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Light at the end of the tunnel for US offshore wind power

Over the past 18 months the US offshore wind market has battled its way into existence, putting steel in the water and persuading politicians to put their necks on the line for a still-expensive technology with a virtually nonexistent workforce in the US.

Now comes the tricky part. Over the next five or ten years, the sector will attempt to move from being a curiosity at the margins of the US energy market to a profitable and jobs-rich industry, capable of powering densely populated coastal states.

Not many American energy sectors have fought so long and with so much promise, with so little to show for their efforts. After several decades of development, there’s 30MW of US offshore wind installed today, at Deepwater Wind’s Block Island, compared to around 13GW off Europe and 2GW off China.

Few US companies have ever worked in the sector. Even within the American wind industry, the offshore market is still often overlooked — which is understandable considering the country’s 80GW-plus of installed onshore wind and immense remaining potential.

Yet although the US offshore market has moved at a glacial pace for years, it’s recently begun moving far more quickly — and may soon be at full gallop.

Since 2016, Block Island’s completion has put the industry on the map, while the signing of Massachusetts’ 1.6GW offshore wind mandate by a Republican governor all but guaranteed the sector a chance to scale up — and New York’s 2.4GW target added much-needed regional heft to the market.

Meanwhile, Avangrid’s win in North Carolina’s offshore lease auction this spring demonstrated that major developers are betting the market will spread beyond the northeast.

Many of the world’s premier offshore wind developers have either bought into the US market or begun circling it with dollar signs in their eyes. Recently, major US electric utilities started investing in projects too — including Eversource, Dominion, and Iberdrola’s Avangrid.

“Compared to a year ago, it’s a different situation,” says Henrik Poulsen, chief executive of the world’s leading offshore wind developer, Denmark’s Dong Energy (soon to be renamed Ørsted), which is the leaseholder of two large zones off Massachusetts and New Jersey.

The US now looks set to become a “very significant offshore wind market”, Poulsen tells Recharge.

Jens Tommerup, chief executive of MHI Vestas, the turbine supplier that plans to make its US debut at the Icebreaker project in Lake Erie, says many of his concerns about the US market — like the implications of the Jones Act for installation vessels — are receding.

“The framing of the US market has come a long way, both in the form of infrastructure and [policy] clarity,” Tommerup tells Recharge. “The whole picture is coming together.”

The US offshore wind industry is still years away from maturity. But several near-term events could have a big impact on its long-term chances of success, and are worth watching closely in the months ahead.

Price discovery

The big kahuna on the horizon is Massachusetts’ first tender, which will bring fierce competition and price discovery to the US market for the first time.

Massachusetts’ request for proposals (RFP) — calling for 400MW of offshore wind, though potentially open to as much as 800MW — was formally launched in June, with DE Shaw-backed Deepwater, Dong and Vineyard Wind all holding eligible zones south of Martha’s Vineyard.

“These are three very strong bidders, and I think people will be pleasantly surprised by the prices to come out of it,” Doug Pfeister, director at the Renewables Consulting Group, tells Recharge.

Final bids are due in December, and the winners will be determined in spring 2018.

While the state’s utilities have been ordered to procure 1,600MW by 2027, developers are under pressure to deliver projects quickly.

One of the most stunning examples of how far the market has come so quickly is a look back to the 2015 auction for federal leases south of Massachusetts, when developers RES Americas and OffshoreMW won zones totaling 354,000 acres (1,400 sq km) for a combined $448,000 — the price of a single home in the suburbs of Boston. Two other zones totaling 389,000 acres did not receive any bids whatsoever.

Yet by late 2016, Statoil was willing to pay $42.5m for its zone off New York, even with no clear route to market.

RES subsequently sold its zone to Dong — which has become the Bay State Wind project — while OffshoreMW changed its name to Vineyard Wind and was acquired by Copenhagen Infrastructure Partners and Avangrid.

Today, Dong and Vineyard’s Massachusetts zones are seen as some of the best sites anywhere in North America for offshore wind development, capable of holding more than 3GW of future capacity and located close to markets likely to want the power.

