U.S. Government Incentivizes U.S. Vessel Construction for Offshore Wind Farms

On January 12, 2022, the U.S. Bureau of Ocean Energy Management announced plans to auction on February 23 almost 500,000 acres off the coast of New York and New Jersey (known as the New York Bight) for offshore renewable energy development. For the first time, the leases up for award contain supply chain local content requirements including with respect to investments in U.S. vessels.

U.S. coastwise laws popularly referred to as the “Jones Act” restrict the transportation of “merchandise” and “passengers” between “points in the United States” to qualified U.S.-flag vessels built in the United States. The Jones Act-related laws also limit “dredging,” “towing” and “salvage” in defined U.S. waters to qualified U.S.-flag vessels. By virtue of the Outer Continental Shelf Lands Act, as amended, which also provides BOEM with offshore leasing authority, the Jones Act applies in general to offshore renewable energy projects.

The Jones Act does not, however, require the use of qualified U.S.-flag vessels for every offshore wind-related activity, particularly in the installation phase of an offshore wind farm. For example, the Jones Act has long been interpreted in the oil and gas industry to permit the use of foreign-flag vessels to lay pipe or cable on the seabed from one U.S. point to another.

There have nevertheless been announcements that vessels will be constructed in the United States even where they might not necessarily have to be qualified U.S.-flag vessels. For example, Dominion Energy ordered a wind turbine installation vessel to be constructed in Texas expected to be delivered in late 2023.

The new lease terms will require each lessee to submit a “statement of goals” relating to supply chain development which “must include the Lessee’s plans for investments in supply chain improvements.” BOEM will monitor over time whether those goals have been met. Among the investments which will count toward meeting these goals will be investments in “installation, downpipe, survey and other vessels.” Notably, the lease terms do not appear to prioritize cable lay vessels which have national defense utility as indicated by the recent creation of the “Cable Security Fleet” program.

Although the lease terms include vessel investments among the approved goals, vessel investments are not included among items available for a lease fee credit. Those items all relate to the manufacture in the United States of tower and related components such as nacelles, blades, foundations, and cables.