What is the State of the States?

Jamie Bernthal Hooker (00:23)

Hello and welcome from our Norwich office at TGS 4C, I'm Jamie Bernthal Hooker and I'm back today with Dan Wiseman, our US analyst. Dan, we're going to chat today about the eventful happenings in the United States and offshore wind. Yeah.

 

Dan Wiseman (00:43)

Yeah, it's the age-old adage of, you you wait forever for a bus and then all of a sudden three come at once. I think the last couple of weeks in the US has been the most eventful it's been for a number of months for sure, in terms of progress anyway.

 

Jamie Bernthal Hooker (00:58)

So, so can you run us through what's happened?

 

Dan Wiseman (01:02)

Yeah, of course. I mean, we're all aware of the stop work orders that have happened over the last couple of months. Five total wind farms had stop work orders put against them by the Department of the Interior. Each one of them fought them in court, each one of them won. So, there's been gradual successes over the last couple of months in the US, but more notably over the last couple of weeks, we've seen the last turbine installed at Vineyard Wind, which is a huge deal for them.

Especially when they were one of the first ones to have these top work orders moved against them. And we've seen two separate powering on events, one at Revolution Winds and the one most recently at SeaValve, the Coastal Virginia offshore wind project from Dominion. So that'll be an interesting one to see how that pans out, because this is the very first utility led project. So, all the power is being purchased directly by Dominion and then passed on to ratepayers in Virginia.

So, it'll be interesting to see how that actually happens. But I think what has been the main talk of the town at the moment is this government payout to TotalEnergies to stop the progress of their attentive energy and the Carolina Long Bay projects in order for them to move more onshore. We saw last month that they entered into quite a lucrative deal for LNG. So, I don't think anybody was thinking that this wasn't going to go through.

It was only a matter of time or when, it's not the greatest of news for offshore winds, especially in the US.

 

Jamie Bernthal Hooker (02:34)

Wow. Yeah. So it is, I think we've said of this market before, never a dull moment. This news is obviously huge, but let's think a little bit about the progress that's been made first. It's not that long ago that the current administration was making it felt like the ultimate power move by targeting the most advanced projects.

 

Dan Wiseman (02:57)

Yeah, absolutely. Cause they were the biggest targets. Cause if you have several of these projects that are kind of in their concept phase or their pre-application phase for consent, you can just let those sit there and deal with the increasing debt that they're going to have over the next four years. The ones you have to worry about are the ones that are nearly done. So, they painted quite the target on themselves and the administration, like you said, went straight for those.

And we saw it through legal works, through the DOI, bringing up every reason they could possibly think of to try to get things to stop from defense to health, to the fact that apparently, they weren't consented properly. They were pushed through too quickly through the Biden administration. And these are all things that were disputed in court because these are all things that had already been taken care of during the construction operation plan phase.

So, with defense projects already work with the department or the formerly named Department of Defense about radar interference and how it's going to have an effect on military capabilities. And they came to the agreement that there's mitigations that can happen both ways. So, this is why it was so easy for them to come out the other end victorious in courts because the Department of the Interior didn't have a leg to stand on. They were just finding reasons to wrap things up in red tape.

And I'm surprised that this time around it was a financial bailout rather than another reason to drag him back through the courts.

 

Jamie Bernthal Hooker (04:32)

So let's talk a little bit about that then. Perhaps we weren't surprised at how it ended, but the news itself that the government and Total were initially, it was rumored that they were talking about this buyout.

 

Dan Wiseman (04:49)

Yeah. mean, is, like you said, it's a buyout. And I think...

Nobody really saw it coming. We didn't think that it was going to be a case of the administration were physically going to give money to stop work. I believe that TotalEnergies were the right target for this sort of action because they already signed the agreement for LNG last month. They already have a presence in terms of fossil fuels in the US.

So, it was a good bait to kind of dangle this bag of cash in front of them and say, look, if you stop what you're doing offshore, because it's all pre-FID, they're not really losing anything other than the leases and a couple of contracts. They're still going to come out financially pretty at the end of it. Why wouldn't they?

 

Jamie Bernthal Hooker (05:48)

So why did the government offer this?

 

Dan Wiseman (05:51)

Cause legal routes didn't work. And there at a time where events happening worldwide are really affecting energy and gas prices on domestic soil in the US. I we can't escape the fact that there's a war on in Iran and it is affecting oil prices and it's affecting energy prices. You ask anybody in the States how much their gas is in the morning and they will tell you that it's numerous times over.

So, there is this greater call for a bigger domestic chain, which has always been the administration's goal anyway. They wanted to focus on fossil fuels. So, for a man who is coined as knowing the art of the deal, if you're looking at developers who have one foot in fossil fuels and the other foot in renewables, what's the best way to get them to sway them the way that you want them to? And it comes down to money, money talks.

And if you're TotalEnergies and you've got these projects that are just sitting there doing nothing for at least the next three years, with no certainty that it's going to get better during the next administration. If you're given a billion dollar check, you would just take it, wouldn't you?

