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America’s first large-scale offshore wind farms began sending power
to the Northeast in early 2024, but a wave of wind farm project cancellations and rising costs have left many people with doubts about the industry’s future in the U.S.

Several big hitters, including Ørsted, Equinor, BP and Avangrid, have canceled contracts or sought to renegotiate them in recent months. Pulling out meant the companies faced cancellation penalties ranging from US$16 million to several hundred million dollars per project. It also resulted in Siemens Energy, the world’s largest maker of offshore wind turbines, anticipating financial losses in 2024 of around $2.2 billion.

Altogether, projects that had been canceled by the end of 2023 were expected to total more than 12 gigawatts of power, representing more than half of the capacity in the project pipeline.

So, what happened, and can the U.S. offshore wind industry recover?

I lead UMass Lowell’s Center for Wind Energy Science Technology and Research WindSTAR and Center for Energy Innovation and follow the industry closely. The offshore wind industry’s troubles are complicated, but it’s far from dead in the U.S., and some policy changes may help it find firmer footing.

Long approval process’s cascade of challenges

Getting offshore wind projects permitted and approved in the U.S. takes years and is fraught with uncertainty for developers, more so than in Europe or Asia.

Before a company bids on a U.S. project, the developer must plan the procurement of the entire wind farm, including making reservations to purchase components such as turbines and cables, construction equipment and ships. The bid must also be cost-competitive, so companies have a tendency to bid low and not anticipate unexpected costs, which adds to financial uncertainty and risk.

The winning U.S. bidder then purchases an expensive ocean lease, costing in the hundreds of millions of dollars. But it has no right to build a wind project yet.

Before starting to build, the developer must conduct site assessments to determine what kind of foundations are possible and identify the scale of the project. The developer must consummate an agreement to sell the power it produces, identify a point of interconnection to the power grid, and then prepare a construction and operation plan, which is subject to further environmental review. All of that takes about five years, and it’s only the beginning.

For a project to move forward, developers may need to secure dozens of permits from local, tribal, state, regional and federal agencies. The federal Bureau of Ocean Energy Management, which has jurisdiction over leasing and management of the seabed, must consult with agencies that have regulatory responsibilities over different aspects in the ocean, such as the armed forces, Environmental Protection Agency and National Marine Fisheries Service, as well as groups including commercial and recreational fishing, Indigenous groups, shipping, harbor managers and property owners.

For Vineyard Wind I – which began sending power from five of its 62 planned wind turbines off Martha’s Vineyard in early 2024 – the time from BOEM’s lease auction to getting its first electricity to the grid was about nine years.

Costs can balloon during the regulatory delays

Until recently, these contracts didn’t include any mechanisms to adjust for rising supply costs during the long approval time, adding to the risk for developers.

From the time today’s projects were bid to the time they were approved for construction, the world dealt with the COVID-19 pandemic, inflation, global supply chain problems, increased financing costs and the war in Ukraine. Steep increases in commodity prices, including for steel and copper, as well as in construction and operating costs, made many contracts signed years earlier no longer financially viable.

New and re-bid contracts are now allowing for price adjustments after the environmental approvals have been given, which is making projects more attractive to developers in the U.S. Many of the companies that canceled projects are now rebidding.

The regulatory process is becoming more streamlined, but it still takes about six years, while other countries are building projects at a faster pace and larger scale.

Shipping rules, power connections

Another significant hurdle for offshore wind development in the U.S. involves a century-old law known as the Jones Act.

The Jones Act requires vessels carrying cargo between U.S. points to be U.S.-built, U.S.-operated and U.S.-owned. It was written to boost the shipping industry after World War I. However, there are only three offshore wind turbine installation vessels in the world that are large enough for the turbines proposed for U.S. projects, and none are compliant with the Jones Act.

That means wind turbine components must be transported by smaller barges from U.S. ports and then installed by a foreign installation vessel waiting offshore, which raises the cost and likelihood of delays.

