Policymaker support key to offshore wind prospects in US
Huge price drops attract global developers but they need policy follow-through
Offshore wind is not yet easy to build in the United States. But the question is no longer if a boom will happen, industry stakeholders told Utility Dive, it is when and how it will happen, with policy follow-through a critical component along with improving economics and other factors.
There were 111 operating offshore wind projects around the world at the end of 2016 and, though only one was in U.S. waters, the world’s biggest developers are setting up U.S. shops.
Those projects represented 12,913 MW of installed capacity, with only 30 MW in the U.S., according to the just-released annual offshore wind market report from the Department of Energy (DOE). Yet the U.S. pipeline is starting to bulge.
The 593 offshore wind projects in the global development pipeline at the end of 2016 represented an estimated 231,000 MW of potential capacity. The U.S. project development pipeline included 28 projects, representing 24,135 MW of potential capacity. That’s 10% of the action in a U.S. market that is barely open.
There are two key reasons the offshore wind industry is coming to America. First, winning bid prices in the world's offshore wind market auctions have dropped from about $200/MWh for 2017 to 2019 commercial operation date (COD) projects to about $65/MWh for 2024 to 2025 COD projects.
With those falling prices, the U.S. East Coast market is too attractive to not pursue, according to Jason Folsom who heads offshore wind in the Americas region for Siemens-Gamesa, the world’s biggest offshore wind turbine manufacturer.
“The East Coast is really a done deal,” he told Utility Dive. “The wind speeds are good. Construction conditions are fairly simple. There is adjacent population density and high power prices. The market has everything it needs to deploy current technologies tomorrow.”
The second reason is new state policies. “A new Massachusetts law mandates 1.6 GW of offshore wind, New York’s governor has targeted 2.4 GW, New Jersey’s law requires 1.1 GW, and Maryland just approved 400 MW,” said Stephanie McClellan, director of the University of Delaware’s Special Initiative on Offshore Wind (SIOW). “That’s about 5.5 GW, almost half the world’s installed offshore wind capacity.”
Why a boom?
World offshore wind industry growth dropped to 1,188 MW in 2016, due to temporary factors in Europe. But, based on current construction, 2017's growth is likely to exceed 2015's record-setting 3,917 MW and reach over 4,000 MW, according to DOE.
None of the 24,135 MW U.S. pipeline is now under construction. But “after years of regulatory planning and leasing, confidence in the nascent U.S. offshore wind market has increased,” DOE reported. Multiple factors contribute.
First, the commissioning of Deepwater Wind's 30 MW, five-turbine Block Island demonstration project off Rhode Island, the only project in U.S. waters, gave the domestic industry a big boost. It launched a local supply chain and attracted policymakers' attention.
Second, a 2016 DOE report concluded floating offshore wind is on the same cost reduction trajectory as fixed offshore wind, SIOW’s McClellan said. “It will, within a decade, meet the under $100/MWh price that is a proxy for competitiveness with traditional generation.”
Also, a 2016 SIOW study looked at the impacts of a Massachusetts commitment to building 2,000 MW of offshore wind between 2020 and 2030. Economies of scale can drive costs "far lower than previously contracted prices in the New England region," it concluded.
The Block Island PPA price with National Grid was $0.244/kWh. SIOW found market forces from a 2,000 MW Massachusetts build would drive the price to $0.108/kWh by 2030, making offshore wind competitive with New England wholesale electricity prices.
Another 2016 DOE report updated the U.S. offshore wind technical resource potential to 2,058 GW, which is “7,203 TWh/year of net energy production,” DOE calculated. That is “approximately twice the electricity used in the U.S. in 2014,” DOE reported.
Finally, technology and siting advances promised higher productivity. The average offshore wind turbine in 2015 was 3.4 MW but grew to 4.7 MW during 2016, with capacity factors exceeding those of natural gas plants. And turbines are expected to average 7.0 MW in 2020, DOE reported.
These factors are attracting an “assertive presence in the U.S. of well-capitalized and experienced offshore wind developers,” DOE reported. DONG Energy, the world’s biggest offshore wind developer, as well as Norway’s Statoil ASA and Iberdrola-Avangrid, are buying into the U.S. market, it noted.
“We need policy follow-through”
Siemens clients "have planted their flag,” Folsom said. “That takes significant capital investment, which means they are very confident the U.S. market will develop.”
SIOW’s McClellan said states have made policy commitments but “we need policy follow-through so the market can do its job.”
As investors see market certainty, they will invest in technology innovation and supply chain infrastructure,” she added. “Competition will drive costs down, as it did in Europe, to the point where recent DONG Energy bids were subsidy-free.”
DONG Energy spokesperson Lauren Burm agreed. DONG’s 20-year experience building offshore wind has shown that cost reductions come with scale, she told Utility Dive via email. East Coast conditions are comparable to Northern Europe and can support “a growing market” that will drive costs down.
For it to happen, “we need scale and a continued pipeline of projects that will attract a supply chain,” Burm wrote. It will come with “commitments for offshore wind development and renewable energy goals like those already in place in some states.”
McClellan said it is happening in Massachusetts already. In compliance with the 1.6 GW mandate for offshore wind (H. 4568), the two dominant electric utilities have issued requests for proposals (RFPs).
Spokesperson Amie O’Hearn of National Grid, the Block Island off-taker, said bids are due by Dec. 20.