 

Jamie Bernthal Hooker (07:06)

So, you think this could happen again?

 

Dan Wiseman (07:08)

potentially, I think at the moment, the only other developer that would have taken it would have been Shell for Atlantic. But since their exit from the project as an owner, I don't think there's any other developers out there who have a big enough interest in fossil fuels for them to be offered the same.

But it does give a very dangerous precedent that not only are policy hurdles and technical hurdles, supply chain, vessels. They're not just the only problems anymore. There is a potential buyout for any project. If given a big enough figure, projects who haven't even put their consent applications in, why would they not take it? These projects are costing them money. We saw how much Equinor were losing day on day. And okay, these are projects that are further along, but that's not to say that projects that aren't.

Developing or construction aren't losing money on a week. Leases weren't cheap in the US and they're starting to feel like they've just spent all their money, and it is a very severe case of buyer's remorse probably.

 

Jamie Bernthal Hooker (08:21)

Yeah, I mean, we've seen lease sales for over a billion dollars in the New York Bight when offshore wind was the next big thing in the States. It's just amazing how quickly really the whole vibe has shifted.

 

Dan Wiseman (08:36)

Yeah. I mean, it was really quick, it was literally like the click of a finger and it was done. The second that Donald Trump came in, he promised that on day one he would stop it and he did. And we saw this, this change in the entire sector where it grounds to an almost halt. And I think the issues that we're seeing now are kind of exacerbated by what happened at the end of the Biden administration. We saw record numbers of projects being consented just to get them out of the pipeline of consent and into the pipeline of construction. And all that's done is just created this kind of pit of projects that are just stuck in limbo where they don't have a route forward, but they don't want to give up on, on what they have.

But this is where it comes down to whether developers are in it for the passion. Are they doing it because they believe in renewable energy or if they're doing it because they want bang for their buck and no developer is going to do it for nothing. They all expect a return. That's the whole point of investment. You put money in to get money back. And if you're putting money in with no view of when you'll get any of that back, what options do you have when the government comes knocking with a bag of cash?

 

Jamie Bernthal Hooker (09:59)

So if the US regime changed and we went back to a wind positive administration and we saw some of the current measures overturned and saw a return of the IRA, the Inflation Reduction Act, and we saw a lot more investment pumping into offshore wind, do you think we could rebuild the huge momentum that there was just five years ago.

 

Dan Wiseman (10:32)

In short, no. And if they do, it will be a very long process. Cause looking at what's happened with Total, the industry won't forget this. And if there is a sudden wind 2.0 resurgence in the US in the next 10 years, Total have kind of shot themselves in the foot.

Because if they then start to look at projects and start building contracts with the supply chain or vessel contracts, everybody who they're making these deals with, they're going to think, well, if anything goes wrong again, they're likely to bail. know, where does that leave us? Are we willing to risk a contract with a company that we know is going to potentially leave offshore wind again?

Other developers have to get that trust back in the US as well. There has to be a very big incentive for them to rebuild in the US. And it will be much akin to how things were during COVID, where prices for contracts and prices for off take were set and were good, but three, four years later, they weren't good enough and they weren't what developers needed to make sure that they were hitting their overheads and they were paying the bills that needed paying.

Especially when you've got Europe steaming ahead in offshore winds. You have APAC as well. Asia Pacific is picking up. seeing leases and auctions happening in Australia. South Korea is picking up, Japan is always on the radar. So, if there's not a definite administration collaboratively, a bipartisan decision to push offshore winds, developers won't risk it because it is becoming very political.

If it's a Democrat government that comes in, chances are they're going to favor offshore winds. If it's a Republican government, chances are they won't. It's not as simple as that. I mean, it could be a Democrat administration that comes in that still doesn't favor offshore winds. And it could very well be a Republican administration that comes in that does. So, it's very easy to see it as a party politics issue. It's not really.

 

Jamie Bernthal Hooker (12:59)

And as you say, there are so many emerging and already emerged markets. Now, without a homegrown supply chain, it's perhaps difficult to see enthusiasm centering in a slightly more risky environment.

 

Dan Wiseman (13:20)

And on that note with the domestic supply chain, mean, you're absolutely right. And this is one of the biggest thing that holds the U S back is the fact that it doesn't have a domestic supply chain. So, everything they buy in comes from Europe anyway. And if Europe is still going to be worrying about when's the next tariff law going to come in or how, how much is it going to cost for me to export this stuff to the U S, why bother? You know, and the only thing that comes of that is the potential of using China as a supplier which I don't think any country is particularly enamored with, but it's an idea that maybe the US, when they do get back to looking into offshore wind, will have to seriously reconsider.

 

Jamie Bernthal Hooker (14:04)

And the other thing with the European supply chain, you mentioned energy security as a kind of driver for increased fossil fuels in the US, but equally it's a driver for up and renewables in Europe. You can have a more stable and predictable supply to the grid if it's homegrown and not imported oil or gas especially.

