Offshore Wind: Costs and Considerations for Future Development

By Joni Sliger, Energy Fellow

A floating wind turbine near Portugal.
Credit: Senu Sirnivas / NREL

As I reported last week, offshore wind energy will soon be flowing to the residents of Block Island, Rhode Island. Yet some continue to question the costs of Block Island Wind Farm (BIWF): will this project benefit the electricity consumers as much as it benefits the industry?

Financing renewable energy projects is no small feat. Developers typically need to lock in a contract proving to stockholders and regulators that the investment will be recovered. In part, financial difficulties explain some of the failed offshore wind projects of the past, such as Oregon’s WindFloat Pacific. The WindFloat Pacific project would have created floating offshore wind turbines near Coos Bay, Oregon (where the ocean floor is too deep for anchored turbines like at BIWF). Competing with low electricity prices from cheap hydroelectric, however, the project was unable to secure a contract from a power purchaser. (Note though that hydroelectric power generation has its environmental problems and is not a guaranteed long-term electricity source.) Without such a contract and lacking regulatory approval, the Windfloat Pacific Project stalled.

At Block Island, BIWF did not have to compete with cheap hydroelectric power. Instead, the islanders rely on imported diesel fuel, costing about $0.50/kwh currently, or five times the average electricity rate in the U.S. of $0.10/kWh. Under BIWF’s contract with utility National Grid, rate-paying islanders’ current electricity prices will drop to $0.30/kWh. Mainlanders, in contrast, who receive the excess wind energy, will face above-market rates in order to finance the $440 project. But some continue to question whether the price difference for the islanders reflects the whole story and will truly result in greater savings for the islanders or the state. (For an inside look at some of the intricacies of ratemaking, you can read about one of the Public Utility Commission meetings discussing BIWF here.)

According to the Rhode Island Public Radio, the true value of BIWF will not be clear for several years. While analysts can consider the current price of diesel fuel (the island’s previous fuel source) and compare it to the contractual price for offshore wind energy, the price of diesel varies. Long-term price stability is one of many benefits of renewable energy sources. Renewables offer additional benefits as well, many of which have not historically been considered in ratemaking, such as lower emissions and greater independence from global markets. For example, consider this proposal to build offshore wind farms in order to mitigate hurricane damage by reducing wind speed at a projected net cost of...zero. Yet whatever the net cost of a project, it is the upfront cost that can be daunting to developers, utilities, and regulators.

Fortunately, according to a new study just published in Nature Energy, the cost of each type of wind energy (onshore, offshore, and offshore floating) is projected to drop substantially in the coming decades. From 2014 to 2030, experts project a 24-30% reduction in costs; by 2050, they project a total reduction of 35-41%. While future costs are difficult to predict with much accuracy, the study surveyed 163 experts, the largest elicitation study on energy ever conducted. 

In addition to rising market confidence and falling market prices, offshore wind also has the benefit of the federal government’s attention: the Department of Energy and Department of the Interior recently released the National Offshore Wind Strategy: Facilitating the Development of the Offshore Wind Industry in the United States. Calling offshore wind energy development a “significant opportunity” for the nation, the report identifies 34 actions for the DOE and DOI to take in order to “facilitate responsible, robust, and sustainable offshore wind development in the United States.” With supportive governance, competitive market prices, and visionary developers already taking the plunge into offshore wind development, offshore wind energy may soon be coming soon to a coast near you. 

Kicking its Diesel Generator Habit, Block Island, RI Can Soon Boast Offshore Wind Power

By Joni Sliger, Energy Fellow

Image is of Middelgrunden Wind Farm off the coast
of Denmark. Credit: NREL/DOE and H.C. Sorensen,
Middelgrunden Wind Turbine Cooperative.

Offshore wind energy has arrived. The U.S. finally has a fully constructed, soon-to-be-operational offshore wind farm: Block Island Wind Farm.  

Block Island is a small island off the southeastern coast of Rhode Island where, lacking transmission cables to the mainland grid, the 1,000 or so year-round residents rely on diesel-powered generators, guzzling a million gallons of fuel ferried over each year. When Block Island Wind Farm, or BIWF, starts generating power this fall, that will change.  

BIWF is a humble project. It consists of only five turbines with a total capacity of 30 MW, or enough capacity to power about 17,000 homes. On average, it should provide 90 percent of the island’s electricity needs, according to project representatives. The project is also installing an underwater transmission cable that will connect to the mainland grid, both to provide excess wind power to the mainland and to get power from the mainland when the wind does not meet the island’s electricity needs. Notably, the project is reportedly deliberately small to help it navigate through the muddy permitting process for offshore wind and dodge potentially project-killing criticism. For a taste of the myriad complications that can hinder offshore wind development, read GEI policy analyst Andrea Lang’s recent discussion of Native Americans’ religious opposition to Massachusetts’s proposed 468 MW offshore wind farm, Cape Wind.)

