The U.S. offshore wind sector entered 2020 in a nervous mood — agonizingly close to becoming the next big renewables market, but not there yet.
The sudden delay of Vineyard Wind's 800-megawatt project off Massachusetts last year has left the industry in limbo. Rarely in the energy business does a single project’s outcome hold such immense importance for an entire sector.
Vineyard’s plan to bring two 400 MW phases online in 2021-2022 meant this was to be the year when the market finally jumped from boardrooms and conference sessions to the physical world — hard hats, crane vessels and all.
Then it happened: Vineyard’s $2.8 billion project was stopped in its tracks by the Bureau of Ocean Energy Management (BOEM), which decided that it needed to conduct a “cumulative impacts analysis” of the future Atlantic Coast market before signing off on the project. Some in the offshore wind business wondered whether their luck with the Trump administration had run out.
Vineyard’s fate remains up in the air: BOEM is expected to issue its final decision in December. A "no" from BOEM, or even further delay, could spell trouble for the market.
Even so, experts say this has been a surprisingly good year for U.S. offshore wind.
“Despite COVID-19, I think 2020 is actually shaping up to be a year where things get back on track for the industry,” says Max Cohen, principal analyst at Wood Mackenzie.
With a few final flourishes, 2020 could be the sector’s best year to date — even if November’s election breaks for President Trump. Here are five reasons why.
1. Positive signals from BOEM on Vineyard Wind
If BOEM’s unexpected cumulative impacts analysis left the industry stunned, the report’s findings — released in June — were largely reassuring.
In its analysis, BOEM did not give an unambiguous thumbs-up to offshore wind development off the Atlantic Coast. The 420-page document finds that the industry will have myriad environmental impacts as it scales up, most of them minor but some more significant, particularly around fisheries and shipping lanes. Other impacts will be positive, in areas including coastal jobs and environmental justice.
On balance, experts say BOEM’s findings were a good sign not only for Vineyard but also for the broader industry, setting the stage for more predictable permitting in the future.
“We were affected, like Vineyard and others, by the pause in the federal permitting process,” says David Hardy, president and COO of Ørsted’s U.S. offshore wind business. Ørsted owns the only operating commercial project in American waters (Block Island) as well as the largest pipeline of future projects.
“While it was a setback…we think it was smart to take a look at the cumulative impacts,” Hardy tells GTM. There were no big surprises in BOEM’s findings, and “now that we’ve gone through it, it should pave the way for a more stable regulatory environment going forward.”
Hardy notes that BOEM’s analysis assumes 22 gigawatts of capacity will get built in Atlantic waters in the medium term — important recognition of the market’s potential. Wood Mackenzie’s base case is 25 GW by the end of the 2020s. There are just seven turbines with a capacity of 42 MW installed in U.S. waters today, compared to more than 20 GW in Europe.
If BOEM sticks to its next deadline and gives Vineyard its final approval in December, the market will quickly recover any lost momentum, says Jason Folsom, an industry veteran who has worked for two major turbine manufacturers and is now principal at Power and the Money, an offshore wind advisory.
Assuming no further surprises, “these are the kinds of dents you can pop back out really easily,” Folsom says.
2. The cost keeps dropping
Offshore wind’s growing political support at the state level has been crucial, but at the end of the day, the sector will sink or swim based on its economics. The news there has been good in 2020.
Earlier this year it emerged that Mayflower Wind — a developer owned by Shell and EDPR — will sell power into Massachusetts from an 804 MW project for around $58 per megawatt-hour on a levelized basis. That’s 13 percent below Vineyard’s levelized price, itself a jaw-dropper when announced in summer 2018. Both prices include the cost of transmission. Mayflower's project is due online in 2025.
If the federal Investment Tax Credit — the key subsidy for offshore wind — is allowed to phase down as scheduled, it will hamper developers’ ability to continue hammering away at their bid prices, at least in the near term. But the U.S. industry’s ability to deliver prices not too far off Europe's levels, and without a local supply chain, bodes well for the sector’s competitiveness. Offshore wind is no longer an early-stage technology, even in early-stage markets.
3. Market takes root in new geographies
Anyone who thinks offshore wind is just a southern New England thing has not been paying attention in 2020.
The mid-Atlantic — from New York down to Virginia — has emerged as not only the largest regional market in the U.S. but among the largest future markets in the world. New York and New Jersey are targeting 16.5 GW between them by 2035. Both have confirmed plans for major offshore wind solicitations later this year, potentially resulting in another 5 GW of contracted capacity by the end of 2020.
