Ask anyone who follows offshore wind in the US and you will hear about two projects – Cape Wind and Block Island – that could not be any more different.
The Cape Wind Offshore Wind Farm was an ambitious 468MW project first proposed 15 years ago in Massachusetts’s Nantucket Sound that got bogged down with lawsuits from wealthy opposition until the developers essentially ran out of funds. The Block Island Wind Farm is a 30MW project recently completed by Deepwater Wind off the coast of Rhode Island. It is the first US offshore wind farm.
That single 30MW project is not a lot when compared to Europe’s 11GW total installed capacity, but more opportunities in the US are finally starting to emerge.
The cost of these projects has been a major factor for why they have not been developed in the US, but, according to the Department of Energy, that may be changing. It estimates that offshore wind projects developed in markets with relatively high power prices will be cost-competitive within a decade.
This is, again, something Europe has already accomplished in its offshore wind market. Danish energy developer DONG Energy won a contract in July to build a wind farm off the coast of the Netherlands for 8 cents per kWh. However, some investors warn that replicating Europe’s offshore wind success in the US is not so easy.
Nick Butcher, head of Americas infrastructure and US resources at Macquarie Capital, explains: “It's impossible to take regulatory or commercial frameworks from other countries and translate them to the US. Each state will have its own objectives and regulatory approach, so we will really have to work within that.”
What the US also has to work with is increasing electricity demand, especially around large coastal cities and in dense power markets, like in the north-east, and states adopting renewable energy standards. In August, Massachusetts became the first US state to pass a law requiring utilities to generate a portion of their power from offshore wind. The state government set a requirement of 1.6GW of offshore wind energy installed within 10 years.
The federal government has also taken steps to establish a framework for getting these projects under construction. By the end of 2015, the Department of Interior had awarded 11 commercial leases for offshore wind development (see map).
Most of the lease zones are on the east coast, where there are shallow shores that make for easier construction, but the DoI issued a request for expressions of interest from developers last month for a 68,000 acre lease area off the coast of California. While the lease opportunities are a step in the right direction, Butcher cautions “its an opportunity. There are still a range of permitting, environmental consent and other considerations that you need to work through.”
Butcher says Macquarie follows these developments and is interested in the industry, but like many investors, he does not want to be caught in a project that ends like Cape Wind.
“Developing offshore wind can be hard. It takes time. There are development, regulatory and commercial challenges,” Butcher points out. “Cape Wind proved to be a challenging project.”
AN ILL-FATED TRAILBLAZER
Sue Reid, vice president of climate and clean energy programmes at advocacy group Ceres, is quite familiar with those challenges. Reid worked as a supporter and proponent of the Cape Wind project during the 2000s and says “frustrating doesn’t being to describe” the obstacles that project faced.
Even as Cape Wind won most of the lawsuits brought by wealthy homeowners concerned about turbines visible from the shore, the lack of federal and state guidelines grinded Cape Wind’s development to a halt.
“That project forced these systems to be set up,” Reid explains. “While Cape Wind doesn’t look terribly promising now in terms of going forward, huge credit is due to that team in terms of moving federal and state systems along.”
Though the Block Island project is small, it received very little opposition and finished construction in August. For projects as complex and technologically intensive as offshore wind, starting small may be what gives investors assurance that these projects are viable.
“In other sectors often the experience has been smaller projects first, and then building upon one another,” Butcher recalls. “Block Island is a great first step, and should give encouragement and confidence that more offshore wind projects are going to emerge.”
Some of that interest is already starting to materialise – and, encouragingly, from some of the investors that got burned in the ill-fated Cape Wind venture. In late August, fund manager Copenhagen Infrastructure Partners bought a company from Blackstone with rights to bid on an offshore wind project in the waters off the coast of Massachusetts. CIP is backed by PensionDanmark, which had lent $200 million to Cape Wind.
What happens next in the US will be very important for how soon more projects are built. If nothing is made of these leasing zones, or there is another false start like Cape Wind, investors could continue to focus on clean energy projects that carry less uncertainty.
“Ideally we would have one or two early-mover states that can establish a series of projects in their regions, which will then encourage others to take notice, to learn and to potentially follow,” Butcher argues.
The potential of offshore wind in the US will be too big to ignore forever. And with electricity demand increasing, coal plants shuttering and clean energy mandated, the availability of offshore wind will likely be hard to overlook.
Regulations may not be firmly in place yet, but state and federal governments have shown a willingness to try, and that is an important commitment. Importantly, investors are showing an interest, despite the challenges. It may take a couple more projects like Block Island to really raise investor confidence, but offshore wind in the US is moving from possible to probable.
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