United States

United States

US moves closer to building first offshore projects

UNITED STATES: Offshore wind is, at last, firmly on the US renewable-energy agenda, with a number of projects finally looking likely to shift from the drawing board and into the waters. But, America's offshore pioneers are not ready to pop the champagne corks just yet.

Long distance… Deepwater Wind has commissioned jack-up vessel BoldTern from Europe for installation work on Block Island because no US vessels are suitable
Long distance… Deepwater Wind has commissioned jack-up vessel BoldTern from Europe for installation work on Block Island because no US vessels are suitable

After years of delays, the US's offshore wind industry is gaining traction. The sector remains at least 20 years behind Europe's, and hurdles yet to be cleared include ongoing policy uncertainty and wavering political will both at state and federal level, plus the extensive availability of land for onshore wind and lower electricity prices.

But at long last, two utility-scale projects are on track for full or partial completion in 2015 or 2016: Deepwater Wind's Block Island 30MW demonstration site and EMI's 468MW Cape Wind, both off New England, where load centres are coastal, electricity prices are high and policymakers have offered support. Indeed, both have qualified for the 30% investment tax credit (ITC), say the developers. No other US offshore projects have done so, according to analysts.

Progess at last

"There's been a significant breakthrough in the last year or so," says Navigant's Bruce Hamilton, principal investigator for a yearly assessment of the offshore market for the US Department of Energy (DOE). Analysts blame national and state policy for having created the worst bottlenecks, but note the impetus of the December 2013 deadline for ITC eligibility, which meant construction had to start by year-end.

Hamilton cites recent progress among some states, including Maryland's Offshore Wind Energy Act of 2013, which established renewable energy credits (RECs) for up to 200MW of offshore wind. He also points to ever more aggressive renewable portfolio standards.

This year looks relatively positive. Some analysts say the ITC that expired at the end of last year will be extended retroactively, for two years, although others are not so sure. The US Bureau of Ocean Energy Management (BOEM) is expected to auction off up to three leases for commercial wind energy projects in 2014 — off Maryland, and possibly off New Jersey and Massachusetts.

The New York State Energy Research and Development Authority has been considering ways to boost offshore wind, says Hamilton, whose consultancy was working with the agency. New York state also has relatively high electricity prices.

Still, no more than a handful of projects is expected to be completed by 2020, even though waiting can be costly. Deepwater Wind is paying an annual rent of $500,000 for two blocks off Massachusetts and Rhode Island, having won the rights in August 2013.

Navigant's DOE report, published in October, cited 13 projects in "advanced development" totalling an eye-popping 3.8GW or more. But "progress" was based on three specific criteria. And even Navigant does not realistically expect more than 1.6GW of steel in the water in 2018, admits Hamilton. Meanwhile, rival consultancy Make predicts 1.2GW of US offshore wind by 2020, growing to 2.3GW by 2023 as the market starts to "scale up" with domestic know-how and a supply chain, says the consultancy's lead analyst for North America, Luke Lewandowski.

Block Island and Cape Wind — or at least part of Cape Wind — will probably be the first completed projects, say analysts. Block Island has a shorter construction time, power purchase agreement (PPA) for all of its power and its equity financing give it a head start.

Cape Wind has announced PPAs for 77.5% of the project's electricity. Even so, developer Energy Management Inc (EMI) received a boost in April when energy secretary Ernie Moniz told a local newspaper that the company's application for a $500 million project loan guarantee was still "active".

Grant winners

Other projects likely to happen by 2020 include three of the seven demonstration projects for which the DOE has already awarded a $4 million grant under an advanced-technology demonstration project programme, and which have now qualified for another $47 million each in additional DOE grants.

These are Fishermen's 25MW Atlantic City, Dominian Virginia Power's 12MW Virginia Offshore Wind Technology Advancement Project (Vowtap), and Principle Power's 30MW WindFloat near Oregon in the deep Pacific. Should any fail to meet deadlines that require commissioning by 2017, DeepCWind's 12MW floating Aqua Ventus project and Leedco's 27MW freshwater project in Lake Erie are named as alternatives.

Apex Clean Energy's 200MW Maryland offshore wind project is also a strong contender to be operating in 2020, according to Amy Grace, a wind analyst at Bloomberg New Energy Finance. If it starts development now, under current regulatory procedures, it could reach commercial operations in 2020, says Dahvi Wilson, communications manager at Apex.

In addition, Deepwater Wind said in March that it was seeking a contract from the Long Island Power Authority, in New York state, for 200MW of the power from its Deepwater One project. Unless offshore projects are near states where onshore wind power is distant, or where electricity is especially pricey, they will face tougher battles selling their power.

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Lack of political support

The largest hurdle to a real US offshore sector remains the lack of long-term political will nationally and within states. Offshore wind observers also cite insufficient support between regions that are vying for economic development, as well as the split between state and federal policymakers. "If US policymakers want [offshore wind's] benefits on our shores, then they have to put in place long-term ITC policy," says Doug Pfeister of lobbying group the Offshore Wind Development Coalition. "State-level activity is [also] key - such as offshore RECs and other mechanisms."

