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An upcoming lease sale will be historic — but also quite risky for offshore wind.
The Biden administration will be holding the first ever auction for the right to develop offshore wind farms in the Gulf of Mexico on Tuesday. The sale represents a hopeful, historic shift for the region, where the economy has long been defined by oil and gas.
But wind energy is not a sure bet in the Gulf — at least not yet. Slower winds and frequent hurricanes will raise costs and require new turbine designs. Low power prices in the area and a lack of supportive policy make for an uncertain market. These hurdles mount on top of what is already a tumultuous time for the industry. Costs for offshore wind farms on the East Coast have soared due to high interest rates, inflation, and supply chain constraints.
“The business case in the Gulf of Mexico for offshore wind is very vague, and very uncertain,” Chelsea Jean-Michel, a wind analyst at BloombergNEF, told me. “It doesn't really make a lot of sense.”
The Bureau of Ocean Energy Management has put up three areas for sale in the Gulf, which it estimates will produce about 3.7 gigawatts of energy once developed, or enough to power nearly 1.3 million homes. Two of the areas are 30 to 40 miles off the coast of Galveston, Texas, while the third is closer to Lake Charles, Louisiana, just over 40 miles offshore.
Analysts expect Tuesday’s auction to be uncompetitive and the leases to sell for low prices that bake in uncertainty. Sixteen wind developers have signed up to participate, including legacy oil companies Shell, TotalEnergies (formerly known as Total), and Equinor, as well as renewable-focused companies that have offshore projects in the Northeast, like Invenergy, and newcomers, like energyRe. But they may not all end up putting in bids. More than 40 entities were registered to bid on offshore leases in California last December, but only seven ultimately took part in the auction.
The federal government has been studying offshore wind development in the Gulf of Mexico for years. In 2020, National Renewable Energy Lab scientists published an assessment of different types of energy resources that could go in the Gulf, including wave energy and ocean-based solar panels. The authors found that offshore wind had the most potential, by far, but would face numerous challenges, and likely be more expensive than offshore wind energy in the Northeast.
For one, engineers need to design turbines that can safely and economically produce energy in the Gulf’s unique weather conditions. Most of the time, the Gulf has lower wind speeds than the coasts, but other times, it has hurricane-force gales. The report called this “a challenging design optimization problem” and says that a new class of turbines will be needed. I spoke to Walter Musiel, one of the authors, who said that this was doable, and that turbines have since been installed in typhoon-prone areas in Asia that will provide some helpful data. The challenge, he said, will be building a supply chain for turbines with bigger rotors, and figuring out how intense future hurricanes could be in order to design blades that are strong enough.
The Gulf also has advantages that the report said could offset some of these expenses. Smaller waves and shallower water could lower capital costs for installation and maintenance. The report also cited “lower labor costs” in the region. However, workers there are currently fighting to ensure jobs in offshore wind depart from the low-wage, unsafe, exploitative conditions that pervade the local construction and offshore oil industries.
Another big advantage, though, is the maturity of the area’s offshore oil industry. “Despite low winds, the Gulf of Mexico is uniquely positioned,” wrote David Foulon, the managing director for offshore wind at TotalEnergies, in comments to BOEM, “thanks to its unequaled history of offshore expertise, established industrial supply chain, strength of workforce base, and maritime assets’ pool that can drive the growth of offshore wind in the U.S. to new heights and spread around the world thereafter.”
Justin Williams, the vice president of communications at the National Ocean Industries Association, told me Gulf Coast companies have already brought their expertise to offshore wind construction in the Northeast. “Take the Block Island Wind Farm offshore Rhode Island,” he said. “Gulf Island Fabrication built the steel jackets for its foundations and Montco Offshore provided heavy lift vessels to move the equipment on site.”
The National Renewable Energy Lab study took these benefits into account. But it still found that offshore wind energy would be pricier in the Gulf of Mexico than elsewhere. While the lab expects the average cost of offshore wind to land at $63 per megawatt-hour by 2030, it estimated that Gulf wind would cost in the range of $73 to $91 per megawatt-hour by that date. That could make it harder for Gulf wind projects to compete in local energy markets, which have lower power prices than the Northeast.
The region also lacks the policy support found in the Northeast. Massachusetts plans to contract 5,700 megawatts by 2027, New York has a goal of 9,000 megawatts by 2035, and New Jersey recently increased its goal to 11,000 megawatts by 2040. These policies gave developers a level of certainty that there would be a buyer for the electricity generated. Although Louisiana has a Climate Action Plan that recommends the state procure 5,000 megawatts of offshore wind energy by 2035, it’s not legally binding and no utilities have included offshore wind in their resource plans yet.
