More U.S. offshore wind projects will be able to claim tax credits under the Inflation Reduction Act, under rules the U.S. Treasury Dept. and Internal Revenue Service released March 22. The guidance comes days ahead of a deadline for development proposals off the coast of New England and follows months of sector cost impacts causing delays and even cancellations.
The Inflation Reduction Act, which Congress passed and President Joe Biden signed in 2022, includes a 10% “energy community” bonus for clean energy projects built in areas that had coal mines or coal-fired power plants; a certain amount of employment in fossil fuel sectors; or some brownfield sites.
In the guidance, Treasury officials stipulate that an offshore wind project’s Supervisory Control and Data Acquisition (SCADA) system also be in an energy community to gain tax credit, but location of that critical equipment in a port would qualify. SCADA systems are “the nerve center for an offshore wind project,” according to the Oceantic Network, an offshore wind advocacy group. The guidance also allows developments with multiple points of interconnection to qualify if one of them is located in a qualified energy community.
The guidance “creates an easier path to market for many offshore wind projects” and would channel a larger portion of project funding into port development, said Liz Burdock, CEO of the Oceantic Network, in a statement. Jason Grumet, CEO of the American Clean Power Association, added that the changes would "spur the growth of offshore wind by encouraging significant private sector investments and new jobs in historically disadvantaged communities."
Treasury also added two North American Industry Classification System codes—2212 (natural gas distribution) and 23712 (oil and gas pipeline and related structures construction)—to the list of fossil-fuel employment categories set to indicate energy community eligibility.
Officials released the guidance ahead of the March 27 deadline to submit bids for a round of offshore wind development in a new joint procurement by Connecticut, Massachusetts and Rhode Island. The original proposal deadline had been in January.
But state officials—who have agreed to allow linked bid reviews between two or three of the states for larger projects—delayed the deadline in hopes of the tax credit guidance being issued. The Massachusetts Dept. of Energy Resources, which is overseeing the state bidding process, said in a statement that the guidance will give bidders more certainty as they finalize proposals.
The three states agreed to collaborate on offshore wind last year as the sector experienced turbulence related to inflation and supply chain disruptions. Massachusetts seeks up to 3.6 GW after earlier projects with capacity of 2.4 GW being developed by Avangrid and a Shell joint venture were canceled last year.
Connecticut is procuring up to 2 GW and Rhode Island another 1.2GW. By allowing multistate development, officials have said they aim to allow greater economic efficiencies to attract more projects and make them more viable. Developers canceled other East Coast wind projects as well.
The two-month extension is set to delay final approval of submitted bids until the end of this year or early 2025 for projects that could provide up to 25% of the states' power needs, Massachusetts Gov. Maura Healey said in her State of the Commonwealth speech on March 20.
New capacity to be bid in Massachusetts includes part of a 2.6-GW tract to be developed by Vineyard Offshore, the U.S. unit of Copenhagen Infrastructure Partners, but with its power offtake not yet contracted, according to statements by the firm. The U.S. Interior Dept. announced March 25 it will begin environmental review of the future project, which includes 160 planned turbines and supporting infrastructure.
Other bidders include Avangrid, Denmark-based Orsted, and Ocean Winds, a European joint venture of EDPR and Engie.
Copenhagen Infrastructure Partners and Avangrid now are building the 800-MW Vineyard Wind project off the Massachusetts coast, with more than 10 of its 62 giant turbines generating power to the New England grid.
“As our region solicits bids for the next round of offshore wind projects, this tax guidance represents a down payment on energy independence,” said Rebecca Tepper, Massachusetts Energy and Environmental Affairs secretary, in a statement. "We look forward to receiving competitive bids ... and continuing to advance" the offshore wind sector.
Massachusetts and Rhode Island told Recharge they would select projects by Oct. 9, with Connecticut expected to announce selections in the third quarter.