New Jersey is a stark example of what can change, temporarily at least. Fishermen's demonstration project off Atlantic City has become mired in what some see as the higher political aspirations of Republican governor Chris Christie as he courts the wealth of Republican supporters and anti-wind lobbyists the Koch brothers.

In April, regulators declined to revisit their decision that the project's price was too risky for consumers, but on 7 May it was awarded $47 million in funding from the US Department of Energy. That is unlikely to deter further opposition from the billionaire Koch brothers, who made their fortunes in fossil fuels. One of the brothers, Bill, has famously become the main financer of a Cape Wind opposition group, but Mark Rodgers, spokesman for developer EMI, points out that having suffered 17 legal defeats so far, Koch "may be running out of courts in which to oppose the project".

Cost of energy

Offshore wind still has a higher levelised cost of energy than onshore wind globally, including capital and operations-and-maintenance costs, which is further complicated by the fact that electricity prices in the US are about 60% of those in Europe.

"It's going to be tough for offshore wind to compete in the US on its own merits without substantial federal support," says Aaron Barr, senior technology adviser at Make Consulting.

According to Navigant, the US's first offshore projects could cost $5,000-$6,000 per installed kilowatt. By contrast, the cost for onshore US wind projects was estimated at around $1,940/kW.

Some utilities are interested in offtake agreements, such as Dominion Virginia Power. Dominion is behind one of the DOE demonstration projects. But offshore wind is still relatively high cost, and that situation is being exploited by opponents, says Catherine Bowes, senior manager for climate and energy at the National Wildlife Federation.

America does not yet have a significant supply chain for offshore wind, points out Navigant's Hamilton. For the Block Island project installation, Deepwater Wind has contracted to bring over the jack-up vessel Bold Tern from Europe because no US boats are suitable.

The 1920 Jones Act requires all goods shipped by water between US ports be carried on US-flagged ships, but sources say that Deepwater Wind will have the vessel operate from a single port to comply with the act. "We have developed a plan that we are confident complies with the Jones Act," says Deepwater Wind CEO Jeff Grybowski. "Our plan involves the use of US as well as foreign-flagged vessels." European crews must also be trained for US conditions and given board, says Grace, although she notes that the price of shipping itself has been depressed.

Supply chain

Renewables developer Baryonyx Corporation says that retrofitting oil and gas vessels in the Gulf of Mexico makes sense. But Heather Otten, the company's chief development officer, notes that for the GoWind project, high-voltage undersea cable will have to be imported. No US manufacturers are based on the coast, she says, and the component cannot be moved by rail except in sections that would have to be joined or spliced, not an ideal situation, she adds.

Navigant estimates that 500MW to 800MW of offshore capacity must be installed in a region annually for five years for a component factory to be established, including a foundry for large castings and separate facilities for blade fabrication, tower fabrication and nacelle assembly, whereas it will take 300MW in regional demand for a single component factory, such as for towers or blades.

The US will not have a significant offshore sector for about a decade, says Make's Lewandowski. "All eyes are on the [first] projects and, assuming they're successful, it will be catalysing," he suggests. Such projects will help build consensus, but the outlook remains cautious. "It's not time to pop the champagne corks yet. There's still a lot (of challenges) in front of us," he says.

Walt Musial, manager of offshore wind and ocean power systems at the US National Renewable Energy Laboratory, says the offshore industry could be well under way in the US by 2020, given the 3GW in the pipeline.

But a full offshore wind sector — characterised by a robust sustainable domestic industrial base — may take a couple of decades, he says, because it requires a substantial investment in coastal infrastructure such as ports and harbours, vessels and manufacturing facilities.

BRAZILIAN CONUNDRUM — ONSHORE POTENTIAL HINDERS OFFSHORE PROGRESS

Brazilian plans to harness the wind power in the South Atlantic first went on the drawing board more than ten years ago. They have yet to progress much further. The Asa Branca cluster of potential projects, off the coast of Ceara state in the north of the country, could provide more than 11GW of capacity, but work has yet to even begin on a pilot stage, originally mooted for construction back in 2009.

The cost of offshore wind development, allied to Brazil's immense onshore resources, have so far made it impossible to raise the necessary finance. But, in early May, Eolica Brasil CEO Marcello Storrera said the developer was aiming to start work on a 12MW pilot, using either Siemens or Alstom 6MW turbines, provided one or the other would provide some of the finance required. Storrera indicated that permitting could be fast-tracked and the pilot could be up and running by 2016.

Plans for a large-scale development — with 43 turbines for an installed capacity of 258MW — are also reasonably advanced, although it seems unlikely a project on that scale could be built by 2017 as Storrera suggested.

Finance, or rather the lack of it, is likely to remain a major obstacle to Brazil's offshore ambitions. Sector expertise and specialist installation equipment, as well as vessels are also in short supply.

Shaun Campbell

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