The FDI angle:

• Foreign direct investment (FDI) in offshore wind has surged globally in recent years.
• Significant macroeconomic challenges and supply chain issues are stalling FDI into the US's nascent offshore wind industry.
• Why does this matter? Without these projects being developed, the US could struggle to meet its offshore wind generation targets.

The fledgling US offshore wind industry is full of contradictions. On December 6, a turbine at South Fork Wind, just off New York’s coast, became the first US utility-scale offshore wind farm to deliver electricity to the grid.

The site, which is being built by Danish developer Ørsted and local utility Eversource, was hailed as a “major milestone” by New York governor Kathy Hochul. Yet, this came just a month after Ørsted cancelled the development of its Ocean Wind 1 and 2 projects off the southern New Jersey coast. 

Numerous challenges — from inflation and rising interest rates to supply chain bottlenecks — have led to a spate of cancelled offshore wind projects in the US. This threatens to imperil the government’s national goal to reach 30 gigawatts of offshore wind generation capacity by 2030.

Just two greenfield FDI projects have been announced in the US wind industry — both onshore and offshore — in 2023, according to fDi Markets, down from 13 projects in 2022. This is the lowest number of wind FDI projects recorded in the past decade for the US, and a sharper decline than in the rest of the world.

Inflation is gripping the US offshore sector. The levelised cost of electricity, a measure of the cost of producing electricity, for a subsidised US offshore wind project has increased to $144.20 per megawatt-hour in 2023, according to BloombergNEF. This is up 50% from 2021. 

The industry “underestimated the cost and time for infrastructure buildout,” says Jay Apt, professor of engineering at Carnegie Mellon University. He says this is mostly related to the ships used to construct and service projects, but also for the undersea cables that connect the offshore turbines with the onshore electricity grid.

More data trends to understand the new age of globalisation:

• Brics expansion dilutes G7 investment influence
• The rise of the EU's formal FDI screening
• Chinese outbound FDI boom signals 'new phase'

The US “has been particularly exposed to inflation, as it was just beginning to scale its local and regional supply chains”, says Michael Taylor, head of renewable energy costs and outlook at the International Renewable Energy Agency. This is unlike more mature markets in Europe with a well established, installed base of wind projects and regional supply chains.

David Hardy, Ørsted America’s CEO, said in a statement the company had “no choice” but to cease development, citing a dramatic change to the macroeconomic environment over a short time period.

In the first nine months of 2023, Ørsted recorded impairments worth DKr28.4bn ($4.16bn), with 70% of this related to its cancelled Ocean Wind 1 project. This was up from the initial estimate of DKr16bn made in September.

These challenges come despite the Inflation Reduction Act (IRA), in which tax credits for wind component manufacturers were among the $370bn of clean energy incentives offered.

Many wind developers have reduced the price of electricity they sell via power purchase agreements, on the expectation that IRA tax credits will last for decades. But this has not been enough to counter the macroeconomic forces bedevilling the industry.

“After years of decreasing PPA prices, the tax credits haven’t been able to curb upward trends driven by higher costs, inflation, supply constraint, and the demand for new projects dwarfing supply,” read a Wood MacKenzie report published in October.

The offshore wind industry could face further storms if Donald Trump is re-elected in 2024. On his Truth Social account in November, the former president called Ørsted’s Ocean Wind 1 and 2 sites a “monstrosity”. He has also pledged to cut back on Biden’s climate bill, should he return to power.

Mr Trump also claimed that whales “are dying in record numbers because of these wind scams”. Macroeconomics and politics could blow this nascent industry off course.

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