Where Does U.S. Offshore Wind Go from Here?

Audio Brief

A short, spoken-word summary from CSIS’s Allegra Dawes on her commentary, "Where Does Offshore Wind Go from Here?"

Audio file

In September, following months of increasingly bad news in nascent offshore wind sector, six East Coast governors warned that without federal action, the industry was at risk of stalling. Project developers have pointed out that supply chain constraints, inflation, and high interest rates are threatening to derail proposed projects. Some developers have looked to renegotiate their offtake agreements with state utilities and regulators, citing increased costs as a key contributor to the loss of project profitability. Others have withdrawn from projects that they see as commercially unviable; Avangrid recently terminated its power purchase agreements with the Connecticut Electric Distribution Companies for Park City Wind and Orsted has indicated that it may walk away from projects without federal support.

Despite these challenges, the net-zero goals of many East Coast states and the Biden administration’s target of net-zero electricity by 2035 depend on the rapid deployment of offshore wind. Recent analysis estimates that offshore wind could account for 1–8 percent of U.S. power generation by 2050, and much of this potential lies on the East Coast. Meeting the Biden administration’s goal of deploying 30 gigawatts (GW) by 2030 was always an ambitious goal; the recent challenges make this more difficult to achieve. Addressing some of the industry headwinds is not only important for 2030 goals, but it will also set the stage for the longer-term industry. The Department of Energy has outlined ambitions for deploying 110 GW of offshore wind by 2050. The industry also represents a key element in states’ economic development plans as the supporting supply chain is a driver of investment and employment opportunities.

While the Inflation Reduction Act offers significant tax incentives for offshore wind projects and manufacturing facilities through the production, investment, and advanced manufacturing tax credits, these subsidies do not meet the rapidly rising costs in the industry. Analysis from Bloomberg NEF showed that the levelized cost of energy (LCOE) from offshore projects rose from $77.3 per megawatt-hour (MWh) in 2021 to $114.2 per MWh in 2023. Tax credits from the IRA tax credits lowered costs by $7.20 per MWh. Thus, subsidies have not been able to counteract macroeconomic headwinds. The question is whether there are any other federal or state interventions that can support the offshore wind sector.

The Role of Federal and State Government

At the federal level, it is essential that the government considers shoring up tax credits, reduces permitting impediments, and considers a new revenue sharing program. First, the adoption of bonus credits for meeting domestic content requirements and energy community bonuses can reduce the cost of deploying offshore wind. This is an important intervention given the high cost of capital; six governors from East Coast states requested that the Biden administration offer more subsidies to offshore wind projects at risk of failing. Second, given the governors flagged permitting delays as a significant bottleneck to the industry’s growth, accelerating permitting reform can speed up the speed of deployment. And finally, the development of a federal revenue-sharing program in which a portion of the revenue generated from offshore wind leases is distributed to coastal states would help to defray the costs passed on to ratepayers. The Reinvesting in Shoreline Economies and Ecosystems Act of 2022 would have included a similar revenue-sharing set mechanism.

While states depend on support and funding from the federal government to move offshore wind projects forward, collaboration can help address short-term challenges while creating an environment conducive for long term growth. One recent trend has been increased regional collaboration on offshore wind. For instance, in October three New England states—Massachusetts, Rhode Island, and Connecticut—agreed to jointly procure offshore wind power, with the goal of achieving economies of scale to lower offtake prices. This builds on previous efforts to coordinate offshore wind development. Maryland, Virginia, and North Carolina formed the SMART-POWER partnership in 2020 to jointly develop and promote offshore wind and the supporting supply chain and workforce. In 2022, New York, New Jersey, and the Bureau of Ocean Energy Management (BOEM) announced their shared vision for offshore wind, committing the three actors to collaborate across supply chain and workforce development. Pooling resources and ensuring that the industry buildout is efficient is necessary given the cost headwinds in the sector.

A recent CSIS brief, “Aligning Ambitions: State Strategies for Offshore Wind,” assessed opportunities for collaboration by developing regional supply chain clusters and coordinating workforce development efforts. Coastal states have different approaches for developing offshore wind. States like New York, New Jersey, and Massachusetts see offshore wind as a critical resource to decarbonize their power sectors and as a catalyst for developing local economies. To address some of the immediate challenges facing the sector, these strategies should incorporate a regional focus to benefit from economies of scale and develop a supportive environment for the industry. Some actions that can have positive impacts on the industry include the following:


