Column: US offshore wind goals need policy help to reach potential

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LITTLETON, Colorado, Aug 31 (Reuters) - The weak showing at the first auction for offshore wind development rights in the Gulf of Mexico highlights the critical role that policymaking must play in making ambitious long-term climate goals compatible with current commercial realities.

Several factors outside of policymaker influence conspired to limit the interest in this week's lease auction to just a single bid, including low wind speeds and hurricane risk in the Gulf, as well as rising global materials costs for project developers.

However, policymakers and key stakeholders can impact other factors that determine the appeal of offshore wind leases, in the Gulf and elsewhere, and must wield that influence deftly but with force if the United States' grand plans of becoming a global renewable energy leader are to come to fruition.

U.S. President Joe Biden's U.S. Inflation Reduction Act (IRA) that passed last year embodies the current national agenda in the renewable energy space, featuring goals for overhauling power systems and fostering expertise in the manufacture and export of products and services tied to the energy transition.

The IRA also provides tax breaks and subsidies for businesses that build new green manufacturing capacity in areas currently exposed to the fossil fuel sector, with the aim of creating a self-sustaining drive towards lower-emitting but lucrative energy and manufacturing industries.

While it is still early days, the IRA has been celebrated by investors and industry players as an effective clarion call for urgent action in the dynamic and fast-growing green energy arena, with the ability to marshal investment, manpower and industrial entrepreneurship at an unprecedented scale.

Yet the blue sky ideas of the IRA can only do so much on their own, and will need to be complemented by more nitty gritty legislation that bridges any remaining gaps between the big picture visions of a possible future and the humdrum realities of existing market and business practices.

One of the biggest faults of the Gulf of Mexico wind leases is the absence of a viable pathway for wind power generators to profitably sell their power to electricity providers given current market conditions.

In contrast to several utilities in the Northeast, which have state-level mandates to purchase certain volumes of power from offshore wind generators, the power systems covering Texas and Louisiana do not allow for similar power purchase agreements to be drawn up.

Legislators concerned about how potential increases in energy bills could jeopardise the competitiveness of industries in the region are one obstacle to any potential mandates that force energy providers to buy power from offshore farms.

But an equally important hurdle is the lack of integrated policy planning that takes into account the need for those same industries to future-proof themselves against potential obsolescence by charting a route into an economy that is geared towards phasing out fossil fuel use.

The oil refining and petrochemical giants that dominate the Gulf Coast industrial landscape frequently set aside substantial funds for their own future needs, but rarely forge strategies with power providers that look beyond the immediate horizon.

Yet Gulf Coast chemical and refining firms have a major interest in the development of large scale supplies of green hydrogen, which can only be produced by renewable energy.

Green hydrogen is widely expected to replace natural gas and oil products as a source of industrial heat and as an input in chemical production, and is one of the only viable means for today's high-polluting refining and chemical majors to remain integral in a post fossil-fuel economy.

Currently, there is a policy planning chasm between the Gulf Coast's power market systems and the long-term strategies of that region's largest employers and tax payers.

But if legislators and corporate planners can recognise they may both gain from the emergence of a vibrant offshore wind energy sector that could cut power sector emissions and generate green hydrogen in abundance, there may be scope for closer collaboration and planning.

And in turn such collaborative policymaking could make the difference between the dud auction seen for lease rights this week, and a potentially more competitive bidding round for the same leases in the future.

The opinions expressed here are those of the author, a columnist for Reuters.

Reporting By Gavin Maguire; Editing by Miral Fahmy

Our Standards: The Thomson Reuters Trust Principles.

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Gavin Maguire is the Global Energy Transition Columnist. He was previously Asia Commodities and Energy editor.

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