The U.S. offshore wind industry has the potential for rapid expansion and individual States have been exploring this technology for years. While the promise of job creation often justifies the higher cost of offshore wind compared to other energy sources, long-term success relies on developing a sustainably competitive supply chain with the largest job creation potential coming from construction services and new manufacturing and port facilities.
As States and industry players explore new investment opportunities in facilities, rigorous early-stage due diligence is paramount. The critical question for any proposed facility is: “What makes this location capable of achieving a global competitive advantage?” The answer must extend beyond short-term job creation or political wins to address the economic realities of a competitive global market, and to avoid the pain associated with facility closures in the long run.
Competitive Factors Driving Long-Term Success
To attract and sustain offshore wind supply chain facilities, locations must lower the Total Cost of Ownership (TCO) for wind farm developers. This requires a strategic focus on factors that provide a durable edge over international competition:
Transportation Costs
Transportation and Installation (T&I) represent a significant portion of offshore wind farm capital expenditures (CAPEX). Oversized components, such as tower sections and individual flanges, are expensive to transport, often accounting for more than 20% of their total installed cost. Therefore, reductions in transportation by co-locating or near-locating to assembly or staging facilities can generate significant cost advantages, enhancing global competitiveness.
Input Materials and Utilities
The cost of raw materials, inbound supply chains, labor, and utilities can vary dramatically by location. Sites with lower costs for these inputs stand a better chance of competing globally. Identifying regions with advantageous access to raw materials, affordable utilities, and efficient inbound logistics is critical to minimizing production costs.
Labor Costs and skills
Labor-intensive manufacturing activities necessitate careful consideration of local wage levels. High labor costs can erode competitiveness unless offset by other factors. Locations with higher wages should focus on localizing manufacturing of components with low labor and high transportation cost quotients. Conversely, regions with lower labor costs can attract labor-intensive operations, provided they have access to skilled workers or robust workforce development programs.
Capital Costs for Property, Plant and Equipment
Expensive Property, Plant, and Equipment (PPE) is a common headwind for offshore wind manufacturing facilities in emerging markets. Building offshore wind supply chain infrastructure often involves high initial capital expenditures for land development, quayside construction, dredging, bearing capacity strengthening, rail-line construction, and other facility needs. The amortization of these costs can create long-term financial pressures. Selecting locations with lower upfront development costs – or leveraging existing infrastructure – can reduce financial burdens and position facilities for success. Brownfield sites rarely exist that are already suited for the purposes of a new facility.
Onsite Storage Capacity
Offshore wind components are massive and require specialized storage. In regions like the U.S. Northeast, where port storage is limited, building factories with ample on-site storage capacity near offshore wind farm locations can lower costs and mitigate risks associated with production delays or long-distance transportation.
Industry Clustering
Clustering creates synergies that can boost competitiveness. By concentrating similar businesses, educational institutions, and suppliers in one area, regions can foster innovation, reduce supply chain inefficiencies, and cultivate a skilled labor pool. Furthermore, clustering attracts specialized financial institutions and improves access to buyers and suppliers, as seen in global hubs like Silicon Valley.
Incentives and Trade Barriers
There are a variety of government supporting mechanisms for new manufacturing facilities, for example: tax credits, grant funding, and protectionist trade barriers. However, these enabling measures should not be relied upon as long-term solutions. Overdependence on incentives can hinder competitiveness when they expire or are challenged. Effective due diligence should only consider measures that are finite in the near term and focus on global competitiveness in the long term without supporting measures. Governments and stakeholders should prioritize fostering intrinsic advantages that support global market viability without continuous financial assistance. agencies should also be prudent with their incentive fueled jobs commitments, these need to be realistic and the manufacturers must be held accountable for meeting them.
Prioritizing Sustainable Competitive Advantage
Investing in offshore wind supply chain infrastructure should not be reduced to a numbers game of job creation and flashy renderings. Stakeholders must prioritize locations and activities that can endure the pressures of global competition. This means focusing on factors that reduce costs, enhance efficiency, and position the U.S. offshore wind industry as a global leader.
By aligning investments with sustainable competitive advantages, the U.S. can avoid pitfalls of underperforming facilities and inflated energy costs. The industry can then deliver on its promise of clean energy, economic growth, and job creation – on a foundation built to last.
Grant van Wyngaarden is the Country Managing Director for JUMBO Consulting Group North America, a highly specialised advisory offering strategic services and project delivery consultancy for offshore wind, offshore transmission systems and energy island projects, covering the entire project lifecycle from early development, procurement, construction to O&M. Headquartered in Denmark, JUMBO Consulting Group’s services are founded on deep sector knowledge and delivery of contractual and commercial solutions within its core disciplines, development services, supply chain development, category-, procurement- and contract management and advisory.