Vessel Construction for Offshore Wind Power Generation

Vessel Construction for Offshore Wind Power Generation

September 12, 2023
Vessel Construction for Offshore Wind Power Generation
Introduction
stationary during construction and does not transport
The Biden Administration’s goal of having 30 gigawatts of
merchandise or passengers as it moves from one turbine to
offshore wind power generation installed by 2030 will
the next, it can be foreign-built.
require construction of at least 2,100 wind turbines,
according to the Department of Energy (DOE). Seven
A U.S.-built WTIV would be required if it were to transport
turbines are currently operating in state and federal waters.
wind turbine components from a U.S. port to an offshore
Construction of two additional offshore wind farms started
construction site. While this could be the most efficient
in summer 2023 and another is to begin construction later in
option, logistically, given the expense and time required to
2023. This activity is taking place in coastal waters from
build a Jones Act compliant WTIV, other options used by
Virginia to Massachusetts. More construction projects are
U.S. developers have been to transport turbine components
planned for other coastal areas, though project cost
from a more distant foreign port (e.g., in Canada) or to use
inflation, including higher interest rates, is prompting
U.S.-built barges to transport components out to a
reevaluation of some installations.
stationary WTIV. However, the barge-to-WTIV scenario
may run contrary to the objectives of U.S. maritime policy
To construct and maintain offshore wind turbines, a number
such as the Jones Act: ships for overseas deployment in
of different vessel types are needed. Many of these vessels
time of war and a fleet of “the best-equipped, safest, and
must be built in the United States pursuant to a 1920 law
most suitable types of vessels constructed in the United
commonly known as the Jones Act (P.L. 66-261). Vessel
States.” The Offshore Marine Service Association (OMSA)
construction is underway. Several smaller and simpler
representing U.S.-built vessel owners has deployed the
vessels have been built, but the larger, more complicated
vessel Jones Act Enforcer to patrol wind farm construction
vessels can take three to four years to complete. Without
sites, film any Jones Act violations (such as foreign WTIVs
more domestic shipbuilding activity for these larger, more
engaging in transportation), and submit any evidence to
complicated vessels, DOE estimates that about half of
CBP.
planned offshore wind projects will be delayed beyond
2030. In addition to reconsidering the 1920 import ban of
DOE estimates that the United States needs four to six
foreign-built vessels, Congress can influence vessel cost
WTIVs to meet its wind-generation goals; there are no
and availability through existing loan, grant, and tax shelter
reports of a U.S. shipyard constructing a second WTIV (one
programs provided to domestic shipbuilders.
order was cancelled). DOE also estimates the United States
needs four to six general purpose heavy-lift vessels, similar
Shipbuilding Needs and Activity
in design to WTIVs.
News reports indicate that about 25-30 vessels for offshore
wind have been recently delivered, are under construction,
Before a turbine is built, seafloor scouring around its base is
or are on order from U.S. shipyards. The most sophisticated
prevented with a ring of rocks. This requires a rock
and complicated vessel needed for offshore wind energy
installation vessel with a “fallpipe” to arrange the rocks on
production is the wind turbine installation vessel (WTIV), a
the seafloor. Construction of a rock installation vessel
vessel with a large crane that installs the various segments
began at a Wisconsin shipyard in July 2023, with delivery
of a turbine. The vessels have “jack up legs,” legs attached
expected in the mid-2020s. A second such vessel is needed,
to the hull that can be retracted and extended to the sea bed
according to DOE, but no domestic construction plans have
so that they essentially become fixed platforms when
been announced.
turbine construction is underway. The one WTIV currently
under construction in the United States is planned at 472
Demonstrating that the Jones Act’s applicability can be case
feet in length, accommodating over 100 workers. It is being
specific, CBP has ruled that the initial trip of a fallpipe
built in Brownsville, TX, and is expected to be ready for
vessel need not be Jones Act compliant because the pristine
sea trials in 2024.
seabed is not a U.S. point, but subsequent deliveries would
have to comply with the act. That a “pristine seabed” is not
WTIVs do not necessarily have to be built in the United
a U.S. point is being challenged in court by OMSA and the
States if they perform strictly construction and do not
Shipbuilders Council of America (SCA).
transport merchandise or passengers on the U.S. outer
continental shelf. The Jones Act requirement for U.S.-built
A service operation vessel (SOV) is a floating hotel for
vessels applies specifically to the coastwise (domestic)
construction workers as well as a workshop and storage
transportation of merchandise or passengers between any
facility for spare parts. Since these vessels are engaged in
two U.S. points. Under the interpretation of Customs and
transporting merchandise and passengers from a U.S. shore
Border Protection (CBP), the agency responsible for
point to a wind farm, under the Jones Act they must be
enforcing the Jones Act, as long as a WTIV remains
U.S.-built. Two SOVs are being constructed at Gulf Coast
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Vessel Construction for Offshore Wind Power Generation
shipyards by an offshore vessel supplier, with one expected
provided a 10% tax credit for shipyards on the sale price of
to be delivered in 2024. Two more are being constructed at
offshore wind vessels. The small shipyard grant program
a Wisconsin shipyard with expected delivery in 2026. A
(46 U.S.C. §54101), available for modernizing shipyards
fifth SOV is being converted from an offshore oil supply