“They’re the only state down there that has expressed any interest,” Samantha Woodworth, a senior research analyst for North America wind at Wood Mackenzie, told me in an email. “Unless there are state-driven procurement targets or unless the project can produce power at significantly lower cost than what has bid elsewhere in the U.S. and somehow balance that with sufficient project returns, [offshore wind] projects down there are likely to be uneconomic.”
In public comments submitted to BOEM, the American Clean Power Association, the leading industry group for offshore wind, also warned that the leases would not provide developers with the certainty needed to establish a local workforce or supply chain. It urged the agency to either increase the number of leases or establish a regular leasing schedule. But this is the only such sale the agency has announced to date.
However, when I reached out to American Clean Power to ask how its members were approaching this uncertain environment, the group echoed Total’s optimism about the strengths of the local workforce and supply chain. “The region is eager to get into the offshore wind game, and developers understand both the challenges and opportunities that exist in building in the Gulf Coast,” spokesperson Phil Sgro said by email.
Jenny Netherton, a senior program manager at the Southeastern Wind Coalition, which is made up of nonprofits and energy companies, told me that there’s a lot of room for innovation and to try “different routes to market.” For example, developers could forgo the energy market altogether and sell their electricity directly to industrial clients, such as incoming green hydrogen production facilities. Louisiana currently produces 30% of the country’s hydrogen through a polluting process using natural gas. But the federal government has billions of dollars in grants and subsidies available to develop new facilities that produce it with renewable electricity.
If turbines do go up in the Gulf, it may not be until 2034-2035, according to BloombergNEF. This means that communities who are looking forward to the clean energy and economic benefits of a new offshore wind industry could end up waiting a lot longer than they might have hoped.
Local environmental justice groups are already frustrated that the BOEM did not include an incentive for developers to create community benefits in the lease terms. The lease terms for the recent offshore wind sale in California gave companies up to a 10% discount on their purchase if they pledged to spend a comparable amount on community benefits, such as hiring commitments, job training, or economic contributions. If fulfilled, nearly $53 million will go toward these agreements in California.
“It was disappointing to see,” said Jackson Voss, climate policy coordinator for the Louisiana-based Alliance for Affordable Energy. “I don't think that it makes very much sense for different regions of the country to receive different benefits, especially considering the Biden administration’s commitment to environmental justice.”
The Gulf lease terms have a similar provision but it is limited to investments in local workforce training, supply chains, and a fisheries fund that will be used to compensate fishermen for potential losses. A spokesperson for BOEM told me the agency determined it would be too challenging to implement community benefits agreements in the Gulf equitably “due to the number and variety of community groups.”
Overall, the challenges facing Gulf offshore wind are representative of a theme that runs through renewable energy development. As much as the costs for technologies like wind and solar have plunged, what works in one place may not work in another. The cost of offshore wind in the Gulf may never match the cost of offshore wind in the Atlantic. But as Netherton said, there’s still a lot of room for innovation.
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More than $760 million from the Inflation Reduction Act’s Green and Resilient Retrofit Program is still caught in legal limbo — but no one seems to have noticed.
When a federal judge put an injunction on the Trump administration’s efforts to freeze Inflation Reduction Act funding back in April, many grantees were able to pick up their clean energy projects where they left off. But not everyone.
Some 100 low-income housing providers that won more than $760 million in grants and loans from the IRA’s Green and Resilient Retrofit Program to make critical safety and energy upgrades to their buildings are still in limbo. The U.S. Department of Housing and Urban Development will not respond to their questions about if or when projects can move forward, and also fired all of the third-party contractors that had been hired to implement the program.
While these developers are certainly not the only ones locked in a bureaucratic standstill — a lawsuit aiming to unlock money from the Greenhouse Gas Reduction Fund is still wending through the courts, and many states are waiting to hear whether they’ll ever get funding for their home energy retrofit rebate programs — their plight has so far been overlooked, raising the risk that the money could quietly disappear.
The Green and Resilient Retrofit Program addressed a known funding gap for affordable housing preservation. Low-income housing providers operate on tight margins and often struggle to pay for regular maintenance, let alone to make upgrades to their buildings. On top of that, many of the buildings that receive other subsidies from HUD are barred from taking on debt for improvements.
“So what do you do if your building is now 40 years old and it needs upgrades?” Juliana Bilowich, the director of housing operations and policy for Leading Age, a nonprofit focused on affordable senior housing, said to me. “There are some housing communities that haven’t had air conditioning for years because the HUD budget won’t support it, or it’s broken and it needs to be upgraded, but there’s no funding they can get to do that.”