Meanwhile, Dominion Energy recently finished building its Coastal Virginia pilot, marking the first turbines ever installed in federal waters. The project is due for commissioning later this year. Dominion’s pilot will serve as the steppingstone for a planned 2.6 GW project, currently the country’s largest.
Blades being installed at Dominion's two-turbine Coastal Virginia pilot. (Photo: Dominion)
Farther south, Duke Energy recently suggested it may turn to several gigawatts of offshore wind in the Carolinas to meet its net-zero target. And to the north, the University of Maine’s floating project took a big step forward this year: Japan’s Mitsubishi and German utility RWE bought the $100 million demonstration project, which could get built as soon as 2023.
The sight of a 10+ MW floating turbine generating power for Mainers could galvanize California to begin thinking more seriously about offshore wind at a time when its onshore power infrastructure is under growing threat from wildfires.
The Atlantic Coast offshore wind chessboard. (Credit: AWEA)
4. Investment pours in, and in new ways
In contrast to the large pipeline of projects raring to go, there are no offshore wind factories in the U.S. today.
But that will change, and it’s possible that a big factory announcement could still come in 2020. Siemens Gamesa, the industry's leading turbine supplier, has said it is considering the U.S. for the site of its first factory to produce its new 14 MW offshore turbine, a potential game-changer for the local supply chain.
Half a dozen states are competing to host such factories, and they're putting serious money behind their pitches.
New Jersey recently announced plans for a state-backed offshore wind port along the Delaware River, with the aim of luring manufacturers. New York has tied its upcoming offshore wind solicitation to $200 million of state funding for its ports, potentially transforming sites like the South Brooklyn Marine Terminal or Staten Island's Arthur Kill Terminal into industry hubs.
“With New York and New Jersey both expanding their offshore wind programs, I’m confident that you’ll start to see significant chunks of the supply chain being developed in the next two to three years to meet the upcoming demand,” says Ørsted’s Hardy.
Money continues to flow into projects, too: BP recently made its first major investment in offshore wind, buying a 50 percent stake in Equinor's two U.S. projects, Empire Wind and Beacon Wind.
And in an important vote of confidence, Dominion Energy announced it will lead a consortium to build the first offshore wind installation vessel compliant with the U.S. Jones Act.
5. The presidential election
Finally, there’s a certain date in early November to consider. A victory for Joe Biden could make a big difference for offshore wind, even if Republicans maintain control of the Senate.
Unlike onshore wind and solar, getting projects permitted is a major challenge for offshore developers, and “more top-down direction from the executive branch” would help, WoodMac’s Cohen says.
“Not that projects would run roughshod over other stakeholders, but there could be more streamlined permitting, more simplified approaches and more of a presumption that clean energy projects are in the national interest,” Cohen says.
Simply providing BOEM and other permitting agencies with more funding and resources would help as the industry scales up, says Laura Smith Morton, head of offshore at the American Wind Energy Association.
In addition to permitting, there’s another area where the federal government holds an unusual amount of sway over the industry's progress: the provision of development zones, known as lease areas.
Unlike onshore renewables, which are typically built on private lands, BOEM oversees energy development on the seabed beyond state waters, where the best wind energy sites are. In effect, it has the monopoly on new project sites.
The industry is crying out for more lease zones, particularly in the area south of Long Island known as the New York Bight. BOEM has held eight competitive lease auctions so far, but the pace of the auctions has slowed down; the last one was held nearly two years ago.
A Biden administration could speed things up, potentially auctioning lease areas off New York, South Carolina, California, Maine, Oregon and even Hawaii.
As an indication of what might result from a Democratic landslide in November, the House this summer passed the Green Act focused on renewable infrastructure. Among other provisions, it would extend the full Investment Tax Credit for offshore wind projects until the country has 3 GW of installed capacity, allowing developers to build the country's first big projects along the most sensible timeline rather than racing the clock.
Even a Trump victory in November would likely be taken in stride by the offshore wind industry, experts say. Vineyard's delay notwithstanding, the Trump administration has been surprisingly supportive of the sector, especially under former Interior Secretary Ryan Zinke.
“As an industry," Folsom says, "I think we have the perfect story for the Trump administration: hard-hat jobs, American manufacturing, U.S. energy dominance.”
Offshore wind holds substantial crossover appeal for oil and gas companies, potentially helping to further broaden the sector's political base in the years ahead, including with Trump’s base.
That crossover potential is not just good for fossil fuel companies, Folsom notes. "It represents a way to transition oil and gas workers — who have the most relevant experience in the country — into offshore wind jobs: good-paying, strong-replacement-type jobs; still in energy, still offshore.”