NextEra's Robo Is Wrong About Offshore Wind
“Terrible energy policy.” That was James Robo’s dismissive comment regarding offshore wind development in NextEra Energy’s first quarter earning’s call last week. His comment was preceded by a recollection that he, and the company, had “worked very hard at offshore wind 15 years ago…on a project off of Long Island.”
Ultimately, however, the company didn’t get the project—talk about holding a grudge. More to the point, is Robo really relying on a 15-year-old experience to drive corporate policy? It would be an understatement to say that much has changed in the energy business, particularly concerning renewables, during this period.
To see just how much has changed, let’s narrow the scope to the last four years. And to make it particularly relevant, let’s look at the changes at NextEra subsidiary Florida Power & Light, one of the nation’s largest utilities.
In its 2014 Ten-Year Site Plan (which can be found here), FPL told Florida regulators that it had two operating solar photovoltaic facilities, totaling just 35 MW. It also said that it was in the process of “identifying other potential sites in the state for potential central station PV facilities.” But later, in its forecast of future generation, it projected that in 2023, the final year of the forecast, the utility would produce 67 gigawatt-hours of electricity from PV sources—one GWh less than the 2013 total. In other words, FPL had absolutely no intention of pursuing PV generation.
While not seeing any room for new PV in 2014, the utility still projected that there would be a small increase in future coal generation, estimating that output would climb to 6,779 GWh in 2023 from the 5,981 GWh produced in 2013.
If you had asked him then, Robo, who was FPL’s CEO at the time, might well have summarized efforts to expand solar PV as “terrible energy policy.”
As a side note, utility-scale solar PV generation capacity at the end of 2013 totaled 5.8 gigawatts in the United States; it was hardly a novel technology.
Fast forward to the utility’s 2018 ten-year plan (which can be found here) and the story has changed, completely. Now solar PV gets top billing, with the company pointing out for starters that it expects to generate more electricity from solar in 2019 than from coal and oil combined—a company first and a thundering change from just four years earlier.
The company noted that it currently has 855 MW of solar PV installed, up from the paltry 35 MW four years ago. And by 2027 it is expects an additional 4,059 MW of PV capacity to come online.
Indicative of the corporate about-face on PV, earlier this year Robo said that by the early 2020s the company expects solar, without incentives, to cost $0.03-$0.04 per kilowatt-hour—”below the variable costs required to operate an existing coal or nuclear generating facility.” For Robo, who now is chairman and CEO of NextEra Energy, that is stupendously good news since the company’s other main subsidiary, NextEra Energy Resources, is the world’s largest renewable energy generator.
Clearly, solar PV is good business.
And that brings us to Robo’s comment about offshore wind, which seems oddly out of place for an executive with such broad exposure to the renewable energy sector and the major prices declines that have propelled the development of both solar PV and onshore wind in the past 10 years. If I could somehow short his statement, I would.
Consider, prices in Europe for offshore wind projects tumbled from $111 per megawatt-hour in 2015 to $61.23 per MWh in 2017. At the same time, installations have continued to climb; 3.1 GW were added in 2017 alone, bringing the continental total to 15.8 GW, and more is on the way.
The U.S., in contrast, is just getting started. The country’s first offshore project, the 30 MW wind farm off Block Island, only began commercial operation in December 2016, at a price of $0.244/kWh. This year, Maryland signed a deal for two projects totaling 368 MW (the projects are due online in 2020 and 2021) that were priced at $0.132/kWh—still well above its onshore competitors, solar, wind and natural gas, but a sharp drop nonetheless.
As additional projects are bid, and the port and other related infrastructure is brought online in the U.S., additional price declines are almost certain. On top of that, offshore turbine manufacturers keep increasing the size of their offerings, enabling developers to generate more electricity with less equipment, significantly improving economics. The current record-setter is Vestas’ 8 MW unit, but that soon will be topped by the company’s new 9.5 MW turbine, which will be installed at the Moray East development off the coast of Scotland. And looking down the road, GE has announced plans to build a 12 MW turbine, which it hopes to demonstrate in 2019 and begin selling in 2021.
In short, offshore wind is on the same development path as solar PV and onshore wind. Far from being “terrible energy policy” it is likely to become yet another major component of a low/no emissions energy future, with particular market potential off the heavily populated eastern U.S. coastline. There, offshore wind could reduce the need for new, often controversial natural gas pipelines and, coupled with storage, could provide an alternative for utilities unwilling/unable to site traditional peaker plants in metropolitan areas often struggling to meet air pollution standards.
Maybe Robo is still mad about that first contract, but I am willing to bet that in the not-too-distant future NextEra will be investing in offshore wind, seeing it not as terrible policy but as a money-making opportunity.
Photo Credit: mmatsuura via Flickr