That was the case for The Towers, a 20-story senior living center in New Haven, Connecticut, except the building was nearly 60 years old. While its individual apartments have air conditioning, there’s no HVAC system serving the hallways where residents have to wait for the elevator. “The summertime is horrible,” Gus Keach-Longo, the president and CEO of The Towers, told me.
While the building has made cosmetic improvements over the years, it hasn’t done major efficiency or structural work outside of installing LED lightbulbs, Keach-Longo told me. A recent assessment of the building scored it at a 7 out of 100 for energy efficiency. In addition to an HVAC solution, the building needed a new roof and windows.
The Green and Resilient Retrofit Program looked like it could be a lifeline for Towers residents. For one, it was uniquely flexible. The funds could be used for a wide range of projects, as long as they reduced the building’s emissions, improved its energy or water efficiency, or made it more resilient to flooding, extreme heat, or other weather-related hazards.
Billowich called the program a “linchpin” for buildings that didn’t have the ability to go to the bank and get a loan. “This was the way that housing communities were going to be able to continue operating.” Applicants planned to insulate their pipes so they didn’t burst during a cold front, or replace their windows to save money on energy and protect residents from wildfire smoke. The funds could also be leveraged to raise additional money for other kinds of repairs. The resulting energy savings could then be put toward expanding services for residents.
The $1 billion program was divided into three streams of funding. A building owner could get up to $750,000 per property under the “Elements” stream to supplement existing retrofit plans with green upgrades like solar panels. The “Leading Edge” stream supplied up to $10 million for more involved projects and required the building to ultimately meet a green certification, such as Passive House or LEED. The “Comprehensive” stream was designed to facilitate more complicated, full-building retrofits that required significant technical assistance to plan. Grantees could get up to $80,000 per unit, or $20 million total, but they would have to work with HUD-employed contractors that would scope out and oversee the project.
Department of Housing and Urban Development
The Towers applied for a Comprehensive grant and was one of just a few properties to win the full $20 million. But since signing a contract for the award last July, Keach-Longo said his team has “heard almost nothing.” They were supposed to be assigned a Multifamily Assessment Contractor, or MAC, the term for the HUD-employed contractor that would oversee the project, but the Biden administration never got to it. When the Trump administration came in, it halted the program as part of the larger IRA funding freeze. On February 12, HUD terminated its contracts with all five of the companies it had selected to serve as MACs, including big consulting firms like Deloitte and Ernst and Young. HUD did not respond to emailed questions for this story.
Margaret Salazar, the CEO of REACH Community Development in Oregon, has also been “stuck in a holding pattern” regarding her organization’s two Comprehensive awards. “We want to do right by what we’ve communicated with residents that we are making these repairs. We want to involve them in the process. And now we’re hanging out there without any path forward,” she told me.
When the funding freeze first went into effect in March, an affordable housing operator in the Boston area called the Codman Square Neighborhood Development Corporation, which had won an Elements grant, joined a lawsuit filed by five other nonprofits that challenged Trump’s pause. In April, the district court judge overseeing the case issued a preliminary injunction barring HUD and other agencies from maintaining any program-wide freezes.
The agency complied, in part. HUD sent a letter to awardees notifying them of the injunction and resumed processing reimbursements for Elements and Leading Edge grants. Ron Budynas, the chief operating officer for an affordable senior housing provider called Wesley Living, which won 10 separate awards from the program, told me he’s been able to proceed with his three Elements projects. He’s already completed one, upgrading an apartment complex in Lexington, Tennessee, with high efficiency heat pumps, and is now working on the others, installing solar and battery backup systems at two other properties in Tennessee.
His remaining seven are Comprehensive projects, however, and are “a whole different story,” he said. “Every time I’ve written to the [Green and Resilient Retrofit Program] staff, the only answer I get back from them on the Comprehensive grants is ’we’re still waiting for direction from headquarters.’”
Budynas was much further along than Keach-Longo at The Towers by the time Trump came into office. He said he was already working with a MAC and had completed a capital needs assessment on five of the properties; the next step was to scope out the work. He told me he contacted HUD after the court’s injunction and asked whether his team could put together the scope for one project to move it forward, but the agency told him no, since the program rules say that the MAC has to do it — even though it had fired all of the MACs.
