Why the US Offshore Wind Market Is Going to Be Even Bigger than You Think

By: Jason Deign, for New Energy Update

There is one subject that all commentators on the US offshore wind industry agree on: the sector is going to undergo rapid expansion over the next decade. What does provoke argument is the likely scale of this growth, and the relative importance of the factors that are going to push it forwards or hold it back.

The question of what we can expect to happen in US waters between now and 2030 was the subject of intensive debate at US Offshore Wind 2017, the conference hosted by New Energy Update in Long Island, New York, two months ago.

Bloomberg New Energy Finance has forecast that the US will have a total installed capacity of between 3GW and 4GW by 2030, however the predominant view of the speakers at the conference was that the actual increase may be twice that.

This consensus was significant for a number of reasons.

Firstly, it reflects the opinion of those who are actually making the decisions and taking the risks. So, the conference was addressed by key political figures from New York and Massachusetts, two of the states that are blazing the trail that the rest of the US will follow. They were joined by developers from the European and American companies who are bidding for leases, and the consultants who are advising them on how they should bring forward projects.

Secondly, delegates were in a position to analyse the latest economic, industrial and technological trends that are driving the global industry.

 

Figure 1: States pursuing offshore wind – including those in the fast lane (RCG)

 

All of these trends are in a state of more or less rapid change. In the past year we have seen rapid falls in the levelized cost of offshore energy, developers who have opted to forgo all public subsidy, the installation of 195m-high turbines in the Irish Sea and an unprecedented flood of investment from capital markets. Those are all features of the European market, of course, but they will all have a bearing on what happens in the US.

So, having convened the best informed people with the latest information, what leads them to believe that the US offshore industry will outperform BNEF’s estimate? And what can developers do to ensure that it happens?

The political consensus

One problem that has bedevilled US infrastructure in recent years is the ideological split between Republicans and Democrats as whether public money should be spent on building it. State and taxpayer-funded schemes such the high-speed rail link between Los Angeles and San Francisco have been fought tooth and nail by Republican legislators in Sacramento and Washington, DC. In the case of offshore wind, by contrast, there is growing bipartisan support both at the federal level and in the legislatures of key states.

Jim Lanard, chief executive of Magellan Offshore and the chair of the conference, made the point that in the US, renewable energy is as much about jobs, infrastructure and economic development as it is about carbon reduction per se. At state level this is demonstrated by the fact that 80% of all onshore wind farms are in Republican-held Congressional districts. And at the federal level, Lanard said, the Trump administration has sent positive signals about offshore wind; indeed, Lanard quotes a number of federal officials who have recently stated their enthusiastic support. For example, he mentioned Secretary of the Interior Ryan Zinke’s enthusiastic welcome for Avangrid’s $9.1m bid for a North Carolina lease back in March. Zinke said at the time: “Renewable energy like offshore wind is one tool in the toolbox that will help power America with domestic energy.” At the end of April, Katharine MacGregor, the deputy assistant secretary for land and minerals management, said renewables would remain a priority for the Department of the Interior, and added that great things were expected from California’s offshore wind development. “In short, we’re getting really great signals from the Trump administration,” Lanard said.

Doug Pfeister, a managing director at the Renewables Consulting Group, told delegates that this degree of political support, together with a well-established trend towards policies that promote low carbon energy, will result in aggressive development of offshore wind, possibly leading to as much as 11GW of capacity procured by 2030.  This kind of growth is entirely possible when you look at the past 15 years in Europe – during which period approximately 11GW was installed.

Figure 2: Cumulative and annual offshore wind installations in Europe, 1992 – 2017 (RCG)

 

He said: “You have to look not just at states that are busy now but also states that have to get busy to meet their goals for their renewable portfolio standards and climate change. If you do the math you can see that they won’t get there without offshore wind, and that includes the long, long coastlines off California and the West Coast.

The question of cost

For many years the offshore industry in Europe has relied on public subsidy to allow it to compete with other sources of electricity, and for many years executives have talked about the need to dive down costs to strengthen their companies’ commercial position and reduce their exposure to political risk. And for many years nothing much happened. It therefore came as a shock when it apparent that levelized costs had plummeted to the extent that an auction for leases in German waters attracted zero subsidy bids.

Sven Utermöhlen, the chief operating officer for E.ON Climate & Renewables, told the conference that the underlying cost reduction was “fantastic news”. He said: “For many years we have talked about the need to be cost competitive and, in the long run, to be able to live without subsidies. We now seem to be on a path to achieve that.”

Utermöhlen attributed the fall to a number of factors, including the increasing size of turbines, the increasing reliability of offshore technology, the increasing expertise of the supply chain, the increasing size of individual wind farms and asset portfolios, the increasing confidence of investors and the decreasing cost of capital.

Figure 3: Why costs are falling (E.ON)

 

The common factor in this list is the achievement of industrial maturity. In the early days, European developers had to make do with ships and terminals developed to service the North Sea oil industry, which necessarily involved a great deal of improvisation. Now it has an elaborate and dedicated supply chain, construction costs and maintenance costs have been slashed. Utermöhlen pointed out that the US has the chance to miss out this painful stage from its own evolution. “The US can immediately establish a fit-for-purpose harbour infrastructure, and also a specialised, high-quality supply chain,” he said.

What could go wrong?

This dramatic fall in costs is likely to be decisive in persuading US policy makers and policy implementers to invest their effort and resources into offshore wind. However, there are a couple of connected conditions: companies must be able to replicate the cost savings seen in Europe, and they must be willing to build up American supply chains – including investment in US-based manufacturing facilities.

These points were made forcefully by Bill White, the senior director of offshore wind at the Massachusetts Clean Energy Centre. He said: “The issue for Massachusetts and the industry as a whole is cost. Europe has cut costs by a third since 2012. The big question is can they do the same here?”

Massachusetts has made a considerable effort to establish the foundations of an offshore wind industry. It has already mandated its utilities to procure 1.6GW of energy from offshore suppliers, and the first request for proposals associated with that was officially published on 30 June. The winner for the first competitive procurement is expected to be selected by April, 2018 and a PPA finalized by July, 2018.

It has also held extensive meetings with stakeholders, it has begun multiple research projects to understand the offshore environment and collect baseline data for its federal permits. It has built an indoor facility that can test turbine blades up to 90m long, it has constructed and now operates the heavy load capacity New Bedford Marine Commerce Terminal and it is doing its best to attract developers – so far, DONG Energy, Vineyard Wind and Deepwater Wind have committed to utilize the facility to deploy their projects.

In return, it wants a commitment from developers and turbine makers.

“If we are to build this industry in the US, not only do we have to drive down cost, but we have to make an investment in manufacturing. I know everybody complains that it’ll cost too much – but just think about it: the Trump administration is already open to offshore wind. Can you imagine what will happen when we begin to manufacture components in Massachusetts or in states with a history of manufacturing like West Virginia and Ohio? It will inoculate the offshore wind industry against political risk, and nothing will stop it.”

NOTE: This article was produced in conjunction with the 3rd Annual US Offshore Wind Conference and Exhibition, June 7-8 at the Boston Park Plaza Hotel. Join us and 1000+ delegates, 50+ speakers, 45+ sponsors and exhibitors for 2 days of exclusive market updates and networking. Read more:http://bit.ly/USOffshoreWind-Boston

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