Dominion Energy is building a new ship, the Charybdis, that will comply with the Jones Act. But a typical offshore wind farm needs over 25 different types of vessels – for crew transfers, surveying, environmental monitoring, cable-laying, heavy lifting and many other roles.

The nation also lacks a well-trained workforce for manufacturing, construction and operation of offshore wind farms.

For power to flow from offshore wind farms, the electricity grid also requires significant upgrades. The Department of Energy is working on regional transmission plans, but permitting will undoubtedly be slow.

Lawsuits, disinformation add to the challenges

Numerous lawsuits from advocacy groups that oppose offshore wind projects have further slowed development.

Wealthy homeowners have tried to stop wind farms that might appear in their ocean view. Astroturfing groups that claim to be advocates of the environment, but are actually supported by fossil fuel industry interests, have launched disinformation campaigns.

In 2023, many Republican politicians and conservative groups immediately cast blame for whale deaths off the coast of New York and New Jersey on the offshore wind developers, but the evidence points instead to increased ship traffic collisions and entanglements with fishing gear.

Such disinformation can reduce public support and slow projects’ progress.

Efforts to keep the offshore wind industry going

The Biden administration set a goal to install 30 gigawatts of offshore wind capacity by 2030, but recent estimates indicate that the actual number will be closer to half that.

Despite the challenges, developers have reason to move ahead.

The Inflation Reduction Act provides incentives, including federal tax credits for the development of clean energy projects and for developers that build port facilities in locations that previously relied on fossil fuel industries. Most coastal state governments are also facilitating projects by allowing for a price readjustment after environmental approvals have been given. They view offshore wind as an opportunity for economic growth.

These financial benefits can make building an offshore wind industry more attractive to companies that need market stability and a pipeline of projects to help lower costs – projects that can create jobs and boost economic growth and a cleaner environment.

About the Author:

Christopher Niezrecki, Director of the Center for Energy Innovation, UMass Lowell

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Deborah de Lange, Toronto Metropolitan University 

As the climate crisis escalates, there are urgent and difficult choices that need to be made to drastically reduce our carbon emissions before more irreparable damage is done.

Many have argued the energy industry needs to change to reduce carbon emissions, but one concern that remains is the consequence this will have on economic prosperity.

Discussions vary across interest groups. Do we need to outright replace the fossil fuel industry with the renewable energy industry as soon as possible? Should we slowly phase out fossil fuels while making clean renewable replacements? Or, should we continue with a powerful fossil fuel industry while separately growing a renewable industry in parallel?

How these different choices could impact our economies seems unclear, and it is this lack of clarity that opens up the field for frustrating discussions. At the recent COP28 climate summit in the United Arab Emirates, the conference president shockingly said that there is “no science” behind any decision to phase-out fossil fuels from our energy systems — a statement which he later claimed was “misinterpreted.”

My recent research examines energy industry restructuring options for a green transition to renewable energy from an economic perspective.

Although economic analysis is helpful, it is not sufficient on its own for making these important decisions. So, my research also draws on sustainability which involves considering the conditions faced by future generations, and a concept known as equifinality reminding us to keep our minds open to many possible approaches that may satisfy the same objectives.

Renewable energy innovation and GDP

My research indicates that renewable energy innovation contributes to higher GDP. Contrary to some commonly held beliefs, a clean transition is, and has been for at least a decade, good for the economy — even in earlier stages of its development.

My findings also suggest that government and industry support for the fossil fuel industry negatively affects a country’s renewable energy innovation. The two industries are not compatible.

When the fossil fuel industry invests in itself, it also appears to improve GDP, which creates confusion about the best way to ensure economic prosperity while transitioning to clean energy.

But this investment, often made through lobbying, only prolongs the existence of the fossil fuel industry by keeping renewable energy competition out. This creates a false dichotomy between reducing emissions and improving GDP when, in fact, clean innovation can achieve both simultaneously.

