Offshore Wind May Finally Be Here (Really)

New low prices for offshore wind energy projects in Europe have excited policymakers up and down the East Coast about prospects in the U.S. and emboldened some to finally pull the trigger on long-mooted plans. Policy commitments in Massachusetts and New York, especially, are providing new hope for much larger offshore developments.

After years of delays, controversy, and wishful thinking, offshore wind is finally coming to America. New research from Lawrence Berkeley National Laboratory suggests that while New York and New England projects may pencil out, prospects dim in more southerly regions.

Offshore Wind Is Starting to Grow

European developers are the global leaders on offshore wind, and are bringing their expertise across the Atlantic, often working with American partners. The latest breakthrough on price is the gargantuan 1,386-MW Hornsea Project Two, off the coast of Yorkshire in the North Sea. irsted, formerly known as DONG Energy, was the winning bidder in the auction, with a reported price of $77.76/MWh. It will be the world's largest wind farm when it comes online in about four years.

In previous tenders in Germany and the Netherlands, developers have requested no subsidies, willing to take the market price plus the value of carbon credits. Those bids did not include grid connection costs, which are covered by local grid operators.

America's first project, five 6-MW GE turbines near Block Island off the coast of Rhode Island (a 2017 POWER Top Plant, see "Nation's First Offshore Wind Farm Releases Community from Decades of Diesel" in the December 2017 issue), started operation in December 2016. But Block Island (Figure 1) was a unique case, with retail electric rates as high as 54/kWh due to heavy reliance on diesel generators. The wind project also involved connecting the island to the mainland grid for the first time, allowing access to cheaper power for the island, and sending wind power ashore in the winter when the island population falls.

1. One-of-a-kind (for now). The five-turbine Block Island wind farm was the first U.S. offshore wind project to be grid connected. When the next project will come online remains uncertain. Courtesy: Deepwater Wind

Progress, Finally, in Massachusetts

Offshore wind in the U.S. suffers under the legacy of Cape Wind, a 454-MW project first proposed for Nantucket Sound in 2001. Unrelenting and well-funded opposition from wealthy beachfront homeowners on Cape Cod, including arch-conservative funder William Koch and liberal icons Teddy Kennedy and Robert F. Kennedy Jr., succeeded in delaying the project for years.

While those 26 lawsuits were expensive, none succeeded, and they were not fatal to the project. What ultimately killed Cape Wind was its high price. Despite the support of Gov. Deval Patrick and vigorous arm-twisting by state regulators, Cape Wind's contract price averaged $220/MWh over 10 years, resulting in staunch opposition from the utilities that would be compelled to buy it. When Patrick left office in 2015, and a deadline to commence construction passed, NStar and National Grid wasted no time in canceling the contract.

The Cape Wind debacle led to new legislation from Beacon Hill. With onshore wind hard to develop in crowded New England and biomass power falling out of regulatory favor due to perceived life-cycle carbon emissions, only solar and offshore wind were left to meet aggressive renewable energy goals. Clearly the state needed offshore wind, but Cape Wind was no model for development.

The legislation, passed in 2016, sets a firm target and timetable for offshore wind procurement, with 1,600 MW due by June 30, 2027. It also gives utilities more comfort by letting them collect up to 2.75% of the annual payments under the contract to compensate for accepting the financial obligation of the long-term contract. And it explicitly takes Cape Wind and Nantucket Sound off the table, requiring that eligible projects be at least 10 miles from "any inhabited area," in an attempt to reduce future siting conflicts.

The request for proposal (RFP) was released in June 2017, and three bidders responded in December. Bay State Wind, Deepwater Wind, and Vineyard Wind each submitted bids for projects south of Martha's Vineyard. Each included storage and transmission components as well, as required by the RFP.

Bay State Wind is a 50-50 joint venture between irsted North America and Eversource Investment, a wholly-owned subsidiary of Eversource Holdco, which also owns the Massachusetts utility. Their project would be between 400 MW and 800 MW with the undersea transmission line able to take up to 1,600 MW. The project would be self-financed and online by 2022.

Deepwater Wind, which also developed the Block Island project, proposed a smaller project of 200 MW or 400 MW that could be expanded over time to take advantage of falling technology costs. Its transmission partner is GridAmerica, while its storage plan is a pumped-hydro system by FirstLight Storage.

Vineyard Wind is a partnership of Copenhagen Infrastructure Partners, which is currently developing offshore wind projects in seven countries, and Avangrid Renewables. The project would be 400 MW or 800 MW, with 800 MW of transmission capacity, expandable to 1,600 MW. Like Bay State, Vineyard would use an unspecified amount of batteries for storage.

The projects were to be selected for negotiations by April 23, with a winner chosen by July 2 and submitted for regulatory review.

Other States Eyeing Offshore Wind

Other states are also making progress.

Maryland. In May of last year, the Maryland state Public Service Commission (PSC) awarded offshore wind renewable energy credits (ORECs) to Deepwater Wind's 120-MW Skipjack project and U.S. Wind's 248-MW project. The ORECs are worth $131.93/MWh for 20 years, adding up to $3.6 billion in all. [Ed. update 5/1/2018: Unlike most other states, OREC payments are the sole source of revenue that offshore wind developers realize for the OREC portion of projects in Maryland. Any profits that the developer receives from the sale of energy, capacity, and ancillary services associated with the project must be refunded to the state's ratepayers.] The rate impacts are expected to be less than $1.40/month for residential customers and less than a 1.4% impact on the annual bills of commercial and industrial customers.

The award requires the developers to create a minimum of 4,977 direct jobs, invest at least $76 million in a steel fabrication plant in Maryland, and pay at least $39.6 million for port upgrades at the Tradepoint Atlantic shipyard in Baltimore County. The total construction cost for the projects is around $2 billion, according to the PSC.

