U.S. Wind Energy Industry Has Its Ups and Downs

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wind energy

While the rest of the world is struggling to develop its wind capacity in the face of supply chain disruptions and rising material costs, the U.S. has big plans for the development of its wind energy sector. However, several challenges stand in the way of the U.S. achieving its goal of developing its wind capacity in line with climate pledges and a green transition.

Overtaking Coal

In December, the U.S. announced electricity from wind power was on course to overtake coal-fired electricity generation by as early as 2026. This is owing to the rollout of a massive wind energy project pipeline and the cutting of coal operations across the country. This is a huge achievement as, unlike several of its European counterparts, the U.S. continues to rely heavily on coal, which is the second-largest source of U.S. electricity after natural gas. In the first 10 months of 2023, coal-fired energy production stood at around 60% higher than
electricity generation from wind sources.

Over the last year, the Biden administration has pushed the acceleration of the green transition through the introduction of the Inflation Reduction Act (IRA) and other favourable climate policies. This has spurred a huge amount of private investment across the renewable energy and clean technology sectors, including wind power. It has also meant that the White House is making good on its climate pledges by curbing coal production and making plans to decommission several plants in the coming years to help reduce the country’s greenhouse gas emissions and tackle climate change.

A Slow Starter

While several countries around the world have invested heavily in the development of their wind energy capacity in recent decades, such as in Europe and China, the U.S. has been trailing far behind. It is only since 2015 that the U.S. has accelerated the development of its wind power, increasing its capacity by over 90%. It is now considered the biggest source of clean electricity in the country.

The U.S. brought 5,000 MW of new wind capacity online in 2022 and early 2023. As of September, the U.S. had nearly 52 GW of offshore wind projects in operation or in the development and planning stages, which could provide electricity for over 18 million households if completed. Meanwhile, the global wind power capacity is expected to reach between 380 GW and 394 GW by 2032.

Between January 2022 and May 2023, the government leased three new areas in the Gulf of Mexico. In 2022, the U.S. offshore wind industry invested $2.7 billion in ports, vessels, supply chain development, and transmission.

Major Challenges Ahead

While the U.S. is optimistic about the development of its wind energy sector, there are several challenges it must overcome to achieve its ambitious project pipeline. Over the last year, several major wind companies – such as Siemens, Orsted and Vestas – have found it hard to make a profit in the face of supply chain disruptions and sharply rising material costs. Further, the race to develop the biggest, strongest and most efficient wind turbine has resulted in production mistakes and recalls, that have cost the companies heavily. This
has led to production and project development delays, as several wind companies invest both time and money into rectifying the mistakes of previous projects.

In the case of the U.S., in November, Anja-Isabel Dotzenrath, the head of gas and low carbon at BP, stated that the U.S. offshore wind industry is “fundamentally broken” as BP and its partner Equinor looked into options to develop huge projects off the coast of New York after writing down  $840 million of their value. Orsted, the world’s biggest offshore wind producer, was forced to announce write-downs of $5.6 billion after it paused several U.S. offshore wind developments. Several companies have faced difficulties in permitting in the U.S., with a delay between when purchase agreements are signed and when the projects are developed, as well as a lack of inflationary adjustment mechanisms. Dotzenrath emphasized, “There is a fundamental reset needed in the speed of permitting, security of permitting, etc..” Although she does not doubt that the planned projects will eventually be built.

Project cancellations due to high inflation and interest rates, as well as supply chain bottlenecks and the high cost of installation, are putting increasing pressure on 2024 wind auctions. State regulators across the U.S. East Coast have refused to increase the price of agreed electricity contracts, making it increasingly difficult for producers to make a profit in new wind projects. At least ten East Coast projects have attempted to renegotiate prices and contract cancellations to no avail.

Some developers are now hoping to re-bid in 2024, rather than exiting the market. However, this will all depend on the prices offered by regulators in the auctions. Whatever the outcome, this is expected to have a huge impact on project development, with major delays expected and Biden’s pledge to install 30 GW offshore wind by 2030 under threat. To ensure the U.S. continues to develop its wind energy capacity at an accelerated pace, regulators must rethink their approach, given the market constraints, to encourage developers to continue investing in the U.S. market rather than taking their money elsewhere.

 

Felicity Bradstock is a freelance writer specializing in Energy and Industry. She has a Master’s in International Development from the University of Birmingham, UK, and is now based in Mexico City.

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