US offshore wind power generation is expected to grow exponentially over the coming decades, with competitors now jostling for one of the early prizes in the build-up: a contract to connect 7.5GW of planned offshore power generation to New Jersey’s grid at a cost of up to $7 billion. A frontrunner is set to be named in Q4, selected from 13 bidders that submitted 80 transmission and connection proposals.
“The offshore wind industry is really poised to grow, and remarkably quickly,” says Clarke Bruno, chief executive of Anbaric, a transmission developer backed by Ontario Teachers’ Pension Plan that submitted proposals for the New Jersey project. That industry growth, however, will depend on political leaders at the state level: whether they can press ahead with their offshore wind goals, set procurement schedules, and stick to them, so that the wind industry has predictability to base their investment decisions on, he says.
New Jersey model
Another key to growth will be for states to procure the transmission infrastructure first, as New Jersey is planning, before the wind farms are built, Bruno says. Planning and building the transmission cables and substations that serve as connection points to handle all of the projected wind farms for an area, and building new lines and connections for each subsequent generation project, promotes better competition for generation project bids and minimises disturbances to the seabed.
“Once you procure the transmission, you have the infrastructure necessary, so the generation just has to plug in and it’s done,” Bruno says. New Jersey has embraced the approach, and “as the other states understand its appeal, they will move in that direction as well”.
New Jersey’s competitive solicitation for transmission proposals is also a first-of-its-kind approach for a state, says Kurt Summers, head of public-private partnerships at Blackstone Infrastructure Partners, an investor in Atlantic Power Transmission (APT), another bidder on the New Jersey offshore transmission project. Under New Jersey’s approach, the PJM Interconnection – which co-ordinates the power grid over a 13-state area – is advising and making recommendations to the New Jersey Board of Public Utilities, which is running the solicitation. “What the state of New Jersey is doing here is actually very novel,” Summers says.
“The offshore wind industry is driven by some fundamental economic and demand issues from the states that are far more foundational than the Inflation Reduction Act”
Blackstone is also a lead investor in a potential offshore wind generator that would connect to the New Jersey transmission grid: Invenergy Wind Offshore, which leased an 83,976-acre area of seabed off the coast of New Jersey – part of the New York Bight sale in February by the US Bureau of Ocean Energy Management – for $645 million.
Blackstone is pitching its relationship with Invenergy – to which it has made a $3 billion equity commitment – as a benefit for APT, the bidder on the transmission project, because of the insights it could provide into generator perspectives about risk allocation, project co-ordination and schedule alignment.
Also, Blackstone has reported that if APT wins its bid on the transmission project, then APT will invest $50 million over 10 years into New Jersey workforce development, to include training union workers on fabricating 5,000-ton foundation structures for substations at sea.
While New Jersey’s goal is to have 7.5GW offshore wind generation in place by 2035 – and 11GW by 2040 – consultancy McKinsey & Company estimates that overall US offshore wind generation capacity will grow to 35GW by 2050, as a conservative estimate, or to 100GW under a more aggressive scenario. That compares to about 3GW of total US offshore wind capacity in 2020.
Meanwhile, Europe’s offshore wind generation has had a considerable headstart: McKinsey forecasts it will reach 190GW by 2050, conservatively, or 320GW in its aggressive outlook, up from 25GW in 2020.
Another recent development that could impact US offshore wind development is the Inflation Reduction Act, signed into law in August. Among its clean energy development incentives, the legislation awards a 30 percent tax credit for offshore wind projects that begin construction before 2026, with the largest incentives provided to projects that meet certain wage and workforce requirements and that build with US-made components.
The stimulus will help neutralise some of the capital hurdles for offshore wind development, especially in building out the supply chains necessary for constructing offshore wind farms, says Rahul Advani, managing partner of SER Capital Partners, a Silicon Valley-based mid-market private equity firm. “The extension of the tax credits is a big deal.”
Capital for the building of the wind farms and the transmission lines to bring the power to shore will likely come from large infrastructure funds and potentially from oil companies. But more typical PE firms like SER will invest in supporting businesses.
“You’re going to need access to ports, ships, operations, maintenance, labour crews – those will all be important to support the buildout of offshore wind,” Advani says.
For Anbaric’s Bruno, the legislation will have a minor effect on offshore wind development. “I think the Inflation Reduction Act has relatively limited impacts on the prospects for the offshore wind industry,” he says. “The offshore wind industry is driven by some fundamental economic and demand issues from the states that are far more foundational than the Inflation Reduction Act.”
Those fundamental issues include abundant, high-quality wind – that blows much of the time – along the northeastern and mid-Atlantic coast of the US, close to population centres, Bruno says. Also, the sizes of US projects have nearly leapfrogged European project sizes, with competitive bids requested on 1.2GW or 1.4GW projects and larger. “There are economies of scale that you get here in the US because the states have an appetite for offshore wind.”
“The US is really catching up very quickly to Europe,” he adds. “The supply chain here is getting built out because the states – their economic development officials and their governors – really understand the importance of building a domestic offshore wind supply chain and domestic developers of offshore wind.”