Shell New Energies won two big seabed leases last year to develop offshore wind projects in the U.S. Northeast. The energy giant is now moving people and resources to the region to seize the new market opportunity.
“We’re super excited about it,” said Mark Gainsborough, executive vice president of Shell New Energies, in a recent interview. “We’ve got a team on the ground now working to develop [the seabed leases] based in Boston, and we’ll be growing that activity over the coming years.”
In December 2018, Shell and partner EDP Renewables won a lease area off the coast of Massachusetts that’s able to accommodate up to 1.6 gigawatts of a total generation capacity with a $135 million bid. Later that month, Shell acquired a second lease area off of New Jersey through a joint venture with EDF Renewables. EDF claims the area could host roughly 2.5 gigawatts of offshore wind capacity just seven miles from the coast.
Shell isn’t the only company increasing its presence in the Boston area as the Northeast offshore wind market heats up. Avangrid told GTM that its renewable energy unit, which is based in Portland, Oregon, has opened an offshore wind office in Boston with up to 35 employees located there. Some of the staff comes from Avangrid’s parent company, Spanish utility Iberdrola, as well as ScottishPower, another utility owned by Iberdrola with a deep experience in European offshore wind.
Home to a strong tech sector and a favorable state policy environment, Boston is well positioned to become the hub of the burgeoning U.S. offshore wind industry, as Houston is to U.S. oil and gas.
Expanding Shell’s activity in offshore wind could eventually involve moving some employees from the Gulf of Mexico, where the company has run a successful offshore oil and gas business for more than 40 years, to the Northeast. While Shell is still waiting to see how the U.S. offshore wind industry evolves before scaling up further, moving talent from its fossil fuel business to its renewable energy division isn’t anything new.
“Our own offshore wind development team — the electrical engineers and the structural engineers — are all people who worked in oil and gas before, and transferred across to this new and interesting challenge,” said Gainsborough.
Leveraging experience in offshore oil and gas
The ability to leverage Shell’s existing offshore capabilities in the U.S. is one of the reasons why the oil major is particularly excited about entering the country's offshore wind market.
“A lot of the contractors and partners we work with already in offshore oil and gas we expect to be part of the story of offshore wind,” Gainsborough said. That’s already the case in Europe, he said, where Shell developed one of the first large offshore wind projects in the North Sea, and is currently in the process of developing more.
Leveraging existing staff and skill sets will be critical in building up a U.S. offshore wind supply chain from scratch. There is currently only one U.S. offshore wind project in operation — the 30-megawatt Block Island project off the coast of Rhode Island — but the sector has the potential to scale quickly.
There are 15 active commercial leases for offshore wind development in the U.S. with the potential to support around 21 gigawatts of capacity, according to the federal Bureau of Ocean Energy Management. A Department of Energy study found that the U.S. could install 22,000 megawatts of offshore wind projects by 2030 and 86,000 megawatts by 2050, under the right policy conditions.
State policies in Massachusetts, Maryland, New Jersey, New York, Rhode Island and elsewhere are currently driving growth in U.S. offshore wind after the market's slow start. Earlier this month, Massachusetts state officials recommended that the state sign contracts for another 1,600 megawatts of offshore wind capacity in two solicitations to be held in by 2024, following the one already planned for later this year.
The West Coast is also getting in on the action, with the first California offshore wind auction set for 2020.
To support the industry's expansion Senators Susan Collins (R-ME), Edward Markey (D-MA), Tom Carper (D-DE) and Sheldon Whitehouse (D-RI) introduced legislation this month to create a grant program for offshore wind career training and education with a budget of $25 million per year from 2020 through 2024.
The Trump administration has also been supportive of advancing the U.S. offshore wind industry, while also being a strong backer of domestic fossil fuel production.
“There is enormous opportunity, especially off the East Coast, for wind. I am very bullish,” former Interior Secretary Ryan Zinke told the Washington Examiner last year. “Market excitement is moving toward offshore wind. I haven't seen this kind of enthusiasm from the industry since the Bakken shale boom.”
Unlocking this potential will take more than policy action, however. It will rely in large part on the ability of companies such as Shell to develop and scale an American supply chain.
“If you look at the evolution of offshore wind in Europe, which is the lead market globally, what we’ve seen is a tremendous reduction in cost of offshore wind because we’ve been able to mature the supply chain — bigger turbines and more of them so that turbine supplies can be more competitive,” said Gainsborough.
“But the whole offshore industry — that’s handling the balance of plant, the installation and everything else as it scales up — can become much more efficient,” he said. “Our challenge with the U.S. will be to take the lessons from Europe and apply them in the U.S.”
A growing base of U.S. expertise and supply chain
In some cases, however, U.S. market players may have to come up with entirely new solutions in order to reach scale. Complying with the Jones Act, for instance, is leading to some novel solutions.
The Jones Act requires that any components moved between American ports be transported using U.S.-flagged vessels. The problem is that there are currently no American ships capable of installing offshore wind turbines. To work around this, Alejandro de Hoz, head of U.S. offshore wind at Avangrid Renewables, recently told GTM that the company plans to park two foreign installation vessels at the offshore project site, and feed them with materials from four U.S.-flagged vessels that are Jones Act-compliant.
Using cheaper feeder barges to shuttle supplies around while keeping the more expensive installation vessels on site might actually emerge as the preferable way to install offshore wind turbines, not only in the U.S. but also around the world, de Hoz said.
Gainsborough said it’s “too early to say” how Shell will work around the Jones Act to build out its current U.S. leases. He did say he expects the U.S. will ultimately start making its own installation vessels. He also anticipates that Shell and others will draw on foreign know-how in launching the U.S. offshore wind market, but that it will become increasingly local as it evolves.
“You want to draw on some of the expertise that’s already there from other markets,” he said. “But as the industry matures there will be a bigger base of expertise and supply chain here in the U.S. as well.”
"Most of the states looking at offshore wind would like to see a degree of local content and employment, and I think that’s very understandable,” he added.