Offshore wind can help the state cost-effectively meet its ambitious decarbonization goals but that will require “careful, proactive planning of transmission to interconnect these resources,” she told Utility Dive via email.
EverSource spokesperson Albert Lara said its RFP is at an early stage, but the utility has also partnered with DONG on the proposed Bay State Wind project.
“The leadership they’ve shown in developing offshore wind and our experience in constructing onshore transmission systems in New England makes for a very strong proposal,” Lara emailed.
The project, which could provide 2,000 MW of capacity by the early 2020s, would go toward Eversource’s mandated obligation.
Follow-through is more problematic in New York, McClellan said. Governor Cuomo’s call for 2.4 GW of offshore wind by 2030 has not yet been codified. The implementation mechanism could be a carve out in the state renewables mandate, a requirement imposed on regulated utilities, or a state-backed incentive to component manufacturers, she said.
Approval of the 90 MW South Fork project, to be built off Long Island by Block Island developer Deepwater Wind, was another important step forward, McClellan said. But other development awaits final guidance from the New York State Energy Research and Development Authority's Offshore Wind Master Plan.
“The master plan will establish the procurement mechanism and who is required to procure, and it will set the procurement time frame,” McClellan said. “The assumption is that a Public Service Commission proceeding would then ratify and implement those three key decisions.”
The plan is due at the end of this year. Meanwhile, the state is working with the Department of Interior’s Bureau of Ocean Energy Management (BOEM) on new lease areas. StatOil took the only one so far designated.
“The process has been slower than the industry wanted, but it has been comprehensive and has the potential to drive competition and bring costs down,” McClellan said.
Siemens’ Folsom is confident New York will follow through. “There is always a risk in the regulatory phase but offshore wind is the only way the state will get to its 50% renewables by 2030 mandate,” he said. “Onshore wind is transmission constrained and there is not enough potential for solar.”
The governor’s 2.4 GW commitment is not bankable but companies like Siemens see an opportunity emerging like the Massachusetts opportunity that emerged two years ago, he said.
McClellan said New Jersey’s follow-through has been lacking since its 2010 law established a 1.1 GW mandate. “Governor Christie’s Board of Public Utilities failed to implement it,” she said.
But an election this fall will replace Christie with either a Democrat who wants to increase the mandate to 3.5 GW or a Republican who has expressed support for development, McClellan said. “It is never clear what they will do until they take office, but it is clear the only obstacles to building offshore wind in New Jersey are political.”
A 2013 Maryland law established support for Offshore Wind Renewable Energy Credits (ORECs) but the Public Service Commission did not approve them until this year. Skipjack Offshore Energy and U.S. Wind will use ORECs priced at $131.93/MWh to build a 368 MW project in Maryland waters. “There is nothing stopping them now,” McClellan said.
It is not clear where the next project will go online but “only Long Island’s Southfork project actually has a contract,” she said. It could be the just-announced DONG Energy-Dominion Virginia two turbine demonstration project off Virginia's coast.
Folsom said Siemens endorses LEEDCo’s Lake Erie demonstration project because the non-salt environment, though challenging in other ways, offers more “technology flexibility.” But, he added, California is my favorite new U.S. market.”
Floaters and new markets
The West Coast continental shelf’s sharp drop off to great depths makes the fixed foundations used in the shallow waters of the wide East Coast shelf impractical. California will require floating foundations.
There are 15 operational floating foundation offshore wind demonstration projects, but only the 6 MW Aqua Ventus project being tested by the University of Maine is in U.S. waters, DOE reported.
The global floating project pipeline tripled from the end of 2015 to the end of last year and reached 26 projects totaling 2,905 MW, according to DOE. Among them are proposals for California and Hawaii. There are 11 floating projects totaling 229 MW either under or approaching construction.
Folsom said floating foundation technology’s levelized cost will “follow the same downward cost curve we saw for fixed foundation technology.”
California, like New York, will need offshore wind to meet its 50% by 2030 renewables mandate, Folsom added. “By 2025, there should be significant floating megawatts in California.”
PG&E spokesperson Denny Boyles said the utility is “aware of developer interest in offshore wind” but “is not currently soliciting new Renewable Portfolio Standard projects.” If that changes, PG&E is “open to all technologies, including offshore wind.”
Folsom said Hawaii is “an even better business case” because of its high electricity price." But, he said, it is a very small market, which is why Siemens is looking first at California.”
Hawaiian Electric Companies (HECO) spokesperson Peter Rosegg said its newest long-term plan identified offshore wind “as a potential resource to help meet renewable energy needs” and “is aware of three unsolicited offshore wind leasing requests from two developers.”
HECO is monitoring what it sees only as “long-term resource potential” because “the floating platform technology being proposed is not yet commercially viable,” Rosegg added. The cost may come down but “a multitude of state and federal agencies would need to consider and approve any project.”
Hawaii and California also face siting challenges, Folsom and McClellan said. But the offshore industry will be ready to scale up on both coasts when supportive policy drives market maturity and falling prices, they also agreed.
“The East Coast can scale up right now the same way the market in Germany scaled up in 2009 and 2010,” Folsom said.
McClellan again stressed the need for state follow-through on policies that drive development. “It will be an iterative process,” she said. “Policy leads to development. Ports, vessels, manufacturers, the supply chain and trained construction personnel follow. The cost comes down. That leads to new policy, more development, and the cost comes down more, and so on.”