My research indicates that clean innovation makes a stronger economy and reduces emissions. If we want to reinforce that dual progress, rather than accepting trade-offs, then we have to stop supporting the fossil fuel industry which aims to slow it down.

Helping renewable energy thrive

Economically speaking, the fossil fuel industry is negatively impacting consumer welfare by maintaining higher-than-necessary prices due to limited competition. This, in turn, bumps up GDP through inflated profits, having subsidised an already dominant polluting industry, reducing clean innovation and delaying cleaner progress — obviously not the way to grow a healthy economy.

In fact, GDP is not a standard of living measure or a measure of innovative competitiveness. To address inflation and the cost of living crisis, we should be promoting more competition across industries. This is a more productive type of capitalism that brings wider benefits to all of us, including more innovation, lower prices, and better products for domestic and export markets.

Government subsidies that boost the fossil fuel industry hinder consumer welfare and the transition to clean energy. Some examples include subsidies to fund more carbon capture and storage technology and the use of fossil energy in hydrogen storage systems.

Instead of funding these backward subsidies, governments should implement pollution taxes while also supporting renewable energy innovation.

My research demonstrates that pollution taxes work well with clean innovation capabilities. Supporting research and innovation in renewable energy and using a carbon tax as a tool can boost the economic benefits of transitioning to clean energy.

The findings of my work suggest that a robust economy is related to industry restructuring so that renewable energy innovation can thrive. Fostering novel scientific discoveries in clean energy innovation should be prioritized while reducing non-competitive industry formations and organizations, such as fossil fuel oligopolies and industry associations.

Making decisions with the future in mind

Increasing public awareness and understanding of fossil fuel industry games is a way to accelerate change. It’s important to recognize that industries at different life cycle stages contribute to the economy in different ways.

A newer rising industry with determined entrepreneurs, like that of renewable energy, invests in innovation to create value. On the other hand, a declining industry plays end-game strategies, like engaging in self-promotional activities, to maintain their existing position and create barriers to new industry entries.

However, consumer welfare increases with competition, not collusion. Economic analysis is not sufficient on its own for decision-making in this area because positive economic outcomes can be generated by different kinds of strategies supporting an industry’s life cycle goals.

Government policy decisions should be made based on economic analyses alongside broader sustainability criteria. Ignoring the equifinality argument and reverting to discussions about replacing coal with gas as a bridge only ensures fossil fuels remain in use for at least another generation of infrastructure.

Communities should apply sustainability and equifinality lenses to decision-making, understanding that there are many possible means to an end. For example, if a community has specific concerns about one type of renewable energy system, they should explore other alternative clean energy options instead of defaulting to fossil fuels.

An educated public should reject simplistic and single-sided arguments and understand there are usually more nuanced solutions to problems supported by evidence-based analysis. By embracing a more holistic approach, we can develop more sustainable societies by opening up renewable energy possibilities.

About the Author:

Deborah de Lange, Associate Professor, Global Management Studies, Toronto Metropolitan University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Yrjo Koskinen, University of Calgary; J. Ari Pandes, University of Calgary, and Nga Nguyen, Université du Québec à Montréal (UQAM) 

Canada is one of the largest oil and gas producing nations in the world, and the oil and gas sector is its most important export industry.

With the rapid increase of green energy investments globally, stock markets have begun viewing oil and gas firms in Canada and the United States as mature with an uncertain future — despite recent record profits and increases in stock prices.

A prudent and economically viable energy transition to a low carbon economy is of the utmost importance for the future prosperity of the country. As part of the transition, Canada must become a lucrative destination for clean tech investments.

The International Energy Association reports clean energy investments (including nuclear) are continuing to grow over fossil fuel investments, with US$1.7 trillion invested in clean energy in 2023, compared to US$1.1 trillion in fossil fuels. This trend will only continue in the coming decades.