 

Dan Wiseman (14:29)

Yeah, absolutely. And in a lot of markets, so much of their offshore wind plans are reliant on a domestic supply chain. So, if we see more and more markets emerging where developers are having to use a certain percentage of what they're using from domestic supply chains to that market, that means the availability for that for outside markets decreases. You know, so if let's say for example, Poland, if 70 % of a wind farm has to be sourced domestically. How much that then can you export to other countries or other markets? And it will just get to a point where the bigger offshore wind becomes in Europe, the less availability of the supply chain there is going to be for the rest of the world.

 

Jamie Bernthal Hooker (15:17)

But, you know, we may be not sound overly optimistic about US offshore wind going forward, but as you said at the beginning, we've had some real major milestones.

 

Dan Wiseman (15:28)

Absolutely. I mean, the thing to remember is the fact that there is still a pipeline with offshore winds and with Vineyard now fully constructed, we've got commissioning events for that coming up. The same with Revolution and Seaval. I mean, these will be up and running shortly, but it's the next wave that we have to worry about. And I think this is where we will have to really see the resilience of offshore winds in the US.

How confident are these developers that they will keep their projects sitting in the water doing nothing, waiting for a favorable administration to come around. And when it does come around, because eventually it will maybe in three years, it may not be for another seven years. But it will eventually come around because I think people are starting to understand that there is a need for better sources of energy. Especially with floating R&D.

At the moment, we've seen tech that uses floating platforms to house AI data centers. So, they're fixed into the foundations of these floating projects. And that kills two birds with one stone. You have a data center that you don't need to worry about where you're going to put it on land because it's out at sea. It's powered by offshore wind. So, you're already kind of sorting the energy problem and it's increasing the data centers in the US, which is a major driving force for what they're wanting to look at, at the moment. So, there are lot of options. There's some positivity. It's just in the current state, it's hard to see that light.

 

Jamie Bernthal Hooker (17:07)

Yeah, and that's one of the most fascinating things to me about the US is the difference between the federal side and the state-led side and the fact that there is still a lot of R&D going on, not just in offshore wind, but at the cutting edge of it. It's still very much a market where the future of the industry has a major interest. So definitely something to watch and a lot to keep us busy over the coming weeks, months and years in the United States.

 

Dan Wiseman (17:43)

Yeah, absolutely. And like you said, mean, states are still looking to move forward. There are still plans for offshore wind. It's just happening to happen on a small scale. California is doing a lot of work in R&D, in floating. We've seen Aikido out there using their demos. The Cademo demonstration and project is out there as well.

The states are really keeping the industry alive and they're keeping the sector alive and it's just waiting for that door to open for them to walk through.

 

Jamie Bernthal Hooker (18:19)

You know I've only just worked out the Cademo is CA demo. Yeah.

 

Dan Wiseman (18:25)

It took me a while to figure that one out myself. So, I was like, what's, what's the CAD? What's the CAD demo? And I was like, oh yeah, CA demo.

 

Jamie Bernthal Hooker (18:34)

The US is not the only market in the Americas for offshore wind. There are increasingly more options for developers from Europe or local developers or supply chains.

 

Dan Wiseman (18:46)

Yeah, absolutely. I both sides of the US are very active in offshore winds. Canada have their first auction coming up imminently. They've been chomping at the bit for offshore wind for years now, and it's always just been a regulation issue to stop things from moving forward. But now they've managed to get that sorted and they've got everybody on board. We shall see how big an interest it is. And the same south of the border as well.

Mexico are starting plans for offshore wind. Brazil, even if anybody looks at the proposed projects on the east coast of Brazil, there's very little room for projects through all the applications. So, there is a demand from it, on both sides. And if it gets to a point where the US is no longer viable or if developers can't see a consistent route forwards, there are options either side of the country to maybe move their capital into.

 

Jamie Bernthal Hooker (19:49)

Absolutely. So, what would you say is the thing you're most looking out for this year in relation to the US and offshore wind?

 

Dan Wiseman (20:00)

I would say I will be keeping an eye on how the projects have progressed and hit their milestones, see how they finish up. I don't think at this point there's anything stopping them. I think court cases, uh, a moot point because it will just be a case of it will hold them up for a couple of weeks and then they'll just carry on. It will just be minor impairments, but the minor impairments are still millions of dollars worth of impairments.

So, it's how they handle the hurdles moving forward to full commissioning and empowering into the grid. mean, I'm not going to have a choice, but to keep an eye on how the administration reacts to other pre-FID or projects that aren't in construction and see how they look to maybe change the minds of those developers. But that's something we'll see in due course, I'm sure.

 

Jamie Bernthal Hooker (20:58)

I`m sure and we'll be keeping a very close eye on it. Thank you so much Dan for having me along to chat with you today. It's been wonderful to talk all things US and offshore wind.

 

Dan Wiseman (21:10)

Yeah, you know me, I'm always happy to have a ramble about the US. Never a dull moment, as you said before.

 

Jamie Bernthal Hooker (21:17)

Excellent. And thank you for listening. Join us again next time when we chat more about offshore wind from TGS 4C.