On 8 December 2020, the Government Accountability Office, an independent research arm of Congress, issued a report on vessels needed for US offshore wind projects. It highlights a number of issues facing the market
Commenting on the report, Offshore Wind Energy – Planned Projects May Lead to Construction of New Vessels in the US, but Industry Has Made Few Decisions amid Uncertainties, Winston & Strawn maritime practice partner and chair Charlie Papavizas said its title “captures the amorphous nature of the task GAO was given.”
Congress requested the report in the National Defense Authorization Act for Fiscal Year 2020, which was enacted in December 2019, seeking an understanding of the market for Jones Act qualified US-flag vessels for the offshore wind market.
The GAO examined industry sources and interviewed a wide range of stakeholders and US Government personnel. The report contains information regarding wind turbine installation vessels available worldwide, but no information regarding foundation installation, survey or other vessels needed to build projects.
Mr Papavizas said the report, “notes obliquely that the issue of offshore federal jurisdiction applying the US Jones Act to offshore renewable projects remains open,” an issue that he said may be resolved soon, in this year’s National Defense Authorization Act.
The GAO confirmed that for the foreseeable future, offshore wind turbines in US waters will be installed by non-US-flag vessels because there are no existing US-flag vessels “with sufficient capacity to install the larger turbines that offshore developers plan to use.” It also noted there has been at least one private study to the effect that Jones Act-qualified feeder vessels working in tandem with a foreign turbine installation vessels may be more efficient than a Jones Act unit working without feeder vessels.
Mr Papavizas said the report also states that Jones Act-qualified jack-up feeder vessels will have to be constructed ‘because of the limited utility of deck barges which might be used in their place’ and that ‘there may not be any existing Jones Act-compliant jack-up vessels that can carry all the components of a current generation turbine.’
The GAO said stakeholders identified other challenges too. A number highlighted the difficulty securing funding to invest in Jones Act-compliant turbine installation vessels – which can cost up to US$500M. They said finance is challenging in part due to uncertainty about the timing of federal approval for projects.
The Bureau of Ocean Energy Management, part of the Department of the Interior, which is responsible for approving offshore wind projects, plans to issue a long-delayed decision regarding America’s first large-scale offshore wind project in December 2020.
Some stakeholders said that if this project, Vineyard Wind, is approved, investors may be more willing to move forward with vessel investments. They also cited port infrastructure limitations that could pose challenges to using Jones Act-compliant vessels for offshore wind, although offshore wind developers and state agencies have committed to make port investments.
Several vessel owners stated they would need multiple years’ worth of contracts for future work to establish a business case to support the financing of an installation vessel and greater certainty about the development of the market overall – and not just individual projects – is important to them.
In addition, because the daily rate charged to use US-built vessels would probably be higher than that of foreign-flag vessels, some stakeholders noted a Jones Act-compliant vessel might not be able to compete for contracts in other countries. As such, a Jones Act-compliant turbine installation ship would need to support its cost of construction solely on the basis of the pipeline of US projects.
The report noted that Dominion Energy, which is building a turbine installation vessel, is an energy company and is in a unique position in as much as its vessel will install the company’ own projects, for which the project developer, Virginia Electric and Power Company, is an affiliate of Dominion. In addition, Dominion is a utility company charged by the state with producing offshore wind energy. As a result, Dominion has more certainty on the vessel’s use in its future portfolio of projects.
As highlighted on a number of occasions by OWJ, potential vessel obsolescence is also an issue in the US market. “Vessels constructed based on current wind turbine sizes could become obsolete as the industry moves to larger turbines,” said the GAO, although it noted that the rapid increase in the size of turbines may slow down.
Industry stakeholders interviewed by the GAO also cited other potential challenges to constructing and using installation vessels in the US market, such as shipyard capacity and building expertise. “Some stakeholders, including one project developer, two vessel owners and one state agency said there are a limited number of shipyards in the US with the capacity to construct purpose-built installation vessels, given their large size,” the GAO said.
“A vessel owner and a state agency noted that shipyards may also be busy constructing other large vessels and not able to take on installation vessel construction. In addition, one vessel owner and operator and a project developer noted a lack of competition may increase the price to vessel owners.”
Most stakeholders did not cite any significant technical challenges to constructing vessels, but due to US shipyards’ lack of experience building them, “there may be a learning curve that could result in the first new vessels being more expensive to build.”
However, stakeholders did not identify any significant challenges associated with building operation and maintenance (O&M) vessels. According to some of them, including one shipbuilder, a vessel owner and a turbine manufacturer, these vessels can be built relatively quickly and inexpensively. Moreover, their smaller size means that more shipyards can build them, resulting in greater potential competition for contracts to build these vessels, potentially lowering their prices.
Their smaller size also means that port limitations may not pose a challenge to their use. In addition, because O&M vessels are typically contracted for up to 20 years, there is little uncertainty about their future pipeline of work once they are contracted for and constructed.