Offshore Wind to Get a Little Tax Boost

The beleaguered offshore wind industry got a small boost from the Biden administration on Friday in the form of a proposal that would expand the definition of what qualifies for a 30% clean energy investment tax credit.

Offshore wind farms have many different components beyond just the turbines, and developers have been seeking clarity on where the dividing line was between the equipment that would qualify for the tax credit, and any interdependent infrastructure like transformers and transmission lines. Under the new rules , developers would be able to include the cost of subsea cables that bring the power to shore, as well as onshore substations — not just the towers and blades or the platforms they sit on.

The proposal is part of the Treasury’s ongoing role in overseeing a range of expanded tax credits for clean energy that were in the Inflation Reduction Act. It provides similar clarity for a new tax credit for standalone, utility-scale energy storage projects, which can store power from wind and solar farms and dispatch it when needed.

“Given the new and expanded incentives created by the Inflation Reduction Act, clarity around the underlying rules for long-standing investment credits is critical as projects move from the announcement, to groundbreaking, and eventual ribbon-cutting stage,” said Wally Adeyomo, deputy secretary of the Treasury, during a call with reporters on Thursday.

John Podesta, senior advisor to Biden for clean energy innovation and implementation, who was also on the call, said that developers were hearing from their lenders that they were waiting to see the final tax credit guidance, particularly in regard to underwater cabling. Offshore wind projects have been plagued by rising costs due to inflation, supply chain disruptions, and rising interest rates. Many have asked the future buyers of their power to approve higher rates, and two projects in New Jersey were recently canceled altogether .

In July, a utility in Rhode Island decided not to move forward on a contract to buy power from a proposed offshore wind farm called Revolution II, a joint venture between Orsted and Eversource, putting the project in limbo. In a press release, the utility pointed to “uncertainty of federal tax credits” as one of the factors that likely contributed to the higher-than-expected proposed contract.

Adeyomo said the clarity provided by the tax credit rules will “allow these offshore wind companies to price their offerings going forward with the certainty to know what types of incentives they will receive from the government.”

“We appreciate the clarification from the Treasury Department that recognizes the integral nature of all components of an offshore wind project,” a spokesperson for Orsted told me.

Considering the broader economic headwinds these projects face, this expansion of the tax credit eligibility is unlikely to be enough to put the ailing industry on solid ground. Offshore wind developers are also still waiting for clarity on another Inflation Reduction Act program that could prove essential — the energy community bonus credit . The subsidy gives projects an additional 10% tax credit if they build in communities that have been host to fossil fuel plants or extractive activities. It will apply to the location of onshore substations, but developers want to see it also apply to port infrastructure .

Clean energy trade groups welcomed the proposal on Friday.

“Thanks to the IRA, clean energy businesses now have access to a stable tax platform like the one enjoyed by the fossil fuel sector for more than a century,” said Gregory Wetstone, President and CEO of the American Council on Renewable Energy in a statement. “But to fully take advantage of these benefits, they need to understand how the provisions work. The tax guidance released today provides important clarity to developers and investors looking to further America’s energy transition.”