September 11, 2023 — The U.S. offshore wind industry, banking on a big boost from the landmark Inflation Reduction Act, has found itself face-to-face with a major hurdle that’s been right there in the name all along: inflation.
In fact, the law might even be making it worse.
More than 10 gigawatts of offshore wind projects along the U.S. East Coast – the equivalent of roughly 10 nuclear power reactors – are at serious risk as higher costs force developers to re-crunch the numbers for proposals originally modeled years ago, before a run-up in interest rates and material costs. Orsted, the Danish wind giant, said this week it’s prepared to walk away from projects unless it gets even more government aid. Other developers are already paying tens of millions in penalties to exit contracts they say no longer make financial sense.
“It’s pretty evident that inflationary pressures have blunted the impact” of the IRA, said Josh Price, a director with Capstone, a Washington-based research group. “It wasn’t a silver bullet.”
Orsted’s warnings are the most concrete example yet of the limits of the IRA, which was hailed as a key driver for America’s nascent offshore wind industry. While the law provides at least $370 billion in grants, tax credits, and other incentives for climate and clean energy projects, that’s proving no match for rising inflation and borrowing costs. And by dangling higher incentives for companies sourcing U.S.-made parts, it’s fueling demand before the domestic supply chain catches up, driving prices higher still.