U.S. policymakers, market actors, and the general public need a reasonable idea of the potential size and value of the domestic offshore wind supply chain, as well as the unique challenges and opportunities facing the development of an offshore wind market in the U.S. This report seeks to provide an organized, analytical approach to identifying and bounding those uncertainties; projecting potential component-level supply chain needs under three demand scenarios; and identifying key supply chain challenges and opportunities facing the future U.S. market and current suppliers of the nation’s land-based wind market.
The total potential market value to the U.S. offshore wind supply chain is primarily a function of the market volume. In this study, market volume is fixed according to three scenarios. The value of the offshore wind industry to the supply chain is also impacted by changes in capital and operational costs. These costs are influenced by improvements in industry efficiency, fabrication technology, and wind turbine and foundation technology, as well as changes in material costs, market demand, commodity prices, and other factors.
The supply chain is evolving in a number of areas. Larger rotors allow for increased energy capture and production. Next-generation drivetrains will result in increasing turbine efficiency and reliability. Offshore wind towers in the future may employ concrete, composites, or other alternative materials to help combat corrosion and reduce steel content while simultaneously enabling taller hub heights. Shifting to High-Voltage Direct Current (HVDC) interconnection lines will reduce electrical losses, and higher voltage array cabling and larger turbines will allow for project layouts that minimize array cabling needs. Such advancements will help to reverse the recent trend of increasing offshore wind power prices, which are driven largely by a movement toward deeper-water sites located farther offshore; increased siting complexity; and higher contingency reserves that result from greater uncertainty when working in the offshore environment. As the industry matures and uncertainties are reduced, both capital costs and the levelized cost of electricity (LCOE) from offshore wind facilities are expected to plateau and trend downward.
The potential exists for significant domestic supply of a future U.S. offshore wind market. A lack of current U.S. offshore demand means no domestic manufacturing facilities are currently serving the offshore wind market. However, strong domestic supply capacity for the U.S. land-based wind market suggests that potential also exists to supply significant portions of the future offshore market domestically.
The magnitude of U.S.-based offshore wind manufacturing capacity will depend on turbine suppliers perceiving stable, long-term policy support and subsequent demand for offshore wind in the U.S. market. Three major barriers combine to have a dampening effect on the development of the U.S. offshore wind supply chain: the high cost of offshore wind energy; infrastructure challenges such as transmission and purpose-built ports and vessels; and regulatory challenges such as new and uncertain leasing and permitting processes. The result is that European and Asian suppliers who are currently supplying offshore wind turbines and components have a competitive advantage over their U.S. counterparts. The U.S. offshore wind industry faces a “chicken-and-egg” problem where plants will not be built unless the cost is reduced, and local factories (which will help bring down the cost) will not be built until there is a proven domestic market.
In deciding whether to enter the U.S. offshore wind market, potential suppliers will assess the supply and demand dynamics. Suppliers will assess whether the market will be large enough to warrant dedicating manufacturing capacity to offshore wind-related products. European-based suppliers will use demand forecasts to determine whether it is financially attractive to build manufacturing plants in the U.S. On the supply side, potential suppliers will assess the competitive rivalry, the barriers to entry, and the risk for each component. Market entry will be more attractive with higher fragmentation, lower barriers to entry, and lower overall risk.