Offshore wind has always seemed just out of reach in America, but the offshore wind boom has officially arrived in Northeast Atlantic states – and consumers, local economies, and investors all stand to benefit.
2017 was the year of ambitious offshore wind target announcements, including a combined 4,000 megawatts (MW) from New York and Massachusetts, but 2018 is the year of action.
New York’s recently released offshore wind master plan calls for auctions to secure 800 MW of offshore wind contracts in 2018 and 2019 – more than doubling the amount of U.S. offshore wind deals in place. Not to be outdone, New Jersey’s new governor injected new life into the state’s long-stalled offshore wind market with an executive order to finalize regulations and solicit bids for 1,100 MW of offshore wind contracts – the nation’s largest auction to date – as well as a 3,500 MW by 2030 goal.
These states may be responding to competition from their neighbors. Maryland recently announced contracts for 386 MW of offshore wind that will come online in 2021, Massachusetts will announce the results of its 2017 request for bids for 400-800 MW of offshore wind in April, Connecticut just finalized a solicitation for up to 250 MW of offshore wind bids, and Rhode Island was America’s offshore wind trailblazer with the 30 MW Block Island wind project.
A race to the top is emerging from these announcements, with states competing to become economic hubs for the economic ecosystem of high-skill labor jobs created by an expected 50% compound annual growth rate, and to tap the rapidly falling costs of offshore wind to meet ambitious clean energy goals.
Following Europe’s Offshore Wind Model
These states should thank Europe for kick-starting the offshore wind growth engine. Thanks to countries bordering the North Sea, we know offshore wind can generate cheap, reliable, clean energy at a massive scale, providing a model for the U.S.
Europe’s offshore wind market got off the ground by paying large premiums for projects. But consistent, coordinated support from the United Kingdom, Denmark, Belgium, Netherlands, and Germany allowed prices to drop each year as deployment accelerated, culminating last year in subsidy-free project bids.
In fact, America’s market in 2018 looks remarkably similar to Germany’s market in 2009. That year, Germany only had 40 MW of offshore wind and was paying a €150 per megawatt-hour (MWh) feed-in tariff on top of the wholesale energy price – similar to the $131.9/MWh Maryland will pay for its recent 386 MW contracts.
From 2009 to 2016 Germany’s offshore wind capacity grew 100x from 40 MW to 4,130 MW, and in 2016 Germany reduced its feed-in tariff to an auction-based system, which yielded contracts for offshore wind between $0-44/MWh. These trends were replicated in other countries, particularly the U.K., Netherlands, and Denmark.
Europe now has more than 15,000 MW offshore wind capacity, and its economies are benefiting from unsubsidized projects while a new fast-growing industry has taken root. From 2007 to 2014, European Union offshore wind sector employment increased from 6,370 to 75,000 jobs according to the International Renewable Energy Agency (IRENA), and the European Wind Energy Association predicts more than 129,000 offshore wind jobs by 2019.
Back To America’s Offshore Wind Boom
One undeniable lesson stands out from Europe’s offshore wind experiment: Consistent upfront policy support and market development drives down costs and stimulates local supply chain development.
Now the U.S. can take advantage of this lesson. Combine New Jersey’s 3,500 MW goal, New York’s 2,400 MW goal, and Massachusetts’ 1,600 MW goal, and the Northeast market would reach at least 8,000 MW by 2030. The Northeast Wind Center projects this would create 36,300 full-time jobs, while New York expects a $6 billion in-state industry by 2028.
The U.S. can leapfrog Europe in one respect: Our policymakers and developers already have confidence in auction-based bidding to prevent overpaying for offshore wind. Maryland’s auction yielded prices about half of what Rhode Island paid for the Block Island wind project. Deepwater Wind, Block Island’s developer, won a competitive bid to build America’s largest offshore wind farm off the South Fork of Long Island, as the cheapest solution (including fossil-fueled plants) for the Long Island Power Authority. As domestic supply chains become established and experience building offshore wind in the U.S. increases, prices will continue dropping.
Defenders of the status quo will balk at near-term prices for offshore wind contracts – and they will be correct that new contracts will raise power prices in the short term, though likely with almost imperceptible bill impacts.
But offshore wind advocates correctly point to the near-term benefits as justification – offshore power is reliable and stable, reduces reliance on natural gas, improves air quality, cuts greenhouse gas emissions, and boosts economic development in ports and manufacturing hubs that have hemorrhaged jobs.
Consider the alternatives for land-scarce Northeast states with some of the country’s most ambitious renewable energy goals: Solar renewable energy credit (SREC) prices in New Jersey and Massachusetts currently sit above $200/MWh – almost certainly higher than offshore wind prices.
Northeast states also lack good solar and onshore wind resources, raising the cost of these options compared to the Southwest and Midwest. Meanwhile, offshore wind provides a nearly limitless supply of low-conflict reliable power just off the coast from some of the country’s most populated areas.
But playing the long-game is key: Consistent offshore wind deployment will yield renewable energy price declines similar to the 85% drop in solar costs and the 50% decline in wind costs since 2009.
Two Policy Elements Still Matter: Transmission And Contracts
Good policy strikes a balance between developer-friendly market development and customer costs. To ensure developers can get cheap financing for their projects, two elements matter – transmission access and long-term contracting.
North Sea offshore wind development was successful in part because transmission networks were already in place to give bidders marketplace access and reduce financing costs. Northeast states would be wise to coordinate an interstate transmission backbone for offshore wind, similar to Texas’ Competitive Renewable Energy Zone transmission lines that provided access to market for cheap wind.
Coastal coal, natural gas, and nuclear plants slated to retire will also leave behind infrastructure to connect offshore wind to the grid.
Long-term contracts provide vital support to new industries by reducing financing risk. New York’s master plan recommends 20-25 year contracts for offshore wind developers. Fluctuating market prices introduce additional risk into cost recovery, which can be particularly fatal to new technologies. A long-term, highly certain price from a reliable purchaser makes it far easier to both invest capital at lower discount rates and raise competitive project financing.
New York’s master plan recommends 20-25 year contracts for offshore wind developers, and when offering solicitations to independent companies to build a new power plant technology, regulators should offer at least 15-year contracts to bidders.
By Mike O’Boyle, Energy Innovation’s Electricity Policy Manager and America’s Power Plan Expert.