Then the reconciliation bill that Congress passed earlier this month rescinded $138 million from the program — money set aside for administrative costs and technical assistance, i.e. to pay for the MACs. “How do we go forward if the MAC has to do the scope and they don’t have any money to pay the MAC?” Budynas said. Six of the seven Wesley Living properties that won Comprehensive awards receive HUD subsidies that preclude them from using other types of financing, “so there’s no way for us to update those properties if the Comprehensive doesn’t go forward,” he said.
It’s unclear whether any of this will be addressed in the lawsuit, since the only plaintiff in the case that challenged HUD — Codman Square — has been able to progress with its Elements award. I reached out to Democracy Forward, the nonprofit legal organization that is representing the plaintiffs, but it declined to comment.
Beth Neitzel, a partner at the law firm Foley Hoag, which is not involved in the case, told me this might be an unfortunate gray area for the Comprehensive award winners. She said the lawyers could argue that HUD is violating the terms of the injunction, but the government could respond that no one in the case is being injured by its actions.
“I don’t know if that will carry the day. It seems pretty clear they are violating the terms of the preliminary injunction by not unfreezing that fund,” Neitzel said. “But there is that potential wrinkle that they will argue that’s not an issue here because nobody here has standing to challenge that.” As a matter of law, she added, it’s irrelevant that HUD fired the contractors overseeing the program since the program itself was congressionally mandated.
Meanwhile the grantees wait, and the consequences of the delay stack up. Salazar, of REACH in Oregon, told me the organization missed out on an opportunity to get additional funding from the Portland Housing Bureau because it hadn’t been able to scope out the project with its MAC.
“This isn’t just money on the line. This is the future of these affordable housing communities,” Bilowich said. “That is a blue issue, that’s a red issue, that’s everybody’s issue. And so we need a solution, and this was the most efficient and cost-effective solution that everybody had come up with.”
On FERC’s ‘disastrous misstep,’ the World Court’s climate ruling, and 127 SMRs
Current conditions: The U.S. Northeast faces more flash flooding as cooling temperatures usher in rainfall • Scandinavia’s weeks-long heatwave continues, with temperatures reaching nearly 90 degrees Fahrenheit • The death toll from China’s heavy rains rose to 34, with as many as 80,000 people displaced.
The U.S. Federal Reserve board decided on Wednesday to hold interest rates steady at between 4.25% and 4.5%, in defiance of President Donald Trump’s call for looser policy. This also added to the headwinds facing renewables developers.
When borrowing costs are higher, it’s harder to lure investors to back projects. That dynamic is even more challenging for construction projects that take even longer and therefore accrue more interest, such as nuclear reactors or hydroelectric upgrades. “Developers rushing to build solar and wind energy between now and next summer to take advantage of tax credits will have to pay out these higher interest costs as they build,” Advait Arun, senior associate of energy finance at the Center for Public Enterprise and a Heatmap contributor, told my colleague Charu Sinha.
Interior Secretary Doug BurgumJohn McDonnell/Getty Images
In a secretarial order on Tuesday, Secretary of the Interior Doug Burgum directed his department to eliminate policies that give “preferential treatment” to wind and solar. The directive also orders the agency to consider withdrawing “areas onshore with high potential for wind energy development” from federal leasing and to ramp up studies on the effects of wind turbines on migratory birds.
“These policy changes represent a commonsense approach to energy that puts Americans’ interests first,” Burgum said in a statement. “Leveling the playing field in permitting supports energy development that’s reliable, affordable, and built to last.” The move “will result in higher energy costs, increased blackouts, job loss, and billions of dollars in stranded investments, further delaying shovel-ready projects supported by a domestic heavy manufacturing supply chain renaissance that spans 40 states,” said Stephanie Francoeur, a spokesperson for the green group Oceantic Network. “Crippling affordable and reliable wind energy makes no economic sense and undermines the administration’s ‘all-of-the-above’ energy strategy.”
Ford’s vehicle sales rose 14% to more than 612,000 in the last quarter, according to earnings that bested analysts’ expectations on Wednesday. But EV sales dropped 31% to just 16,438. The company told Electrek that demand for its F-150 Lightning had slumped and the Mustang Mach-E faced a recall, preventing the spike in Ford’s EV sales GM saw in the last quarter. But that isn’t stopping the Detroit giant from investing more in EVs.
Ford CEO Jim Farley teased an upcoming announcement about the company’s “plans to design and build breakthrough electric vehicles in America.” Farley said Ford wouldn’t compete with South Korean or Japanese brands in the mass-market EV space, but rather would invest in the truck and SUV market. More details are set to come at an event in Kentucky on August 11.