with less than 1,200 employees, has provided funds for
vessel at a Florida shipyard, to be completed in spring 2025.
some of the shipyards currently building offshore wind
These vessels are to accommodate 60-90 workers each.
vessels. Congress determines the amount of grant funds
DOE estimates a need for 11 SOVs.
available in the appropriations process.
Crew transfer vessels (CTVs) are used to transport
Domestic Shipbuilding Capability
construction workers from shore to a wind farm or between
The United States in not a major commercial shipbuilder,
turbines. Since they are engaging in transportation between
accounting for 0.13% of gross tons of vessels built
U.S. points, they must be U.S.- built. CTVs are relatively
worldwide in 2022. China, Korea, and Japan account for
simple vessels that resemble a water taxi or small ferry,
nearly 95% of vessel construction. Europe accounts for
designed to transport about 25 workers. Several have
most of the remainder. These countries build many ships for
already been built, and about 20 more are under
export; U.S. shipyards seldom do.
construction at several U.S. shipyards. DOE estimates that
58 CTVs will be needed. Helicopters also can be used to
The U.S. offshore supply vessel sector, however, is more
transport construction crews. They have some advantages
robust because of longstanding oil and gas development in
(e.g., speed) and disadvantages (e.g., cost) over vessels.
the Gulf of Mexico. Jones Act rules apply to offshore oil
and gas projects as they do to wind projects. Typically, the
Other vessels needed for offshore wind energy production
standard supply vessels for oil and gas are U.S.-built.
include vessels that survey the seafloor to identify exact
However, the larger, more complicated vessels capable of
locations for wind turbine foundations and cable-laying
heavy lifting in deeper water are often foreign-made. In
vessels to run subsea electric transmission lines to shore.
waters too deep for jack up legs, anchors, or moorings,
Because CBP has determined that neither vessel type
vessels are built with self-positioning propellers to keep
engages in transportation, they need not be U.S.-built.
them stationary while constructing oil and gas rigs. These
Nevertheless, a survey vessel specifically for offshore wind
vessels tend to work globally, as no single market has
development on the East Coast was built by a Bellingham,
sufficient work to keep them employed long-term.
WA, shipyard and delivered in 2023. The one U.S.-built
cable-laying vessel is owned by the Navy for its own use.
According to DOE, about 65% of U.S. offshore wind
resource potential is in deeper water that will be exploited
Financial Support for Shipbuilding
by floating turbines. Construction of these turbines could be
Purchasers of many of the vessels discussed above have
too deep for jack up WTIVs, requiring self-positioning
applied for federal loan guarantees under the Maritime
propellers. Developers are also designing offshore wind
Administration’s “Title XI” program (46 U.S.C. Ch. 537).
turbines that are 60% taller than the ones used today,
This program provides a federal government guarantee on a
requiring bigger crane WTIVs. Foreign-built vessels may
private sector loan so that the market participants can
fill this niche as they do in the oil and gas market.
receive better financing terms. In June 2022, the agency
announced that vessels supporting offshore wind energy
Jones Act Modifications
production would receive priority consideration. Congress
For floating oil platforms using anchors or mooring
could increase the total amount of loan guarantees available
devices, Congress allowed the specialized vessels that
by appropriating funds to the program.
handle the anchors to be foreign-built (P.L. 109-241, §310)
and might consider the same for floating wind turbines.
Recent applications for Title XI loan guarantees include the
Congress has occasionally enacted other exemptions from
builder of the rock installation vessel ($216 million),
the Jones Act, such as for highly specialized vessels, to
purchasers of three of the SOVs under construction
address a temporary demand surge or when it appeared that
(between $90 million and $146 million for each vessel), and
no U.S. operator was interested in providing the service.
a builder of 10 CTVs ($104 million). Another loan-
Although the foreign fleet is much greater in number, it is
guarantee applicant is proposing a modified WTIV design,
also in tight supply, as Europe and Asia have their own
called a WTIV “Light,” as a response to the high cost of a
offshore wind-development targets.
domestically built WTIV. The WTIVL would be able to
construct only the portion of a wind turbine above water. A
Congress could clarify when the Jones Act applies to
second “pile installation” vessel, which could be a general
offshore energy development, as the statute dates to an
purpose heavy-lift vessel, would install the base. Along
earlier era. Due to the case-specific circumstances
with construction of two SOVs, this operator has applied
determining Jones Act applicability, developers have
for a $709 million loan guarantee covering all four vessels.
requested “letter rulings” from CBP, but these rulings are
not legal precedent, and CBP has sometimes reversed prior
Tax incentives and grants also aim to help the domestic
decisions. CBP’s definition of what constitutes “vessel
vessel market. Offshore wind support-vessel operators have
equipment” that can be carried by foreign vessels as
taken advantage of the Capital Construction Fund (46
opposed to “merchandise” that must be carried by U.S.-
U.S.C. Ch. 535) whereby they can hold income in tax-free
built vessels is also being challenged in court by OMSA
accounts if those funds are used for purchasing a U.S.-built
and SCA.
vessel. The Inflation Reduction Act (P.L. 117-169, §13502)
John Frittelli, Specialist in Transportation Policy
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Vessel Construction for Offshore Wind Power Generation

IF12491

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