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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

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Bas Gresnigt's picture
Bas Gresnigt on May 9, 2018

Since ~2016, offshore wind in the N.Sea is cheaper than onshore wind.
At the end of 2017 the first offshore wind contracts which require no subsidy at all. So those suppliers expect to earn enough by selling at the APX (~3cnt/KWh).
The price level continued this year.

For the next offshore wind auction, 700MW in ~Dec. this year, Dutch govt now plans to ask bidders how much money they are willing to pay for the right to install a 700MW offshore wind farm, operate it during 30years and the obligation to decommission all shortly thereafter.

Also because the sea is only 20-30meter deep at that wind farm location and the bottom contains no rocks, so low installation costs. Furthermore it should be running a year later (2023) than our last auctioned wind farm (700MW auctioned in Dec. last year) so probably bigger wind turbines are then available.
That last auctioned wind farm delivered several no subsidy bids, so the evaluation became a beauty contest.

Note that bidders have to deliver their implementation, business plan, etc. which will be checked by accountants and engineers. Furthermore bank guarantees regarding the decommissioning after 30yrs, etc.
Dutch govt doesn’t want an half operating wind farm or worse in our precious piece of the North Sea (~57,000km²).

Bob Meinetz's picture
Bob Meinetz on May 9, 2018

Dennis, unfortunately not much has changed in offshore wind, or physics, or renewable energy in general over the last 15 years.

Or the last 150 years. In Forbes today, Michael Shellenberger provides examples of how glowing predictions for renewable energy have, throughout history, proven consistently and abysmally wrong:

1891 New York Times: “While solar energy is not yet economical…the day is not unlikely to arrive before long…”

1891 The Washington Star:“Even on such an area as small as Manhattan Island the noontime heat is enough, could it be utilized, to drive all the steam engines in the world…”

1923: “World Awaits Big Invention to Meet Needs of Masses…solar energy may be developed… or tidal energy… or solar energy through the production of fuel…”

1931: “Use of Solar Energy Near a Solution…Improved Device Held to Rival Hydroelectric Production…”

1931 (New York Times, about solar energy): “It is just possible the world is standing at a turning point in the evolution of civilization similar to that which followed the invention by James Watt of the steam engine…”

1935: “New Solar Engine Gives Cheap Power…”

1948: “Changing Solar Energy into Fuel ‘Blocked Out’ in GM Laboratory…the most difficult part of the problem is over…”

1949: “U.S. Seeks to Harness Sun, May Ask Big Fund, Interior Secretary Krug Says…requests ‘hundreds of millionsfor solar energy’, pointing to its ‘tremendous potential’…”

No more time to waste.

Willem Post's picture
Willem Post on May 9, 2018

European Advantages Versus the US: Unlike the US, Europe already has all the infrastructures, built up over 15 years, to build at least 2000 MW/y of offshore wind turbine systems. It would be enormously costly for the US to duplicate that on the US northeast coast within 5 or 10 years.

That means the US likely would have to partially rely on European companies to finance, build, own, and operate US offshore wind turbines. Those same companies are already doing that regarding at least 50% of US onshore wind turbines.

That would certainly be significantly more expensive regarding capital and energy cost, than the huge offshore wind turbines, built near existing infrastructures, and destined for very windy areas in the North Sea near the coasts of the UK, Germany and Denmark.

US Wind Turbine Imports and Exports: Because of the late start of the US wind turbine industry compared to Europe, etc., the US imports of onshore wind turbine components have been building up and US exports have remained near zero over the years; US imports were about $2.2 billion (mostly the more complex items within the nacelle) and US exports were near zero in 2016.

This likely will be the case regarding future US offshore wind turbines. Once in a straight-jacket, or checkmated, it is very hard to get out of it, as no help from trading “partners” will be given. They have dug their tunnel to the vault and do not want the vault moved.

https://energy.gov/sites/prod/files/2017/08/f35/2016 Wind Technologies Market Report Presentation_1.pdf
http://www.windtaskforce.org/profiles/blogs/cop-21-world-renewable-energy-and-world-trade

The Block Island Wind Farm, after many years of dithering, became operational in late 2016. It is located 3.8 miles east of Block Island, Rhode Island. It has five wind turbines, each with a capacity of 6 megawatt. Each turbine is about 589 feet tall.

The annual wind electricity production would be about 105,000 MWh/y, if the capacity factor were 0.40.
The estimated useful service life would be about 20 years, based on about 20 years of European offshore experience.
Project turnkey cost was about $290 million, or $9.67 million/MW, which at least 2 times higher than North Sea pricing.

Quick Estimate of Electricity Cost: If the major costs of 25-year financing, a return on investment, operation and maintenance, replacements, insurance, and property taxes were ignored, the cost of electricity production, just to return the capital, would be about $290 million/(20 y x 105,000 MWh/y) = 13.8 cents per kilowatt-hour.

If these costs were not ignored, the cost of electricity would be at least 20 c/kWh. That would be about the price charged to utilities under a long-term power purchase agreement, PPA. This electricity would be variable and intermittent, i.e., no wind, no electricity.
http://www.windtaskforce.org/profiles/blogs/the-reality-of-wind-energy-in-new-england

Other generators, likely gas-fired, would be required to provide supplementary electricity, on a year-round basis, i.e., perform the peaking, filling-in and balancing, which reduces their efficient operation. This inefficiency increases as more wind electricity is added to the grid. See URL for more info.
http://www.windtaskforce.org/profiles/blogs/fuel-and-co2-reductions…

Offshore Supply and Installation Mostly by Foreign Companies: Factors affecting the capital cost are; 1) the manufacturing and shipping of turbine parts from Europe to the US, and 2) the specialized ships and cranes required to travel from Europa and back to install the turbines. German, French and Norwegian contractors mostly own that specialized and very expensive equipment. See “From Creditor Nation to Debtor Nation” in this URL.
http://www.windtaskforce.org/profiles/blogs/cop-21-world-renewable-energy-and-world-trade

Negotiated Electricity Cost: The negotiated PPA, calls for 24.4 c/kWh the first year, increasing at 3.5% per year for 20 years, i.e., 48.6 c/kWh in the 20th year. This absurdly expensive electricity gets averaged onto the utility’s contracted electricity mix.

NOTE: The negotiated Cape Wind PPA calls for 18.7 c/kWh the first year, increasing at 3.5% per year for 20 years, i.e., 37.2 c/kWh in the 20th year.

New England Wholesale Electricity Prices: New England wholesale prices have averaged about 5 c/kWh for steady, 24/7/365 electricity since about 2008, primarily due to:

1) Natural gas electricity; 50% of NE generation; low-cost (5 c/kWh), low-CO2 emitting, no particulates, domestic fuel
2) Nuclear electricity; 26% of NE generation; low-cost (5 c/kWh), minimal-CO2 emitting, no particulates, domestic fuel

Mark Heslep's picture
Mark Heslep on May 11, 2018

European Advantages Versus the US: Unlike the US, Europe already has all the infrastructures, built up over 15 years, to build at least 2000 MW/y of offshore wind turbine systems. It would be enormously costly for the US to duplicate that on the US northeast coast within 5 or 10 years.

Willem, I don’t think local infrastructure in the EU is the relevant issue. Wind turbine components and specialized installation craft already travel over the world. The turbines and blades for instance for Block Island were French made Alstom. If the problem were simply foot dragging by the US, the EU wind industry would long ago have set anchor in US waters.

It is the turbine foundation and other adaptations to US waters and hurricanes that drive up costs here, not a failure by the US to build out wind turbine construction.