Compare the small BIWF project to those ongoing in Europe. As one of my colleagues reported earlier this year, DONG Energy is planning the world’s largest offshore wind project, a 1.2 GW-capacity wind farm off the east coast of the United Kingdom.

Still, do not be fooled by BIWF’s humble start. The local Block Island Times refers to the project as “one of the most important stories ever to happen in our town.” While emotions are mixed, some report the view of the turbines has provided “an ecotourism attraction,” wherein spectators may enjoy viewing what is, we can hope, the birth of America’s newest energy era.

As I have discussed previously, offshore wind energy offers the U.S. a potential 86,000 MW of power, achievable by 2050. The technology itself is not new; Europe has a booming offshore wind market. While 2016 marks the arrival of the first 30 MW of offshore wind energy to the U.S., Europe spent the first half of the year alone bringing over 500 MW online. (And analysts report that as a bad start to the year!) The U.S. now has five turbines in the water; Europe boasts 3,344.

Some refer to the project as a pilot, but it really is not. Offshore wind technology does not need further demonstration and testing. As the CEO of Deepwater Wind (the developer that owns BIWF), Jeff Grybowski, reported, “This is not a science project, not an R&D project–it’s a commercial project. We’re free riding on the technical innovations that the Europeans have made.”

Yet freeriding on the technological advances is not enough for some. Some critics lament, perhaps fairly, that the locals are not reaping enough of the benefit. For BIWF, Rhode Island provided some of the workforce and some of the foundations, but other elements came from South Korea, Spain, Denmark, and France. While ideally local production and local employment would guarantee local benefits, importing goods is perhaps just part of the price we pay for arriving late to the offshore wind party. (For further discussion of the costs and financing of offshore wind, stay tuned for next week’s blog post.)

Despite offshore wind’s success in other areas of the world, however, it was not (and perhaps is still not) an industry-accepted option in the U.S. According to a recent report by the National Renewable Energy Laboratory, the simple lack of offshore wind turbines in the U.S. accounts for no small part of “an inability to build credibility around the market opportunity.”

The question now is whether BIWF finally provides that credibility and will help spur further deployment of offshore wind technology. For those like myself who see the future of energy production in renewables like offshore wind, we can certainly hope so.

It’s Not (All) About the Money

By Melissa Powers, Director

            For the first time in several years, negotiators, delegates, and observers are leaving the international climate negotiations with a sense of optimism. Nearly every country in the world has promised to take actions to reduce greenhouse gas emissions. This is a significant improvement from past treaties, where only a subset of nations had agreed to reduce emissions. Although the treaty negotiations came down to the wire, as they always do, and although the Paris Agreement could no doubt have included stronger commitments and a more ambitious target, the agreement at least places the world on a better path to reduce greenhouse gases and help avoid unmanageable temperature increases.

Bill and Melinda Gates

            Even before the Paris negotiations were officially underway, it had become clear that the Paris outcome had a better chance of success when Bill Gates announced his intention to contribute to Mission Innovation, a private-public partnership that aims to spend $20 billion annually to support clean energy research. This money could help fill critical funding gaps and support the development of technologies necessary to reduce the costs of renewables, energy storage, and other essential components of a renewable energy transition. Bill Gates and other billionaire investors earned a great deal of well-deserved praise for their funding pledges, and I hope they produce major improvements in technology and substantial reductions in costs.

            But it is important to remember that, when it comes to the renewable energy transition, it’s not all about the money. Although access to capital is a critical component of renewable energy development, money alone cannot ensure an effective and quick renewable transition. Rather, we need strategic planning to ensure that renewables come online in the best places, that they can get affordable access to the grid, that the transition to renewables occurs without unnecessary contention, and that ratepayers—particularly lower-income ratepayers—can afford the renewable energy transition. Without much better planning and regulation, it is unlikely that money alone will facilitate widespread development, integration, and use of renewable power.

Wind and solar growth associated with tax credits.

          In fact, we can look at the amount the United States has already spent on renewable power development to understand the importance of effective planning and strategy, rather that just the availability of funds. In 2013, the United States spent about $15 billion in tax credits to support renewable energy deployment, primarily from wind and solar (it spends much less, approximately $1.5 billion annually, on energy efficiency and renewable energy research and development). These funds have enabled renewable energy technologies to become more efficient and less expensive, and they have also helped spur an unprecedented expansion of wind and solar power in the United States. But despite this expansion, uncertainty plagues U.S. renewable energy policy. This uncertainty affects all aspects of the renewable energy industry, from technological development and manufacturing, to renewable energy siting and development, to access to the transmission system, to the ability to sell renewable electricity at viable rates to willing buyers. The money that policymakers have dedicated to renewable power helps offset the unnecessary costs associated with policy uncertainty, but the money does not diminish the need for improved regulation. In fact, if we actually had a long-term strategic plan to transition the power system to renewables, the renewable industry would be much less dependent upon short-term financial incentives, and all players in the electricity sector would have a clearer framework for the future.

            Of course, this does not diminish the importance or generosity of private investors’ donations. It just means that money alone will not adequately facilitate the renewable energy transition.