America’s offshore sector has yet to take off — so far there is still no "steel in the water". The flagship US proposal, the 454MW Cape Wind project off Massachusetts, has been in the pipeline since 2001. And in the past few months, wind-energy analysts have again postponed their estimated start date for major projects.
"Our view of US offshore is progressively bleak with each passing year — the industry hasn’t really been able to get any momentum," says Matt DaPrato of IHS Emerging Energy Research. Still, experts say that a pilot project should be erected in 2013 or 2014, and then a smaller project or two, or the first row of a major array in late 2014, with much more activity in 2015.
The cause of the headwinds is uncertainty over federal policy, including tax credits, a clean-energy portfolio standard and carbon policy. Also at issue are November’s upcoming national and state elections; increasing financial turmoil in Europe, where most investors interested in offshore wind are based; and too little regional co-operation among states vying to become the East Coast offshore hub.
Policies and politics
President Barack Obama’s administration has strongly supported offshore wind, defining four priority targets off the Mid-Atlantic East Coast, launching the Smart from the Start programme to speed up the offshore approval process, and pouring $50.5 million into research and development. In contrast, the likely Republican presidential nominee, Mitt Romney, opposed Cape Wind when he was Massachusetts governor because, he said, the project would dampen local tourism and property values.
The investment tax credit (ITC) — the most useful support for offshore wind with its long lead-time — is likely to expire at the end of the year. Virtually all of US offshore lobbying is focused on the ITC, which is worth up to 30% of a project’s upfront capital cost. Efforts have failed so far to extend the ITC, for example to the first 3GW of offshore wind. But hopes of success remain.
"[Getting it extended] is going to take a lot of work — a lot of horse trading," says Jim Lanard, president of the Offshore Wind Development Coalition, the one-man Washington-based lobbying group for the sector. "[But] I am feeling good about it." Others are less optimistic.
As Fara Courtney, executive director of the US Offshore Wind Collaborative, sums up the US offshore mood with so much at stake, including the presidency: "We’re all holding our breath."
America’s offshore sector has been slower to launch than in Europe, largely because the US has more onshore sites available. It also has ocean and freshwater conditions that are different from — but not necessarily tougher than — northern Europe’s. "The US is a brand new industry. There’s different geology and wind speeds, so it’s not just a case of exporting European technology," notes Fraser Johnson, a London-based offshore wind analyst at Bloomberg New Energy Finance (BNEF).
Several projects are at various stages of development. Some are in federal waters, off the East Coast on the outer continental shelf, or in state waters, where visibility from land can more easily be an issue. Most ocean development is expected to occur in federal waters. BNEF’s lead US analyst, Amy Grace, predicts some 500MW will be online by 2015. IHS’s DaPrato also foresees 500MW by 2015, some 1.6GW by 2020 and 4GW by 2025, with growth starting to ramp up post-2020.
Still, the industry is inching forward and major financial players and developers are circling. After 11 years in the works, Cape Wind, the only project with a federal lease, is close to the end of permitting and is expected to proceed. Remaining hurdles include a final permit from the Federal Aviation Administration — which observers expect to be granted — and possibly further legal challenges.
A study published in March by consultancy Charles River Associates, and commissioned by Cape Wind developer Energy Management, estimates that the project will reduce wholesale electricity prices in the nearby six-state region by $7.2 billion over 25 years — the same period as its federal lease — even without a national cap-and-trade carbon scheme, which allows businesses that exceed their permitted emissions to buy ‘credits’ from those with emission allowance to spare.
The project has selected its construction contractor and now has buyers for 77.5% of its proposed output. The power purchase agreements with utilities NSstar and National Grid each specify a starting price of $0.187/kWh, escalating by 3.5% annually over 15 years, confirms Mark Rodgers, Cape Wind spokesman.
Finance should not be a problem given the extremely good winds and that tried-and-tested Siemens turbines — the older 3.6MW model — will be used. Bankers from ING of the Netherlands, Germany’s LBBW and Natixis of France attended Cape Wind’s April announcement in New York that it was seeking financing, according to news outlet Power Intelligence, supporting the industry view that the first US offshore financing is likely to be European. Siemens Financial remains a possible backer, says Rodgers; in 2011, the firm publicly indicated interest. Of the project timing, Rodgers says the 2.5 years’ construction should start next year, with the first row of turbines finished by the end of 2014.
Others candidates to become the first US offshore project include a 25MW pilot project 4.5 kilometres off New Jersey in state waters, proposed by Fishermen’s Energy. Supporters hope it will be the first of more than 1.1GW that could be developed under the state’s 2010 Offshore Wind Economic Development Act. But state regulators must still decide whether it qualifies for the state’s ground-breaking and vital offshore renewable energy credits. Fishermen’s was to have filed an amended application by 1 June, after two state-commissioned studies questioned whether the project would benefit New Jersey enough.
A third contender, in state waters off Rhode Island, would consist of five or six of Siemens’ new direct-drive 6MW machines. Proposed by Deepwind Water, the project is located off Block Island, which has high electricity rates. Its PPA with utility National Grid has been upheld mainly because of those rates. Construction should start in 2013 and finish by 2014, Brian Redmond, a Deepwater board member, said in January.
More recently, a project thought to be firmly in the running to be the US’s first, has been cancelled. Gamesa’s first offshore prototype was to be installed off the coast of Virginia by 2013 but will now be tested in Spain, the company announced in May. Gamesa will also close its offshore wind technology centre in Virginia.
The flagship $5-billion Atlantic Wind Connection, a transmission backbone, will be funded by online giant Google, private-equity fund Good Energies and Japan’s Marubeni Corp, and developed by independent US transmission company Trans-Elect. Scheduled to carry 6GW of wind and other power, it would stretch 350 miles off the coast of New Jersey to Virginia. It could reduce offshore project costs by 15-20%, said John Breckenridge, managing director of Good Energies. Construction is not to start before 2016-7 now, he said.
Even so, the US offshore market is making progress. Interior secretary Ken Salazar announced in February that his department had found "no significant impact" on the environment, shipping or other activities of any site assessment — a precursor to an auction — for renewables projects in leased federal waters off the Mid- and South Atlantic coast. "We’ll have those [site assessment leases] issued by the end of 2012," he said, adding: "The wind potential off the Atlantic coast is staggering." And that is not even considering resources in the Gulf of Mexico and off the West Coast.