Offshore Wind Financing Options for Vessels Qualified for Coastal Trade

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The Biden administration’s commitment to the development of offshore wind as an alternative energy source is showing tangible results. In May, the administration gave final approval to Vineyard Wind, America’s first industrial-scale offshore wind project. Several leases have been granted or are under negotiation, mainly in the northeast, and serious studies are underway on the potential of offshore wind installations in the Gulf of Mexico. Other US offshore wind projects are expected to be approved without delay.

Late last year, Congress amended Section 4 (a) of the Outer Continental Shelf Lands Act to provide that federal laws extend to “(iii) facilities and other attached devices of permanently or temporarily on the seabed, which may be erected there for the purpose of exploring, developing or producing resources, including non-mineral energy resources . . . . “(emphasis added). In a recent ruling following this amendment, US Customs and Border Protection interpreted this language to conclude that a jackup vessel would become a coastal point when ‘It is attached to the seabed of the outer continental shelf for the purpose of installing or constructing a structure to be used for wind power generation.

As a result, the wide variety of vessels that carry the materials, equipment and personnel used to build, maintain, maintain and repair these offshore wind facilities will, among other things, have to be built in the United States (with a limited number of inclusion of foreign materials or components) and to meet the property requirements of U.S. citizens. Since shipbuilding in the United States is generally capital intensive, securing sufficient financing for such construction is often seen as a challenge.

As with other vessels that engage in the US coastal trade, there are financing methods available for vessels used in offshore wind that are sometimes overlooked. For example, conventional loan financing can be obtained from foreign lenders, and these loans can be secured by mortgages on ships that have preferred status under US law. This can be particularly useful in the context of offshore wind. Offshore wind power generation has long been widely used in other countries, especially in Europe, and many European companies are currently involved in the design, planning and equipping of offshore wind installations in US waters. . As a result, financial institutions in Europe and other countries are used to investing in offshore wind projects and are comfortable making similar investments as the offshore wind industry starts up here.

There is also a special provision in US law that allows foreign financial institutions to provide leasing for vessels engaged in US commerce under certain specified conditions. For example, Dominion Energy is leading a consortium of industry participants in building the first Jones-compliant offshore wind turbine installation vessel, to be built at the Keppel AmFELS shipyard in Brownsville, Texas. It has been announced that the $ 500 million cost of the project is funded through a leasing agreement with leading global banks.

The United States government loan guarantees are available under a program originally established under Title XI of the Merchant Marine Act of 1936 administered by the Maritime Administration (MARAD) within the United States Department of Transportation. If all program requirements are met, loans can be made through the Federal Financing Bank, a US Crown corporation established by Congress in 1973 under the supervision of the Secretary of the Treasury. These loans are secured by “the full faith and credit of the United States” and therefore the loans generally have lower rates and more flexible terms than a borrower would be able to obtain on the open market on the basis of its own credit. For eligible vessels, the loan can be up to 87.5% of the cost of the vessel, can have a term of up to 25 years, and will have an interest rate based on 10-year treasury bills.

Generally, the borrower must be a US citizen or a corporation, partnership, or other business; must demonstrate capability and experience with the vessel (s) to be built; and must have sufficient creditworthiness. One of the obstacles that parties should consider in obtaining MARAD approval is the requirement that an applicant demonstrate the “economic soundness” of a proposed project. MARAD will examine the market potential for the employment of a vessel, including the use and availability of long term charters. In the US offshore wind space, the length of charter time available will depend on the type of vessel and will likely be longer for operational vessels (such as service vessels and crew transport vessels) than for construction vessels ( such as a turbine installation vessel).

An example of the use of Title XI funding is the application submitted by Win Wind LLC for the construction of a service vessel (SOV) to Tampa Ship LLC in Tampa, Fla., A subsidiary of Edison Chouest Offshore where the SOV will be used to transfer technicians and spare parts for the operation and maintenance of wind facilities at the Revolution, South Fork and Sunrise Wind wind farms in the northeast. The estimated cost of the vessel is $ 81.2 million and the requested security is 85% of this amount, or $ 69.02 million, for a 15-year loan. The information available on the MARAD website as of October 6, 2021 indicates that the application has been received and is being reviewed for completeness. More information on the Title XI program is available on the MARAD website.


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