Maryland's Renewable Energy Portfolio Standard (RPS) has a mandate of 25% of electricity purchased from renewable energy resources by 2020. It was amended in 2013 with a carve-out for offshore wind of up to 2.5% of total retail electricity sales. This was the first award of ORECs under the mandate.

The 77 turbines will be between 12 miles and 21 miles offshore, though final designs may vary. A bill requiring the projects to be at least 30 miles offshore, pushed by Ocean City officials, failed in committee in early March. The projects could come online as soon as 2020.

New York. In his 2017 State of the State address, New York Gov. Andrew Cuomo proposed up to 2,400 MW of offshore wind power by 2030. This year he called for the first 800 MW to be procured between two solicitations in 2018 and 2019. The New York State Energy Research and Development Authority kicked off the process in January, releasing an offshore wind master plan and policy options paper.

The state Department of Public Service will start a rulemaking process soon, though no dates have been set. The Department accepted a Draft Generic Environmental Impact Statement on offshore wind development in February, with public comment open until April 9.

New Jersey. In New Jersey, the departure of Gov. Chris Christie is bringing new hope that a 2010 legislative mandate will be executed. The Offshore Wind Economic Development Act (OWEDA) set a goal of 3,500 MW of offshore wind capacity by 2030.

But state regulators rejected all proposals for offshore wind projects, including one by Fishermen's Energy to develop a 24-MW project off the Jersey Shore, despite $47 million in financial support from the U.S. Department of Energy (DOE). The legislature passed bills in 2015 and 2016 forcing approval of the project, but Christie vetoed them.

The new governor, Phil Murphy, issued an executive order on January 31, just two weeks after taking office and two days after the release of the New York master plan, setting a 2030 goal of 3,500 MW and directing the Board of Public Utilities (BPU) to "fully implement" OWEDA. After developing a plan, the BPU will issue a solicitation for 1,100 MW of projects, the nation's largest such solicitation to date, and engage with neighboring states on a regional collaboration.

Virginia. Dominion Power of Virginia signed an agreement in July with irsted to build two 6-MW turbines 27 miles off the coast of Virginia Beach, reviving a previous plan that seemed dead. In 2011, DOE awarded $40 million to the project, but withdrew the funds in 2016 when Dominion couldn't guarantee it would be done by 2020. According to The Virginian-Pilot, the cost of the project would be about $300 million-$70 million more than initially estimated, but $100 million less than what was bid a few years ago. Dominion says it is the first phase of a plan that could expand to more than 2,000 MW.

Georgia. Georgia Power, a unit of Southern Company, is doing research, and developers are leasing land off North and South Carolina. But even advocates are not optimistic.

"I just don't see an appetite in the Southeast in general to pay a premium," Katharine Kollins, president of the Southeastern Wind Coalition, said in a Natural Resources Defense Council blog post. "It's a long-term play."

Analysis Puts Everything in Context

Forthcoming research from Lawrence Berkeley National Laboratory suggests that projects off New England and New York may be viable, given recent prices (Figure 2), but anything further south is questionable. [Ed. update 5/1/2018: Findings from the study were released on April 16, 2018. See "Estimating the Value of Offshore Wind Along the United States' Eastern Coast" for more information.]

2. Offshore wind values. The levelized cost of energy (LCOE) for offshore locations along the East Coast is shown here. Energy, capacity, and renewable energy credit prices are highest in New England and New York, making projects in those areas more attractive. Courtesy: Lawrence Berkeley National Laboratory

The study, led by Dr. Andrew Mills, took a look back at locational wholesale prices for hundreds of nodes along the East Coast, along with actual wind data. In effect, the work asks: What would have been the economic value of offshore wind projects along the East Coast from 2007 to 2016?

Economic value was determined by adding up generation, capacity, and RECs at the time and place of energy production. The study found that wholesale prices vary widely, with big implications for the viability of offshore wind.

"Constrained places like New York City and Long Island have higher energy and capacity prices," Mills told POWER in an interview, "so projects that connect there have higher value than further down in PJM."

But the highest values, around $110/MWh, were in southern New England, which have high energy and capacity prices but much higher-value RECs.

The study also compared the relative value of offshore and onshore wind to test the oft-cited theory that offshore is worth more. The theory is true, Mills said, with offshore wind worth $6/MWh to $20/MWh more due to both the timing of the energy production and the shorter distance to load centers on the coast.

Mills found the lowest value in non-ISO (independent system operator) regions, bottoming out in Florida and Georgia. That, combined with lower wind speeds, makes offshore wind financially questionable in the South. The dividing line seems to be New York City.

3. Values change every year. Renewable energy credit (REC) and energy values vary widely from one independent system operator (ISO) to another and from year to year. Capacity values are generally small and steady everywhere. Courtesy: Lawrence Berkeley National Laboratory

"There was a pretty substantial decrease of value in New Jersey, quite a bit lower," Mills said. New Jersey sites are worth about $40/MWh less than the highest-value sites in Massachusetts.

That suggested that a site off New Jersey may be better off linking into the New York ISO than into PJM, despite the cost of longer seabed transmission cables. Even better, a generator could connect to both, and arbitrage between the two regions, picking the market with the best price at any given time. Mills estimated that 40 kilometers of cable add $14/MWh while the additional benefit of arbitraging could be worth as much as $40/MWh.

Looking forward, Mills found that rising wholesale energy and capacity prices would be good news for offshore wind, but REC prices could decline as the cost of renewable technologies declines and energy market prices increase (Figure 3). This could make New York more valuable than New England.

-Bentham Paulos is a freelance writer and consultant specializing in energy issues.

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