The US offshore wind market could be huge. European companies have experience aplenty to offer, but finding the right partner to work with is essential
In OWJ’s webinar, ‘Bringing European experience to the US Offshore Wind market – exploring partnerships’, part of Offshore Wind Webinar Week, delegates heard that the US offshore wind industry has tremendous potential for European companies that want to get involved, but there are risks that need to be addressed and it is essential for potential participants to research the market thoroughly.
The webinar was sponsored by maritime and offshore law firm Winston & Strawn – whose maritime practice partner and chair Charlie Papavizas told delegates that the much-discussed Jones Act was an important part of the puzzle but by no means a barrier to successfully working in the US. Delegates at the event were also told in no uncertain terms that before entering the US market it is essential to "do the leg work."
Delegates heard from presenters that, compared to other export markets for offshore wind, the US is quite possibly the most difficult in which to work. But they also heard that being able to draw on European experience will be a huge boost for the US offshore wind market.
As Arup energy infrastructure leader Cameron Dunn put it, “You have to identify where the risks are. There are big risks, but someone is going to figure that out and take advantage of the market by being a first mover. If you do that, the opportunities are huge.”
Mr Papavizas told delegates that European companies with experience of offshore wind and US firms with local knowledge could be the perfect way to exploit opportunities in the American market. Joint ventures are the way to go, he said, but it is essential to get the structure right. Meeting the various legal requirements involved is not straightforward, particularly when it comes to vessel ownership and operations, he said, but there are options that work.
“European companies have offshore wind expertise,” said Mr Papavizas. “US companies have experience in US waters – but not with offshore windfarms. So, the US offshore wind market presents the perfect opportunity for US/European joint ventures.
“However, the Jones Act restricts certain activities in US waters to US-flag vessels owned and operated by US citizens. Any European-US joint venture that is formed to own or operate Jones Act vessels will have to comply with these US citizenship requirements.”
The Jones Act is a complex piece of legislation and needs careful interpretation, he said. “US-registered and US-built vessels qualify for the Jones Act if owned and operated by a ‘US citizen,’” he told the webinar. But citizenship qualification varies by type of business entity.
For a corporation you need to meet certain requirements. These include that it is ‘US organised’ and has US citizens as chief executive and chairman of the board. No more than a minority of the board of directors may be non-citizens, and at least 75% of the equity must be owned by similarly qualified citizens.
“This citizenship test is intended to be rigorous and the equity test flows through intermediate owners to the ultimate beneficial owners,” Mr Papavizas explained. However, a tiered equity structure would permit non-citizens to own up to 49.9% of a Jones Act company in the aggregate.
Mr Papavizas explained that the citizenship test generally disregards debt, including vessel mortgages, as well as future equity like warrants/options. The test applies to vessels and not vessel-related businesses like terminals and equipment.
Certain technical management arrangements with non-citizens are permitted as well as unanimous consent rights, but there is a narrow exception for foreign lease financing of vessels.
But Mr Papavizas sounded a cautionary note. “The concept of non-citizen control is a vague one and should be approached with caution in any European-US joint venture,” he said, “and it is important not to overload the camel’s back.”
For any European company hoping to navigate the US market, he said, it is possible to approach the US Coast Guard and the Maritime Administration, which have separate but overlapping citizenship responsibilities, in advance to get their citizenship blessing, but because so few precedents are public, it pays to have experienced citizenship counsel involved.
Edda Wind chartering manager Håkon Vevang said the company had already found its ideal joint venture partner in Foss Maritime. “You need an experienced maritime operator with an impeccable record, that understands the rules and regulations in the US,” he explained. “You also really need to find a partner that is a good cultural fit, with the same world view, that you can trust. Finding that partner takes time.”
Mr Vevang also had some interesting thoughts on costs. He told the webinar that building service operation vessels (SOVs) in the US is a lot more expensive than doing so in Europe, and that it takes longer.
“We believe it will be at least 80% more expensive to build SOVs in the US,” he said. “In Europe, once we have signed a deal, we can build an SOV in two years. In the US, it will probably take three. Crew costs are also going to be higher. At this stage, we do not see a reason to build vessels on spec, either. And we would only build a vessel in the US once we had a long-term contract.” But despite this, Edda Wind still sees newbuilds as the best way to address the US market, as it does in Europe.
