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US offshore wind is poised for record investment

Oil & gas majors, foreign investors and global infrastructure funds, and US utilities are likely to be the most active in the segment

Despite the immense potential of offshore wind in the US, Europe and Asia-Pacific have led the way in developing offshore wind power to date. But as the barriers to development fall away, the US offshore wind market is gathering momentum.

The Biden administration has set an ambitious goal to operationalize 30 GWs of offshore wind capacity by 2030, and it has strengthened tax incentives to encourage offshore wind development.

Recent approval for the 8 GW Vineyard Wind project suggests that the Biden administration will make good on its pledge to accelerate the federal permitting process for offshore projects. And the recent announcement that the administration is opening parts of the California coast to offshore wind development could make way for more than 4 GWs of additional offshore capacity. 

Given the trends toward energy transition and investors' growing appetite for renewables, the market may be on the cusp of record investment flows. As the US market picks up, investments will continue to originate from a variety of sources, but the following groups are likely to be particularly active, often due to their deep experience and expertise in the sector. 

 

Oil & gas majors

Oil & gas majors have substantial offshore exploration, development, construction and operation experience, and they have already started investing in the US offshore wind sector to take advantage of their substantial transferable expertise. 

In 2021, for example, BP purchased a 50 percent interest in two US offshore wind assets, Empire Wind and Beacon Wind, from Equinor, the Norwegian multinational energy company, for a total cash consideration of approximately US$1.1 billion. These two projects were recently selected by the State of New York to satisfy some of its future power needs. The partnership will enable Equinor and BP to combine their strengths in the sector. Equinor will remain the operator of the projects through the development and construction phases, after which time the wind farms will be staffed equally by Equinor and BP. 

Also in 2021, Chevron became the first US oil major to dip its toes into the offshore wind market. In April, it signed a deal with Norway's Moreld, an industrials company with offshore expertise, to develop technology for floating offshore wind turbines with the California-based firm Ocergy, which plans to compete for gigawatt-scale projects worldwide. 

 

Foreign investors and global infrastructure funds

Trends have accelerated foreign investment in US renewables, including by sovereigns. Indeed, almost half of the 86 greenfield and M&A deals announced in US renewables in 2020 involved foreign investors. And a substantial number of US offshore wind projects are already owned by foreign investors. 

Avangrid, the US-based subsidiary of Spain's Iberdrola, and Denmark-based Copenhagen Infrastructure Partners co-own Vineyard Wind, the recently approved offshore wind farm that will be built off the coast of Massachusetts. 

The Qatar Investment Authority and Iberdrola collectively made a US$4 billion equity investment in Avangrid, a portion of which will be used for Avangrid's two offshore projects off the coast of New England, Vineyard Wind and Park City Wind.

Ørsted, a Danish power company, and Eversource, a US-based energy company, co-own Revolution Wind, an 880 MW offshore wind project that will be constructed off the coasts of Rhode Island and Massachusetts. The Bureau of Ocean Energy Management (BOEM) recently announced a Notice of Intent to prepare an Environmental Impact Statement for its construction and operations plan.

Ørsted is particularly active. It either owns or is a partner in seven BOEM leases—including the first operating US offshore wind farm, the Block Island Wind Farm, which it owns. 

Infrastructure funds are likely to play an increasingly important role accelerating development of offshore wind in the US, partly in response to Biden administration policies meant to open the country to rapid development of offshore wind capacity, and partly due to deep interest in energy transition and ESG considerations. 

In 2020, New York–based Apollo Global Management made a US$265 investment in US Wind to fund development of an offshore project in Maryland waters. The investment was made by Apollo's second infrastructure fund, Apollo Infrastructure Opportunities Fund II. US Wind is majority-owned by Renexia SpA, a leader in renewable energy development in Italy and a subsidiary of Toto Holding SpA. Apollo is not new to the space, having made an investment in 2018 in the Tullahennel Wind Farm, a 37 MW facility located off the coast of Ireland. 

 

US utilities

Many US utilities have set net-zero targets and are moving away from conventional power generation, sometimes urged on by shareholders that have a strong ESG focus. A number of these utilities are selling portions of their businesses and using the proceeds to invest in clean-power solutions. 

Dominion Energy, a Virginia-based utility, has a goal of becoming the cleanest energy company in the US. In 2020, it sold its gas transmission and storage business and plans to reinvest some of the proceeds in renewables. In the same year, Dominion installed a 12 MW offshore wind demonstration platform off the coast of Virginia, setting the stage for a multi-gigawatt offshore wind project that it plans to develop in partnership with Ørsted in Virginia waters. 

Public Service Enterprise Group, a utility based in New Jersey, is also partnering with Ørsted, in this case to develop the 1,100 MW Ocean Offshore Wind Farm. BOEM has already begun to prepare environmental statements for the project.

Exelon announced that it will sell its competitive generation assets. Building on its regulated utilities business, it aims to become the largest supplier of clean energy and sustainable solutions in the US. 

OGE Energy announced that it is selling its interest in Enable Midstream, a pipeline company, to Energy Transfer. This is part of OGE's plan to become a pure-play generation company, and it has earmarked a portion of the sale to increase its renewables generation capacity. 

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The US offshore wind market is opening up, and there will be no shortage of investors targeting the space as it takes off. Those with offshore experience in other regions where the offshore wind sector is more advanced are likely to lead investment, along with US utilities that are aligning their strategies with energy transition, and sovereigns and global infrastructure funds that are focused on energy transition and ESG considerations.

 

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