The White House nominated an executive from Southern Company to serve in the open seat on the Nuclear Regulatory Commission. Ho Nieh, who serves as the utility giant’s vice president of regulatory affairs, previously led the NRC’s Office of Nuclear Reactor Regulation before joining Southern right as the company completed work on the only two new reactors built from scratch in the U.S. in a generation, the pair of Westinghouse AP1000s at the Alvin W. Vogtle Generating Station in northern Georgia.
The nomination, now subject to Senate approval, came a month after Trump fired Democratic Commissioner Christopher Hanson in a move that critics said violated the NRC’s legal independence from the White House. Trump will now have another seat to fill. On Tuesday, Annie Caputo, a Republican commissioner who Trump initially appointed in 2017, abruptly resigned amid a series of dramatic overhauls at the agency that include demands from the Trump administration that the regulators “rubber stamp” new reactors. In her farewell email to NRC staff – a copy of which I obtained and published on my Substack newsletter, Field Notes – she said she planned to focus on her family.
Helion has started work on what could be the world’s first nuclear fusion power plant in Washington State. The Microsoft-backed startup broke ground on the facility, called the Orion plant, in Chelan County, east of Seattle, and set a goal to deliver power to the tech giant’s data centers in the state by 2028. Microsoft and Helion made history in May 2023 with the world’s first power purchase agreement for nuclear fusion, with Helion promising to deliver up to 50 megawatts of electricity following a ramp-up period of one year. The project is set to hook onto the Washington grid.
Helion isn’t the only fusion startup in the race to deliver power first. In December, Commonwealth Fusion Systems announced plans to build its debut power plant in Virginia. Those ambitious promises explain why investors have pumped $2.5 billion into fusion energy over the past two years, according to newly released industry data.
The U.S. central bank left its interest rate target unchanged for the fifth time in a row.
Interest rate relief isn’t coming anytime soon for renewables. As widely expected, the Federal Reserve chose to keep rates unchanged on Wednesday, despite intense pressure from President Trump and two Republican Fed governors to lower rates.
The Fed maintained the benchmark short term rate at a range of 4.25% to 4.5%. During the press conference that followed the rate announcement, Fed Chair Jerome Powell gave no indication that the board will lower rates at the Fed’s next meeting in September, either. That’s contrary to Trump’s claims to reporters after the meeting. “We have made no decisions about September,” Powell said. “We don’t do that in advance. We’ll be taking that information into consideration and all the other information we get as we make our decision.”
High interest rates are particularly detrimental to renewable energy projects, as my colleague Matthew Zeitlin has noted many times over. The long-term benefit of renewables, of course, is that the wind and the sun are free (and effectively inexhaustible) fuel sources. The short-term tradeoff, however, is that renewables are capital-intensive, requiring high upfront costs to get up and running. The highest proportion of the lifetime cost of a renewable energy generator, such as a wind turbine or a solar farm, is in building it. Elevated interest rates make it that much more difficult to lure investors and borrow the significant capital necessary to build out renewable infrastructure.
“The lack of interest rate relief means that construction loans, which are floating-rate loans tied to market conditions, will command higher interest rates and raise the total project costs for energy developers,” Advait Arun, senior associate of energy finance at the Center for Public Enterprise and a Heatmap contributor, told me over email. “Developers rushing to build solar and wind energy between now and next summer to take advantage of tax credits will have to pay out these higher interest costs as they build.”
Though the Fed’s decision was unsurprising, the circumstances surrounding Wednesday’s meeting were out of the ordinary. For the first time since 1993, multiple Fed governors cast no votes on a rate decision. Christopher Waller and Michelle Bowman, both Republicans appointed by Trump, have voiced their preference for the Fed to lower rates by a quarter of a percentage point.
Additionally, Trump himself has been vocal about his views on chopping interest rates,— even going so far as to publicly threaten to fire Powell and appoint himself as head of the central bank, though he is legally unable to make good on his promise. Trump also recently criticized the Fed’s $2.5 billion building renovation project, singling out Powell for cost overruns. At the press conference on Wednesday, Powell emphasized the importance of the Fed’s independence from outside influence. “If you were not to have that, there’d be a great temptation of course to use interest rates to affect elections, for example,” he said.
While it may appease Trump, cutting interest rates won’t hold back the major energy price shocks that are very likely on their way. “Cutting rates sooner rather than later might make it easier for market actors to weather the coming shocks, but — crucially — they will not address the fiscal policy issues that created the shocks,” Arun noted. “However helpful rate cuts might be, they are not a solution to tariffs, tax credit uncertainty, and, soon, sharp spikes in electricity prices.”