Background
The winds of change are coming for the nascent U.S. offshore wind industry, with several large projects scheduled to come online before 2030. Major commercial and governmental entities expect offshore wind will be big business in the U.S. Unsurprisingly, novel issues are arising around the construction of U.S. offshore wind farms, and in particular whether and to what extent the vessels involved in the construction of U.S. offshore wind farms will be required to comply with current U.S. laws – namely, the Jones Act – relating to flagging, manning, ownership and construction of vessels operating within the U.S. continental shelf (i.e., 200 nautical miles off of the U.S. Coast). This edition of Simply Speaking will discuss issues surrounding the Jones Act U.S.-flagging and manning requirements for wind turbine installation vessels (“WTIVs”).
What are the Jones Act flagging requirements for WTIVs and what work-arounds are being considered?
The Jones Act (46 U.S.C. 55102) and its related statutes (herein, the “Jones Act”) regulate coastwise trade and certain other maritime activities within U.S. waters. It requires vessels transporting merchandise between two points in the U.S. to be coastwise-qualified (i.e., U.S.-flagged, U.S.-manned, U.S.-built and U.S.-owned). Relevant U.S. regulatory bodies have recently ruled that these requirements apply to WTIVs transporting and installing wind turbines within the U.S. continental shelf; therefore, such WTIVs must be Jones Act-compliant. This poses economic challenges to potential U.S. offshore wind developers, as shipbuilding costs can be significantly higher in the U.S., and there are currently no U.S.-flagged, U.S.-built WTIVs in existence and (as far as we are aware) only one under construction at the time of writing.
Industry leaders have responded with innovative solutions, notably the foreign-flagged WTIV, U.S.-flagged feeder vessel method (such method is referred to herein as the “FF WTIV” method). This method contemplates a foreign-flagged, foreign-built WTIV staying on station at the site of the wind farm constructing wind turbines; meanwhile, U.S.-flagged, U.S-built and Jones Act-compliant feeder barges deliver the wind turbine components (monopiles, nacelle, blades, etc.) to the site from U.S. ports. Regulatory bodies have ruled that the FF WTIV method is Jones Act-compliant, but the FF WTIV method is not without its challenges, notably including the weather.
What are the big challenges for the FF WTIV method and how has industry responded?
Weather is a major potential issue for the FF WTIV method, in particular, because a WTIV must transfer large monopiles or blades from the feeder barge to the WTIV deck. Planners are concerned about the risk that these transfers may, due to scheduling, occur during foul weather, high winds and heavy seas. Whether or not making a transfer in such conditions is feasible remains unclear; however, the industry has responded with innovative technical solutions. Offshore wind companies are developing FF WTIVs with the ability to “lock” a feeder barge in place or “cradle” and lift the feeder barge out of the water while transferring cargo between the feeder barge and the FF WTIV. This will allow a FF WTIV with its jack-up legs engaged to stabilize the feeder barge during transfer, thereby minimizing weather-related risk. In fact, some are touting that the FF WTIV method will actually be a cheaper and greener solution than having a Jones-Act compliant-WTIV. The claim appears to be that because the component transportation and wind turbine installation tasks can be bifurcated, the large WTIV can stay on station for a longer period of time and continue construction and installation activities, thereby reducing transit time and construction costs and increasing on-station time and efficiency.
Can foreign-flagged WTIVs be crewed by non-U.S. mariners?
A draft amendment to the National Defense Authorization Act was recently proposed in the U.S. House of Representatives that would require FF WTIVs to hire U.S. mariners or, alternatively, citizens of the vessel’s flag state. This new requirement, if passed, could potentially create jobs for U.S .mariners, but at the same time, it could limit access to the experienced non-U.S. WTIV crew members who have worked on installation projects elsewhere in the past. This has the potential to further delay offshore wind development in the U.S.
Are there issues that lenders should be aware of in financing U.S. wind farm vessels?
Lenders should be aware that there are viable options outside of the U.S. for sourcing U.S. wind farm vessel financing transactions, and that such options comply with current Jones Act guidance. Additionally, we would envision that a credit agreement financing a FF WTIV new build would contain more robust covenants and events of default protecting against (i) the risk that such a vessel runs afoul of the Jones Act and/or (ii) the risk that the current interpretation of the Jones Act allowing the FF WTIV method will change.