  1. Build regional supply chain clusters.

Developing regional supply chains can benefit national efforts to build the offshore wind sector. A supply chain road map published by The National Renewable Energy Laboratory highlighted the importance of regional clusters in scaling the offshore wind sector. Regional clusters allow projects to benefit from pre-existing supply chains and manufacturing centers. These clusters can also jointly develop the large-scale infrastructure like ports and ships needed to launch the offshore wind industry. Regional supply clusters would allow states to pool both financial and infrastructure resources to lower costs associated with the supply chain buildout. The industrial logic of hubs—regional centers that look to accelerated innovation, manufacturing, and deployment of green technologies—has emerged as a key piece of the Biden administration’s efforts to address climate change. The hydrogen hubs and direct air capture hubs included in the bipartisan infrastructure law looked to create regional centers to develop and launch clean energy technologies. Offshore wind could benefit from a similar strategy. State clusters along with industry partners could develop supply chain roadmaps based on regional cooperation and offer regional support to these projects. The federal government could also support the development and financing of supply chain clusters.


  1. Jointly develop standards and programs for workforce training.

State policies can have a significant impact on developing a strong pipeline of workers to support offshore wind. Across the East Coast, states have partnered with educational institutions and industry to develop training programs. These include the Maryland Works for Wind regional consortium, Virginia’s Mid-Atlantic Wind Training Alliance, and New York’s Offshore Wind Training Institute. As states move to increase coordination and collaboration on projects, building harmonization between training programs and providers could ensure that supply and demand are aligned on a regional basis. Many states hope to capture economic and jobs gains from offshore wind. This can lead to disputes between different states and labor unions. For instance, in Maine, disputes over the use of project labor agreements resulted in a compromise that would ban the use of independent contractors and prioritize jobs for residents of Maine and the region. Proactive collaboration of workforce training and labor standards can help to smooth the development of the industry and ensure that local communities and workforces see the benefits of offshore wind projects.


  1. Simplify the regulatory and state permitting landscape.

While the federal permitting process for offshore wind takes a longer time than state and local permitting, improvements can be made at the state and regional level. Aligning processes and community engagement efforts across different states could enable companies to share best practices and address community concerns on a timely basis. Working groups on permitting offshore wind could also expand to include efforts for transmission planning and permitting. Research has pointed to the long-term cost benefits that would come from proactive and collaborative transmission planning. These efforts could coordinate onshore and offshore interconnection points and ultimately reduce the amount of marine transmission cable installation.

Achieving Long-Term Growth and Stability

Offshore wind is a new industry. Growing pains are to be expected. While the levelized cost of energy for offshore wind has increased substantially over the past year, this follows years of falling costs. Between 2014 and 2020, the LCOE declined by 28–51 percent. If supporting infrastructure such as ports and ships can grow, supply chain bottlenecks could ease, bringing down procurement costs for project developers. These improvements are unlikely to entirely counteract the impact of higher interest rates on project financing. Bloomberg NEF reported that rising interest rates contributed to a $27 per MWh increase in LCOE compared to a $17 per MWh increase from surges in operating and capital expenditures. However, reducing supply chain costs would be an important step to return to a healthier industry. Additionally, cost challenges are not only impacting project developers. Project delays at the Port of Albany, due in part to rising concrete and steel prices, point to some of the risks to supply chain development that are present.

Not every problem can be solved by the same policies. Regional collaboration can help pool collective resources and would benefit from scale. However, experimenting with different policies can also help deploy this technology. For instance, rather than joint procurement of larger offshore wind power contracts, states could pursue smaller projects in the short term with capacity ramping up toward 2030 and beyond. This strategy would provide a steady demand signal for the industry, supporting the supply chain development while allowing utilities to avoid large offtake agreements at significantly higher prices.

Achieving 30 GW by 2030 is an ambitious goal. It sets a clear target for industry to meet and to guide the supply chain ramp up. However, the current state of the offshore wind sector undermines that goal. Setting the stage for healthy industry long term growth is more important than fixating on the installed capacity by 2030. In the long run, state policies on supply chain and infrastructure development and workforce training can create a thriving offshore wind ecosystem and deliver local and regional economic opportunities. In the short term, states should assess how they can partner with their neighbors to support the offshore wind industry through this challenging period. Providing a clear and consistent demand signal is essential. In some cases that may mean joint procurement of offshore wind to allow for larger projects that benefit from economies of scale. In other cases, the current macroeconomic and supply chain constraints may mean a slower approach is required to wait out acute bottlenecks. While offshore wind is facing significant challenges today, it is a resource that can play a significant role in clean power generation. Working across state, federal, and private sector levels to unlock this resource for the future is essential.

Allegra Dawes is an associate fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.

Allegra Dawes
Associate Fellow, Energy Security and Climate Change Program