This group brings together the best thinkers on energy and climate. Join us for smart, insightful posts and conversations about where the energy industry is and where it is going.

10,199 Members

Post

Is Offshore Wind America's Biggest Bipartisan Energy Success Story? Record-Breaking Lease Auction Suggests So.

Deepwater Wind

By Silvio Marcacci, Energy Innovation's Communications Director

Last month's record-breaking auction for development rights to three offshore wind lease areas off Massachusetts’ coast netted nearly a half-billion dollars, heralding the technology's arrival as an extremely attractive corporate investment, and cementing its status: Offshore wind is America’s biggest bipartisan energy success story .

The Bureau of Ocean Energy Management (BOEM) auction lasted 32 rounds over two days, and the three winning companies bid a collective $405.1 million for the rights to develop offshore wind across nearly 390,000 acres south of Martha’s Vineyard. The three lease areas could host up to 4.1 gigawatts (GW) of generation capacity, enough to supply roughly 1.5 million homes.

The combined sale amount surpasses the total value of all seven previous U.S. offshore wind lease sales, and is nearly three times the value of BOEM’s most recent auction for Gulf of Mexico offshore oil and gas drilling rights. These results seem shocking, but they’re part of a clear pattern: Offshore wind costs have fallen 75% since 2014, putting it within reach of cost-competitiveness with traditional power sources in New York and New England.

Record-breaking bids show offshore wind's investment potential

BOEM's offshore wind auction attracted 19 qualified bidders, who quickly pushed initial bids of $254,000-$264,000 for the three lease areas up to $91 million-$101 million after 24 rounds of bidding.

Final lease rights were awarded after eight additional rounds of bidding the next day resulted in winning bids of $135 million by Equinor Wind US, $135 by Mayflower Wind Energy, and $135.1 million by Vineyard Wind – the same international developer awarded a contract to develop an 800-megawatt (MW) Massachusetts offshore wind project in August 2018. Each bid more than tripled the previous lease auction high bid, set at $42 million in 2017 for a single lease area off New York’s coast by Equinor Wind.

While each company will have to go through site assessment, construction planning, and power-purchase agreement (PPA) negotiations with local utilities before obtaining federal and state approval to begin project construction, the trend is clear: Private companies are moving full speed ahead toward offshore wind’s potential. “Just three years ago, these lease areas had no bidders at all,” said Liz Burdock, Executive Director of the Business Network for Offshore Wind. “This strong interest...demonstrates the economic potential of the offshore wind industry.”

Developers respond to clear investment signal from state governments

Private developers are responding to 12GW worth of ambitious targets established across six Northeast U.S. states: New Jersey (3.5GW), Massachusetts (3.2GW), New York (2.4GW), Virginia (2GW), Rhode Island (400MW), and Connecticut (200MW).  States setting firm capacity targets has sent a clear investment signal for developers to compete for projects and nearly guaranteed revenue opportunities from installing turbines, and that signal was amplified last week when New York Governor Andrew Cuomo more than tripled his state's target to 9GW installed capacity by 2035.

These targets have kicked off a “race to the top” to capture billions in economic benefits and secure tens of thousands of new green jobs for early-mover states. Offshore wind is uniquely qualified to reinvigorate economically depressed coastal communities that previously depended upon fishing or shipping industries which have declined over time. And, shuttered coal and nuclear plants located on coastlines are ideal locations for offshore wind construction hubs or connection points to regional grids once projects begin operation.

The Northeast Wind Center projects 8GW of capacity installations would create more than 36,000 full-time jobs, New York previously forecast offshore wind would be a $6 billion in-state industry by 2028 when it only had a 2.4GW target, and Massachusetts projects up to $800 million in direct economic impacts and 3,170 job years within the next decade.

But it’s not just Democratic states signaling clear support for offshore wind. The Trump Administration, which has primarily focused its efforts on bailing out uneconomic coal-fired generation and expanding oil production, considers offshore wind key to its American “energy dominance” strategy.

“I’m very bullish on offshore wind,” said former Interior Secretary Ryan Zinke when he announced the Massachusetts wind lease auction. “I think this is a win for America.” Zinke’s October announcement also included a Call for Information and Nominations to identify companies interested in developing nearly 688,000 acres off California’s coast.

