience and services to clients.

For now, developers are eager to get to work. And Societe Generale is ready to help provide the financing and expertise that makes clean, offshore wind power a major source of electricity in the US for the years ahead.

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