Our recent analysis of stock market data from 2018 through 2022 provides important information about how capital markets view the risk and return for oil and gas companies and clean tech firms in both countries.

U.S. clean tech firms are valued more

In our study, we examined how stock markets in Canada and the U.S. value traditional energy companies, clean tech companies, and the prospects for both.

Our study suggests there are large differences between the clean tech industries in Canada and the U.S. Clean tech has much better prospects in the U.S., while oil and gas firms in Canada may outlast their American counterparts.

Our report indicates that markets view clean tech firms as growth firms in both Canada and the U.S., despite disappointing stock returns for these companies since 2021. Growth firms are companies that reinvest their current earnings into operations to further expand rapidly and then aim to deliver profits later on.

The valuations are significantly higher in the U.S., suggesting the market sees better long-term prospects for the sector south of the border. Canadian clean tech firms could have problems scaling up and taking advantage of opportunities.

Clean tech firms in the U.S. are also attracting more equity capital, particularly since that country passed the Inflation Reduction Act (IRA) in 2022. The IRA has significantly accelerated investments in clean tech in the U.S.

While Canadian tax credits for clean tech are substantial, they don’t seem to have the same impact on investments as the IRA, perhaps because rules for Canadian tax credits and other incentives are deemed more complex.

The real issue is not Canadian policy for energy transition per se, but rather the complex implementation, uncertainty and lack of clarity of these policies.

Political uncertainty

Opportunities in clean tech exist in Canada, but there is no room for increased regulatory risks. Disagreements between the federal and some provincial governments create uncertainty that hurts investments.

Alberta’s sudden moratorium on renewable energy was not helpful, especially given the province has quickly become a Canadian renewables hotbed. While the province has since lifted the moratorium, its new regulations for the clean tech sector have been criticized as too strict.

Political uncertainty, coupled with more risk-averse business attitudes than in the U.S., is creating unnecessary hurdles for the commercialization of clean tech innovations in Canada.

This should be concerning to many, as Canadian clean tech firms might be tempted to locate their operations south of the border. Consequently, Canadian taxpayer-supported startups may end up creating more wealth in the U.S. than at home.

Meanwhile, Canadian oil and gas companies have recently experienced strong operating performance, and their valuations and stock return performance support this. Interestingly, Canadian energy firms are valued higher relative to profits than their U.S. counterparts, which is counter to popular opinion among Canadian energy sector pundits.

One reason for the more optimistic valuations is the impending completion of the Trans Mountain pipeline and the resulting increase in the capacity to export heavy oil from the oil sands. There is no doubt that the energy sector will continue to contribute to the Canadian economy, at least in the medium run. The key question is: for how long?

Reducing greenhouse gas emissions

The oil and gas sector must reinvest more of its profits into emissions-reducing technologies. However, if Canadian policies and incentives do not support enough investment return prospects, the sector will continue to under-invest in energy transition. In particular, the tax incentives should be made easier for small- and medium-sized companies to access.

Reducing greenhouse gas (GHG) emissions will be critical in continuing to attract financing and generating profits beyond 2030. The oil and gas sector has been criticized for slow progress in this regard, but the recent announcement of a regulatory application for a carbon capture project by oilsands producers with the Alberta Energy Regulator is certainly encouraging.

While competing with the U.S. for clean tech investments and reducing GHG emissions in the oil and gas sector are challenging, Canadian firms should continue to embrace opportunities. Both industries require predictable, stable and clear regulatory environments to provide the certainty investors and companies need to continue to invest in Canada.

Our success as a nation depends on it.

About the Author:

Yrjo Koskinen, BMO Professor of Sustainable and Transition Finance, University of Calgary; J. Ari Pandes, Associate Professor of Finance, University of Calgary, and Nga Nguyen, Assistant Professor, Department of Finance, Université du Québec à Montréal (UQAM)

This article is republished from The Conversation under a Creative Commons license. Read the original article.