The Inflation Reduction Act of 2022, a proposed budget reconciliation bill of more than $700 billion, includes a number of provisions that benefit the offshore wind industry. However, a requirement that makes new offshore wind leasing contingent on oil and gas leasing could hinder offshore wind development off the coast of California given the intense opposition to coastal oil production in the state. The bill also includes certain production and investment tax credits that could benefit wind and solar developers.
Pairing Oil and Wind Offshore Development
The bill would make new wind and solar leases on Federal land contingent on lease sales for oil and gas development. For offshore wind development, the Department of the Interior would be allowed to issue offshore wind leases on the Outer Continental Shelf only if it also offered at least 60 million acres for oil and gas leasing during the one-year period prior to the issuance of the offshore wind lease. This contingency between offshore wind and offshore oil works to prevent the banning of new oil and gas leasing on public lands and could limit development off the coast of California.
For onshore wind, the Department of the Interior would be allowed to issue new wind or solar energy rights of way on Federal land only if it has held an onshore oil and gas lease sale during the 120 days prior to the issuance of the wind or solar right of way. Also, the Department must have offered at least the lesser of 2 million acres and 50 percent of the acreage that has received expressions of interest during the one-year period prior to the issuance of the wind or solar right of way.
Expansion of Offshore Wind Leasing
The bill also proposed an expansion of offshore wind leasing. The bill would authorize the Secretary of the Interior to grant leases, easements, and rights-of-way for offshore wind on the Outer Continental Shelf previously withdrawn for 10 years by the Trump administration. This includes areas in the Gulf of Mexico, South Atlantic, and Florida withdrawn on September 8, 2020 and areas off North Carolina withdrawn on September 25, 2020.
The bill would also require the Secretary of the Interior by September 30, 2025 to issue calls for information and nominations for proposed wind lease sales on the Outer Continental Shelf in U.S. areas adjacent to Puerto Rico, Guam, American Samoa, the United States Virgin Islands, or the Northern Mariana Islands. These expansions do not directly affect California but signal the Biden administration’s focus on offshore wind.
Domestic Content Credit
As part of the administration’s strategy to re-shore the renewable energy supply chain, the bill would provide a domestic content bonus credit of 10% of the production tax credit amount upon completion of construction for offshore wind facilities made using U.S.-made steel, iron, or manufactured products. For manufactured products used in offshore wind facilities, the bonus credit would require that 20% of the total costs are attributable to U.S. made products. This is considerable lower than the 40% required for products used in other renewable energy facilities. A qualified facility must have a maximum net output of less than 1 megawatt and meet the requirements around beginning construction and prevailing wages.
There is also a domestic content bonus credit of 10% of the credit amount under the new Section 45Y clean energy production credit. For offshore wind, the adjusted percentage for manufactured products is 27.5% for facilities that begin construction after December 31, 2024 and before January 1, 2026; 35% for facilities that begin construction after December 31, 2025 and before January 1, 2027; 45% for facilities that begin construction after December 31, 2026 and before January 1, 2028; and 55% for facilities that begin construction after December 31, 2027.
Manufacturing Production Credit
The bill would also provide an advanced manufacturing production credit for wind energy components, which includes blades, nacelles, towers, offshore wind foundations, and related offshore wind vessels. The credit for offshore wind vessels would be 10% of the sales price of the vessel. The credit for offshore wind platforms would be 2 cents for a fixed platform and 4 cents for a floating platform.
The bill defines “offshore wind foundation” as the component that secures an offshore wind tower and any above-water turbine components to the seafloor. It also defines “related offshore wind vessel” as any vessel purpose built or retrofitted for purposes of the development, transport, installation, operation, or maintenance of offshore wind energy components.
Other Provisions and Credits
The bill would also eliminate the phaseout of the investment tax credit under Section 48(a)(5)(E) for offshore wind facilities. Lastly, the bill would also make provisions for integrating of offshore wind energy into the electricity transmission grid.