This bipartisan support starkly contrasts to uniform opposition by Republican and Democratic governors to the Trump Administration's proposal to open vast swaths of the Atlantic Ocean to offshore oil and drilling.

Offshore wind's boom driven by fast-falling prices

Improving economics are the key to this bipartisan, public-private support: Offshore wind project prices have fallen 75% since 2014 .

Rhode Island’s Block Island Wind Farm, the first operational offshore wind farm in the U.S., was awarded a PPA at $244/MWh in 2016. Two Maryland projects were awarded PPAs at $132/MWh in 2017, and Massachusetts’ Vineyard Wind project secured PPAs of $74/MWh for its first phase and $65/MWh for its second phase – making Vineyard Wind cost-competitive with the price of new coal or nuclear.

These rapid cost declines are attributable to innovation transfers from other industries, like blade and pole improvements from onshore wind, or drilling and support improvements from oil and gas development. The U.S. also benefits from developers who gained experience in Europe’s advanced market, which is nearing 20GW of installed capacity.

Offshore wind has additional advantages: High capacity factors because ocean breezes blow steadier than onshore, offshore wind generation correlates to when customer demand is highest, and it can be located near dense population centers like New York City and Boston where power prices are higher than average. Recent research from Lawrence Berkeley National Laboratory shows the price of new offshore wind projects will soon be cost-competitive with the price of existing grid-supplied electricity.

Clouds on the horizon for offshore wind?

But despite bipartisan political support and increasingly favorable economics, it’s not all smooth sailing for offshore wind. Government officials will need to adhere to several key policy principles in order to achieve the technology’s massive potential.

Northeast states may have established nearly 19GW of installation targets, but the federal government will have to schedule sufficient future lease sales in order to reach those goals. “A long-term pipeline of wind lease sales does not currently exist,” said Randall Luthi, President of the National Ocean Industries Association.  “With the exception of sales proposed offshore New York or potentially California in 2020, there aren’t any future lease sales scheduled, leaving nothing upon which developers can plan future investments.” NOIA suggests BOEM schedule at least four 500MW lease sales every year with an overall target of 20GW worth of additional lease sales by 2034.

The federal government could also partner with states embracing offshore wind development to redirect a portion of auction proceeds into grants and programs investing in port infrastructure and U.S. companies that need capital to join project supply chains. “Payments by developers to lease ocean waters should benefit all parties involved, including state ratepayers, high-skilled workers and supply chain businesses in the industry,” said Burdock.

Policymakers can encourage additional project investment and push prices down by de-risking offshore wind through reverse auctions using a price-finding mechanism, supporting stable PPAs with local utilities to create long-term revenue certainty, and supporting transmission projects and siting applications to reduce soft costs. Massachusetts has excelled at this last point, expediting permitting through public outreach to reduce opposition and partnering with BOEM to create prescreened offshore wind siting areas through the Massachusetts Clean Energy Center.

Original post

Energy Innovation's picture

Thank Energy for the Post!

Energy Central contributors share their experience and insights for the benefit of other Members (like you). Please show them your appreciation by leaving a comment, 'liking' this post, or following this Member.

Discussions

Nathan Wilson's picture
Nathan Wilson on Jan 23, 2019 4:22 am GMT

It's premature to celebrate the competitiveness of off-shore windpower in New England based on recent PPA awards.  Anything can be made cost competitive by applying sufficiently large subsidies, and New England seems to have done just that.

In addition to the investment tax credit (up to 30%) and accelerated depreciation courtesy of the Federal government, the windfarms in question will also receive state subsidies in the form of Renewable Energy Credits (RECs), which according to LBNL, was about $35/MWh in 2016.

However, given the favorable circumstances in New England (generous subsidies and high wholesale electricity prices, in part due to grid congestion in coastal areas), some of these projects may be successful.

Get Published - Build a Following

The Energy Central Power Industry Network is based on one core idea - power industry professionals helping each other and advancing the industry by sharing and learning from each other.

If you have an experience or insight to share or have learned something from a conference or seminar, your peers and colleagues on Energy Central want to hear about it. It's also easy to share a link to an article you've liked or an industry resource that you think would be helpful.

                 Learn more about posting on Energy Central »