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U.S. Offshore Wind Power at 16 Cents per Kilowatt-Hour

Offshore wind power costs have dropped sharply in recent years, fueled largely by ongoing technological innovation and investment by governments and world industry leaders in Western Europe.

Commissioning of the 30-MW Block Island Wind Farm off the Rhode Island coast – the nation’s first commercial, utility-scale installation – has galvanized the nascent U.S. offshore wind power industry. Fresh off the Block Island offshore wind farm’s commissioning, Deepwater Wind and the Long Island Power Authority (LIPA) this past week reached an agreement that will result in construction of another, much larger one off New York’s Long Island coast.

Greater support on the part of state governments will provide sustained momentum that enhances U.S. offshore wind power prospects. Integral to their “green” energy development and climate change action strategies, Massachusetts Gov. Rick Baker and New York Gov. Andrew Cuomo have set ambitious offshore wind power targets.

Offshore New York

The terms of Deepwater Wind’s LIPA power purchase agreement (PPA) highlights just how far and how fast U.S. offshore wind has come in terms of being cost-competitive with existing utility power generation. 

Per the terms of the PPA, LIPA, a non-profit municipal utility, will take up all the electrical energy the offshore wind farm will produce (estimated to be enough to power 50,000 average homes) at a price not very far from that for utility-scale onshore wind and solar power generation – around $0.16/kWh, according to a New York Times’ report.

European power-energy industry leaders are also keen to play a role in U.S. offshore wind power development. Along with Deepwater Wind, Statoil, Norway’s multinational oil & gas corporation, recently won a highly competitive federal auction that required 33 bidding rounds before that state-owned oil and gas major walked away with an offshore Long Island wind energy lease that spans 79,000 acres. 

Statoil won the auction with a bid of $42.5 million – far more than the total pledged to the U.S. Treasury for all previous federal offshore wind energy auctions combined, the New York Times’ Diane Cardwell points out in her Jan. 21 news report. 

All this said, substantial hurdles stand in the way of further U.S. offshore wind power industry development and growth. Perhaps most significant is heightened uncertainty regarding federal energy policy and support from new President Donald J. Trump and his administration.

Which Way Political Winds?

More than three years in the making, project developer Deepwater Wind commissioned the 30-MW Block Island Wind Farm in December. The high quality, emissions-free energy being generated will meet the electricity needs of the island community, eliminating the need for diesel fuel power generation, as well as utility customers on the mainland via a 21-mile long underground, submarine transmission line, a substation and infrastructure hardened to withstand Category 3 storms per the terms of Deepwater Wind’s PPA with National Grid.

More broadly,  at least 54-gigawatts (GW) of U.S. offshore wind energy generation capacity could be deployed by 2030, according to a new study funded by the Department of Energy (DOE). The “National Offshore Wind Energy Grid Interconnection Study” (NOWEGIS) focused on helping DOE achieve two goals: reducing the cost of offshore wind energy and shortening the time required to deploy offshore wind generation capacity.

Adding to offshore wind’s attractiveness is the proximity of promising sites to large urban centers, particularly along the Atlantic coast, where the continental shelf is much more expansive that it is along the Pacific edge of the continent. 

Motivated by President Barack Obama’s strategic clean energy, climate change and “green” economic development plans, federal and state government authorities have been able to craft an inclusive, integrated institutional framework for national offshore wind power development that serves as the keystone and a launch pad for the nascent industry. 

Institution of lasting public-private market frameworks are prerequisites for growth and development of any industry. The Obama administration did just that for U.S. offshore wind, and took a balanaced, inclusive, holistic and rigorously systematic approach in doing so. Whether or not Pres. Trump and his administration will, or is even capable of following suit remains to be seen. 

Content Discussion

Robert Borlick's picture
Robert Borlick on February 1, 2017

"price not very far from that for utility-scale onshore wind and solar power generation – around $0.16/kWh"

Say what???

Large-scale solar PV projects are currntly offering PPAs at prices down around 3 to 5 cents per KWh.  For those who are math-challenged, solar PV is currently about one-fourth the cost of US off-shore wind.  

Some off-shore wind, such as the Block Isand project, may make economic sense in special situations where the purchasing utility generates its electricity using expensive diesel oil, but as a general rule it is a loser today.  

The New York Times article claims that the Long Island Power Authority (LIPA) stated that the 16 cents per KWh price it was paying to Deepwater Wind was "comparable to what it would pay for other renewables like onshore wind and solar."  If so, LIPA apparently is willing to grossly overpay for renewable energy and its claim should to be investigated.  LIPA customers deserve to be served by a utility that doesn't pass on to them excessive costs resulting from inept management decisions.    

 

Andrew Burger's picture
Andrew Burger on February 1, 2017

Thanks for mentioning this...Valid point, well taken...I reported the figure as stated by LIPA, which does suggest they're being taken to the cleaners if they're paying for around 16 cents/kWh for utility-scale onshore wind or solar today...

Andrew Burger's picture
Andrew Burger on February 1, 2017

One other point I think is worth mentioning...Yes, offshore wind isn't competitive today, but consider the scale of these installations -- GWs, the jobs, the industry, and ability to avoid terrestrial land and resource degradation, as well as land use conflicts...

Glen Schwalbach's picture
Glen Schwalbach on February 6, 2017

I assume the 16 cents per kwh does not include the cost of federal and state tax subsidies.  Also, the costs of transmission lines are usually not included in such energy cost calculations but are now additional costs paid by the region's ratepayers.  In the case of offshore wind, both the costs of onshore and offshore transmission may be "hidden".  In our part of the country. the very costly pre-construction studies for connection and reinforcement of the transmission grid to handle wind energy are not billed to the wind project owners if they eventually generate electricity but are recovered in the addtional transmission charges, adding to the "hidden" costs which are not reflected in the "per kwh" costs.  I suspect this cost recovery works the same with offshore wind.

Andrew Burger's picture
Andrew Burger on February 6, 2017

Thanks for the insights Glen...

Robert Borlick's picture
Robert Borlick on July 9, 2018

I just (belatedly) read Glen Schwalbach's comment.  The 16 cents cited by LIPA must include at least the federal ITC.  Last year Maryland approved two offshore wind projects offering a levelized cost (in 2017 dollars) of around 14 cent/kWh and that did include the price-lowering effect of the federal ITC.  It also included the cost of the undersea cables connecting the wind farms to the onshore transmission system.  

That said, Glen is correct in pointing out that onshore wind projects typically do not pay for the transmission lines needed to connect them to the load centers so this is an additional hidden subsidy they receive.  The most outrageous example of this is the $7 billion CREZ project in Texas, which socializes the entire cost.  No doubt the lobbyists had their way in the Texas legislature.  Were the lobbyists for Texas' electricity consumers AWOL?  Are there any in Texas?