What Will Determine Offshore Wind Supply Chain Development in the U.S.

The ability of a region’s to support the development of the offshore wind (OSW) supply chain will greatly affect the size of the industry’s impact on the state. The economic impacts of OSW are higher when the industry employs people from the region and spends its dollars at the region’s businesses because this keeps dollars in the community. Several factors will affect the level of local content:

Existing industrial base: The ability of a region to attract investment from a new industry is often tied to the presence or absence of similar or complementary industries. For example, the Gulf Coast states may be able to transition from making marine structures for oil & gas to those for OSW wind farms, which would help this region compensate for the drop in demand from the offshore oil & gas industry. The jacket foundations for the first OSW farm in the United States —the Block Island Wind Farm—were manufactured by Gulf Island Fabrication, a company that made large-scale steel structures for the offshore oil and gas industry. A similar pattern was observed in the U.K., with many of the workers with experience working in offshore oil and gas settings finding new employment opportunities in the OSW industry.

Local content requirements and supply chain investment: In the U.K., the development of an OSW supply chain has been actively promoted through local content targets and government investment. For example, the contract with the developer of the Humber Gateway Project in the U.K. specifically stated that local employment must be used. In addition, the U.K. government has contributed £20 million toward the Manufacturing Advisory Service Offshore Wind Supply Chain Growth Programme (GROW: Offshore Wind) and has set aside funding and resources to create the Offshore Wind Investment Organisation, a private-sector-led body to attract inward investment.[1] Local content requirements are not likely to occur in the U.S., where OSW development is being led at the state level, since the Commerce Clause of the U.S. Constitution prevents states from passing laws mandating local procurement and hiring as they serve to restrict interstate commerce.[2] However, vigorous interstate competition to attract investment in OSW supply chain manufacturing facilities can be expected as the nascent OSW industry along the Eastern seaboard of the U.S. develops to scale.

Infrastructure: The massive size of modern OSW turbines limits the transport of finished products over land. As a result, the manufacturing of the primary, finished components must occur at waterfront locations with a large amount of acreage and a quay that has been reinforced to withstand heavy loads. For example, for OSW farms in the U.K., the tower pieces were sent in from Denmark or Spain and assembled on-site. Without a reinforced quay to accommodate on-site assembly and production, all components would have been imported fully assembled from Denmark or Spain, directly to the OSW farm. In addition, the height of some components limits the locations to those without height limitations from features such as bridges. One tower manufacturer cited the need for a 175,000- to 200,000-square-foot facility, Class 1 rail, 50 acres of storage with quayside access, and interstate access. A detailed assessment of potential sites in Massachusetts is provided by the Massachusetts Clean Energy Center’s Massachusetts has laid the groundwork for private investment in secondary locations for future turbine and foundation component manufacturing through MassCEC’s 2017 Massachusetts Offshore Wind Ports & Infrastructure Assessment.[3]

Logistics and the distance to ship components: The sheer distance to transport the components overseas from Europe may incentivize investment in U.S. manufacturing facilities. In one study, which examined the Levelized Cost of Electricity (LCOE) for OSW in Denmark, the logistics cost was conservatively estimated to account for 18 percent of the total cost.[4] The distance to the U.S. market substantially increases these costs. For example, according to one European foundation manufacturer, it would cost tens of millions of dollars to import the foundations from European to the U.S for one 400 MW project.[5] In comparison, a new manufacturing facility in the U.S. Atlantic would cost up to $500 million to build and take three years to develop.

Workforce: The skills of the local workforce can play a large role in a manufacturer’s location decisions. For example, Hull, U.K. was originally slated to host a nacelle manufacturing plant, but to date this has not happened, reportedly because the region’s workforce lacked the electrical engineering and magnetism skills required. Instead, Hull became the home to a blade manufacturing facility, because they had the substantial deep-water port acreage needed and a workforce skilled in fiberglass manufacturing. In other words, blade manufacturing has skill requirements that better aligned with the capacity of the local labor market.

Size and timing of the pipeline: Manufacturers need to know that there will be consistent demand for their products before they make massive investment decisions. In the case of U.S. OSW developments, interview subjects consistently reported the need for a long pipeline of future OSW developments as a major prerequisite for establishing a U.S. manufacturing facility. One manufacturer described their expectation of a five-gigawatt pipeline in the U.K. when investment decisions were made. However, manufacturers we interviewed consistently noted that the Northeast U.S. is a major emerging market that is too big to ignore. The timing of OSW projects is also important. A dormant foundation factory, for example, can cost up to $6 million per year in facility debt alone. A steady flow of smaller, faster projects or larger projects with long lead times can be expected to increase the chances of a substantial investment in OSW production facilities in the U.S.

[1] Her Majesty’s Government. Offshore Wind Industrial Strategy: Business and Government Action. (2013). https://ore.catapult.org.uk/wp-content/uploads/2016/05/Offshore-Wind-Industrial-Strategy-Business-and-Government-Action.pdf

[2] Building Trades v. Mayor of Camden. 465 U.S. 208. (1984).

[3] http://www.masscec.com/ports

[4] Poulsen, T., & Hasager, C. B. (2016). How Expensive Is Expensive Enough? Opportunities for Cost Reductions in Offshore Wind Energy Logistics. Energies, 9(6), 437.

[5] Tim Mack, Head of Offshore Wind Development, North America, EEW. (2017). Presentation to the Clean Energy Center’s Offshore Wind Supply Chain Forum, May 31, 2017. [PowerPoint Slides.]