Seacat Services managing director Ian Baylis has been working with the first crew transfer vessel (CTV) company in the US, Atlantic Wind Transfers, for several years. Atlantic’s first CTV, assigned to the Block Island windfarm, is a sister vessel to one of Seacat Services’ boats.
Demand for CTVs for the US market is certainly expected to grow. Shortly before the webinar took place, Rhode Island-based Atlantic Wind Transfers was awarded a contract by Dominion Energy in the US to provide a CTV for the Coastal Virginia Offshore Wind demonstration project, the first offshore windfarm in US federal waters.
A CTV the company has under construction at Blount Boats will fulfil the contract, which will see it provide crew transfer services for the Siemens Gamesa offshore wind turbines to be installed on the project.
Atlantic Wind Transfers president Charles A Donadio said the contract is to initially support the two turbines currently being installed for the CVOW demonstration project. “This will be our second CTV,” he explained. “It is currently under construction and due to be commissioned later this autumn.” The company also has plans to build another CTV at Blount Boats.
Mr Donadio described the design of the CTV – a Chartwell 24 from UK-based Chartwell Marine – as a “next-generation Jones Act-compliant design that meets all US Coast Guard regulations and certifications to operate up to 150 miles offshore.”
Mr Baylis has provided consulting to Atlantic Wind Transfers about vessels, operations and training, and like Mr Vevang, believes that building vessels in the US will be more expensive than doing so in Europe, at least initially.
He said a US-built CTV might be 20% more expensive to build than its counterpart in Europe. Labour and social costs are also high, but as Mr Baylis put it, if you adopt the right model, there are significant opportunities in the US industry.
Mr Dunn highlighted unresolved issues facing the US market: one of the most important is, where will fabrication work on foundations and substations take place? He sees a near-term opportunity for experienced oil and gas companies in the Gulf of Mexico to build substations, but where foundations will be built in the numbers needed and by whom is unclear.
European experience can help – and European fabricators have already signed agreements with US firms – but the US market differs in one very important respect to Europe, because the American market is being addressed state-by-state and states are, in effect, competing against one another to be first movers.
Producing foundations for offshore wind requires series production of multiple units, sometimes on a very large scale, quite unlike the oil and gas business. Without a way to successfully industrialise and mass produce foundations, the opportunities for cost reduction will be limited, he suggested.
In contrast, as Mr Dunn previously told OWJ, “engineering jacket foundations is not going to be a problem for the supply chain in the US.” But building large numbers of them and transporting jackets built in the southern US for installation in the northeast could be costly. Further, building jackets in the southern US would not provide the employment opportunities that politicians in offshore wind states crave.
Mr Dunn also highlighted another important difference that could shape the way the offshore wind industry develops in the US. In Europe, he said, the offshore wind industry had been built up out of the marine supply chain. In the last decade, he said, the marine supply chain had been ‘hungrier’ than the oil and gas supply chain in the US. As a result, it had been prepared to innovate. Will the oil and gas chain in the US now be prepared to show the same approach to innovation, he asked?
Who will build the foundations and substations?
Analyses cited by Mr Dunn highlighted a 10-year pipeline of 1,700 foundations that could be need in the US offshore wind market, along with 17 offshore substation platforms. A study based on an assumption of 18 GW of offshore wind in the US by 2030 – a target that has probably now been superseded – suggested that around 200 foundations could need to be built every year for next five years.
“Current plans for early projects have nearly all the foundation hardware coming from Europe,” said Mr Dunn, a situation which is far from ideal that would probably drive up costs unsustainably.
So, what is needed to have foundation supplied from the US, he asked? “Probably the most important pieces of the puzzle are ports and fabrication facilities capable of fabricating many hundreds of monopiles and other types of foundations,” Mr Dunn said, “but another big challenge is trained labour capable of undertaking fabrication work.”
Mr Dunn also cited the need for specialised welding skills, coatings expertise and workers with experience of working offshore. Then there is the need for Jones Act installation vessels or for feeder vessels to transport foundations to international installation vessels in US waters.
Turning to offshore substations for the US market, Mr Dunn said he believed there are nearer-term opportunities for companies in the US.
“Gulf coast suppliers could participate more directly in the fabrication of offshore substations,” he suggested, and offshore substations for American offshore windfarms could be assembled or commissioned in available port/marine locations along the east coast.
Such an approach could represent the best near-term opportunities for the supply chain for the US offshore wind industry, he concluded.