Now that Empire Wind has gotten a reprieve from its unforeseen stop work order, the US offshore wind industry is releasing a collective sigh of relief and looking to rapidly get turbines in the water before the industry is again in the crosshairs. Not to rain on anyone’s parade, but while the industry pushes to get this next round of projects online, a bit of contemplation of ‘what’s next’ is worthwhile for those of us not on the front lines.

The administration’s U-turn on the Empire Wind’s stop work order gives the US domestic offshore wind market some confidence that business pragmatism may ultimately outweigh the new administration’s opposition to the sector. The US market’s downturn could ultimately benefit the global OSW market, releasing pressure on stretched global OEMs and investors, however, the implications for long term confidence in the US market is unclear at this point.

Impressive Progress to Date

There are currently five commercial scale offshore wind projects (including Empire Wind), in construction in the US, including Dominion Energy’s Coastal Virginia Offshore Wind (CVOW) Commercial project, Ørsted’s Revolution and Sunrise wind projects and the Copenhagen Infrastructure Partners / Avangrid Vineyard wind project. Barring any further interruptions to these late state projects, we should expect to see around 6 GW of offshore wind deployed on US coasts and injecting power into US grids by the end of 2027. Significant investments have been made in developing the supporting infrastructure to build this initial tranche of generation assets, including:

• A Jones Act compliant wind turbine installation vessel (WTIV), the Charybdis, as well as other smaller bespoke vessels.

  
  

• Multiple ports to support project construction and operations. (New Bedford Commerce Terminal in MA, Port of New London in CT, Port of Davisville in RI, The South Brooklyn Marine Terminal in NY, and The New Jersey Wind Port).

  
  

• Manufacturing facilities to build some of the key components of the projects like high voltage subsea cables in Charleston, South Carolina and Chesapeake, Virginia by Nexans and LS GreenLink respectively.

While this is meaningful progress, it’s quite different from the level of development envisioned by the prior administration in implementing the Inflation Reduction Act and the level of investment predicted by the industry. With the recent changes in tax and regulatory policy, it’s fair to say the industry is generally not expecting substantial progress in regulatory approval or construction for the next three and a half years beyond the 6 GW mentioned above. So, what might a renewed view of US offshore wind look like to potential developers and states in 2028?

Cautious Optimism

Developers and investors who’ve collectively sunk billions into the market are likely counting on a couple points to support the ultimate return of the US OSW market.

- A backlog of generation, particularly in the US Northeast: The region is currently largely powered by natural gas, nuclear power, and hydropower. Several of these existing power generation faculties are targeted for retirement over the next decade. Combined with the increased power demand driven by increased electrification and new demands like data centers, there is a significant need for new generation in the region, which the ISOs in the region had been looking to offshore wind to fill. Should the next phase of consented projects, including the next phase of Empire Wind and Atlantic Shores Offshore Wind, not progress through to financial close as planned, ISOs in the region will have a gap in the generation side of their long-range plans. What alternative technology can fill that gap? Per recent comments from the CEO of NextEra Energy Resources a, the US’s largest power developer, a new natural gas power plant would be looking at a deployment in 2030 or later, and a cost of $2,400/kW. Should this timeline and pricing hold true, the next tranche of consented OSW projects is likely to have a path to competitiveness come 2028.

- More advanced technology: The current set of projects are generally anticipated to be using 14-15 MW turbines – a postponement of 4 years may allow developers to deploy the next generation of turbines with unit capacity of 18 MW or more. The US projects may also be able to benefit from future advancements in cables, electrical systems, foundation designs and installation technologies, giving them a potential benefit in terms of levelized cost of energy compared to todays estimates.

- A more fully developed global supply chain: OSW projects around the world are currently suffering from significant pressure on the global supply chain, including critical HVDC infrastructure, vessels and other key components. Some of that stress was previously anticipated to be addressed through new manufacturing and assembly facilities in the US, backstopped by the domestic offshore wind industry and further supported by local content requirements and investment incentives as set out in the IRA and other policies. With the current project forecast and US policy changes, these OEMs are likely looking for more favorable investment environments, likely in Europe, the UK or Asia. Developers looking at US OSW developments in 2028 may be able to secure significantly better commercial terms from the supply chain based on reduced global supply chain pressure, however local content expectations may need to be revisited as OEM may be less willing to further extend there recently expanded manufacturing base.

Objective Realism

However, the set of 2028 US OSW projects will also face substantial hurdles.

- Technological competition: While, as noted, OSW compares favorably on average to alternative technologies such as gas fired power, the current burdens on offshore wind business cases will undoubtedly support the advancement of alternative power sources including gas, micro and small modular reactors (SMRs) and possibly interconnectors for incremental electricity imports as utilities look to close the gap between demand and generation. As these alternatives technologies are deployed, their respective supply chains will be further developed, degrading the current cost and schedule advantage for offshore wind.

- Investment entrenched in proven, stable markets: For all its recurrent challenges with short term OSW market volatility and uncertainty, looking over the long term, European jurisdictions have shown a steady commitment the offshore wind sector for decades. Investors, with their US projects on hold, or otherwise looking to invest in the industry, may divert their capital to more established European markets. Given the long-term nature of these projects, this likely refocus on Europe may well be ‘sticky’ leaving less capital available for reinvestment in US projects late in the decade should policy shift.

- Further maturation of new jurisdictions: A four year pause in the US offshore wind sector may allow emerging markets some breathing space to develop, by opening up investment capacity and room in the supply chain for projects in Australia, South America, the Baltic, Canada and other regions early in their OSW development. This may enable some of these new markets to get a foothold in the global market, attracting investment from developers and OEMs. For the US, this may result in more competition for foreign capital if the market looks to restart late in the decade, and the US may need to reset its expectations in any future leasing rounds and procurement processes.

- Increased perception of US regulatory risk: Underpinning all of this is the changing view of foreign and domestic investors into political and regulatory risk for US projects in the offshore wind industry and more broadly. Before committing development funds to multi-billion-dollar projects with decade long timelines, investors will need to quantify the risk that these prospective projects might be derailed by a future administration. That risk will be costed into the economic models, impacting pricing for future procurements, return expectations and project valuations.

A Pragmatic Path Forward

So where does this leave the US OSW industry? I’ll certainly be holding my breath alongside the rest of the industry looking for this first tranche of commercial projects to finish construction and start operations. Provided the permits for the next tranche of projects withstand the next few years, the proponents will likely face significantly different market conditions as they look to restart their projects in 2028. The uncertainty may lead some developers to look to divest rather than suspend their projects, leading to an increase in transaction activity as those market players with lower risk tolerance or less patience leave the market.

While these are trying times, the US OSW may do well to look to lessons learned from prior, albeit less dramatic, downturns in the European industry’s history:

• Stem the bleeding: We’re already seeing evidence of the remaining projects putting their heads down, reducing spend and waiting for more favorable investment conditions. LinkedIn feeds are filled with key project staff who’ve been laid off to reduce project costs and discretionary development funding is being deferred until the market is improved.

  
  

• Retain key assets: While reducing development costs is essential, developers cannot lose sight of the need to retain key assets, including key project team members, relationships with regulators, utilities, ports and the supply chain.

  
  

• Long-term, the market rewards agility: Those projects that can continue to negotiate with suppliers, utilities and regulators to adapt their schedules, project scopes and contract terms will be better able to rapidly pivot as the market, regulation and trade policy evolve.

Ultimately the winners, if we can call anyone that in this situation, will be the projects able to think creatively, collaborate with favorable states to retain sector progress where possible and adapt their strategies to meet the new reality.