There may be only 30 megawatts of offshore wind capacity in American waters today, but several early bets on the market have paid off in spectacular fashion — and US Wind ranks high on that list.
US Wind, a relatively small developer owned by Italy’s Toto Holdings, was an early mover in securing East Coast offshore sites through the federal government’s lease auctions.
In 2014 it paid $9 million for a Maryland offshore wind zone. A year later, with confidence in the market sagging after the collapse of the Cape Wind project, it paid just $1 million for another huge area facing New Jersey.
Fast forward to late 2018, and the developer sold its New Jersey offshore lease area to EDF Renewables for a whopping $215 million, with more possibly to come, as global developers scrambled to lock down projects in U.S. waters.
That “21,000 percent” increase in value, as country manager Salvo Vitale puts it, is a stunning three-year return for any industry. It reflects the huge development risk associated with even the country’s best sites just a few years ago — risk that has faded as states have embraced big offshore wind targets.
Toto is a midsized Italian group, active primarily in the engineering, procurement and construction sector. The company had no experience in offshore wind before diving into the U.S. market.
“Our decision chain is shorter and quicker than other competitors,” Vitale told GTM. “That allowed us to be in this position to compete with much larger companies — Equinor, Ørsted, Électricité de France, Shell.”
Presumably, US Wind could pocket another windfall by selling its Maryland lease area, which already has an initial 248-megawatt offtake deal in hand and is capable of holding 1.3 gigawatts of capacity. In May, Maryland doubled its renewable electricity requirement to 50 percent by 2030, while explicitly supporting more offshore wind development.
But US Wind has no intention of selling the Maryland project until the full 1.3-gigawatt zone has been permitted and built out, Vitale said.
The company plans to pursue additional Offshore Wind Renewable Energy Credits (ORECs) in Maryland in 2020. “Our purpose is to develop and build the full potential nameplate of the area,” Vitale said. “We will not sell it until it’s fully built.”
Local jobs — lots and lots of them
Based in Baltimore, US Wind plans to help Maryland transform into a hub for the budding offshore wind industry. On that point, it may not have much choice.
In 2017 Maryland awarded 368 megawatts' worth of ORECs, most of it to US Wind and the remainder to the smaller Skipjack project now owned by Ørsted. The price of the ORECs was generous, at nearly $132 per megawatt-hour for 20 years, or nearly twice what Vineyard Wind will get for its 800-megawatt project in Massachusetts.
There’s a catch, however. According to Maryland’s Public Service Commission, the developers must create around 5,000 direct jobs over the course of building and operating their projects — no small feat considering the relatively modest size of the capacity awarded.
The developers must use ports around Baltimore and Ocean City for their construction and maintenance activities. And between them, they must invest $110 million into a steel fabrication facility and port upgrades at the Tradepoint Atlantic shipyard, formerly known as Sparrows Point.
Maryland is not alone in squeezing supply-chain commitments out of developers. Ørsted’s big win in New Jersey this year came with a commitment to help establish a factory for monopile foundations in Paulsboro with German manufacturer EEW.
But Maryland’s local content and economic development requirements (PDF) appear to be the most stringent in the country. It was able to make such demands, in part, because it moved quicker than most other states, Vitale said.
Maryland awarded its ORECs a full year before Massachusetts selected Vineyard Wind for its first project, and two years before New Jersey and New York settled on their first projects.
“The early bird catches the worm,” Vitale said. “Of course, it’s more challenging from a developer’s standpoint. It’s one thing to build an offshore wind farm, and another to build an industry. But we knew that when we started.”
Drifting timeline
Two and a half years after winning its ORECs, US Wind has not yet announced many details of its plan for meeting Maryland’s jobs and investment requirements. At the same time, the project’s schedule appears to have drifted.
When Maryland awarded the ORECs in 2017, the state said it expected US Wind's project to be “operational in early 2020.” The developer still lists that time frame on its website.
But Vitale said a 2020 start date has always looked unrealistic. The targeted completion date is now early 2023. That difference means that rather than being the first large offshore wind farm to reach completion in the U.S., it will likely follow several others.
That gives US Wind more time to finalize its supply-chain plans, and potentially build on others already in motion. In July, Denmark’s Ørsted announced plans to build a staging center for Skipjack within Tradepoint Atlantic.
US Wind — whose job-creation requirements are higher than Ørsted’s because its project is larger — is still evaluating options for a staging area of its own.
“I couldn’t think of a better place to do it than Baltimore,” Vitale said, noting the area’s wealth of shipyard facilities and port infrastructure, much of it underutilized in recent years.
Discussions with the major turbine suppliers are ongoing. The developer is considering two types of foundations for its first project: four-legged jackets, like those used at Block Island, or gravity-based suction buckets.
South Carolina and ... the Mediterranean?
While Maryland will remain its main focus, US Wind is keeping a close eye on other markets that could emerge, hoping to recreate its smart bets on New Jersey and Maryland.
That won't be easy to do, with so much attention and investment now being showered on the U.S. offshore market.
"While we firmly believe Maryland will be the regional hub of the industry, it's in our DNA to scout for new opportunities," Vitale said, naming South Carolina as one state of interest.
"We'll take part in additional [Bureau of Ocean Energy Management lease auctions] that will come in upcoming years."
Another interesting opportunity is all the way back in Toto's home market of Italy, where a unit of Toto Holdings reportedly reached financial close on a 30-megawatt nearshore project earlier this year.
The wind is generally weaker in the Mediterranean than in Europe's North and Baltic Seas, and offshore wind development there has been much slower to take off. But the falling cost of turbines has changed the economics of future projects.
Toto's Italian project, off the southern region of Apulia, "will not be the last," Vitale said. "Both Toto and others are working on securing rights for additional megawatts in the Mediterranean."