Early 2015 was a “low point in the morale of the industry”, explains Vineyard’s chief executive Erich Stephens, with the Massachusetts lease auction taking place just days after the nearby Cape Wind project lost its power-purchase agreements.

Developers are reluctant to discuss specifics as they prepare their bids for Massachusetts’ first RFP. But many in the industry are hopeful that the results will spur greater ambitions for offshore wind all along the Atlantic — and perhaps even an expansion of Massachusetts’ existing target.

“I don’t think it will take long for the US to catch up to Europe on price,” says Jerry Petros, head of the environmental group at law firm Hinckley Allen, who is Deepwater Wind’s long-time chief legal counsel.

“Europe has a 30-year head start, but they also have older, less efficient turbines in the water,” Petros tells Recharge.

“Everything we put in the water here will be the latest and greatest.”

Christer af Geijerstam, project director for Statoil’s 1GW-plus New York zone, says it’s only realistic to expect the costs for the first large US projects to come in “somewhat higher” than in well-established markets like the UK.

“There’s also a question of how eager you are to support the development of a local supply chain,” af Geijerstam adds. “There are measures you can take on the project side to try to get as much local content as possible — but that comes with a cost.”

Eyes on Albany

Another state with big news in the offing is New York, which jealously followed Massachusetts’ mandate by announcing its own 2.4GW target for 2030 earlier this year.

The details of New York’s program remain sketchy, but should come into sharper focus by the end of 2017 when the state is expected to release its much-anticipated offshore wind “master plan”, including how closely it intends to follow Massachusetts’ procurement system.

A sliver of New York’s 2.4GW will come from Deepwater’s 90MW South Fork project, which secured an off-take deal with the Long Island Power Authority in early 2017, and is due on line in 2022. A good chunk will also likely come from Statoil’s zone south of Long Island.

But much more will be needed, and here, too, the industry awaits detail.

Earlier this month, New York took the unprecedented step of publicly asking the federal government to lease out at least four more zones off its coasts capable of holding 800MW each. Days later, the US Interior Department confirmed it will begin the multi-year leasing process by the end of 2017 — meaning more New York zones could go to auction by 2019.

In the meantime, New York is under growing pressure from developers and potential supply-chain investors to kick off a first offshore wind RFP in 2018.

The garden state

A final spot on everyone’s radar is New Jersey.

Early this decade, the Garden State was arguably the most promising US offshore wind market, thanks in large part to the apparent support of Republican Governor Chris Christie.

But New Jersey fell off the screen after Christie catapulted to national political prominence and began courting conservative donors, his support for renewables shriveling almost overnight.

This November, however, New Jersey will elect Christie’s replacement. As Recharge went to press, it looked highly likely that Democrat Phil Murphy, former US ambassador to Germany, will be moving into the governor’s mansion.

Murphy has promised to establish a nation-leading 3.5GW offshore wind target and restart New Jersey’s aggressive pursuit of jobs in the sector.

Debate remains as to whether Christie deserves the blame for New Jersey’s stillborn offshore wind market, or whether there simply wasn’t an attractive enough project on the drawing board to warrant state incentives.

But nearly all the pieces are in place for a rapid revival — including two large development zones controlled by Dong and US Wind.

“New Jersey is only a second-tier market because it was put on hold,” says Stephanie McClellan, who heads the University of Delaware’s special initiative on offshore wind, and previously worked for the Google-backed Atlantic Wind Connection.

“I think very soon New Jersey will be a first-tier US offshore wind state right alongside Massachusetts and New York,” she tells Recharge.

The view from the White House

With so much attention on what has happened for US offshore wind over the past year, it’s worth pointing out what hasn’t happened: The Trump has administration has done nothing to slow the market in any way.

Some in the industry are even hopeful that Trump’s focus on cutting red tape may be helpful in the long run, given that lengthy and onerous environmental permitting remains one of the market’s biggest bottlenecks.

The US government may no longer be touting the emissions-reduction potential of offshore wind, but Ryan Zinke, Trump’s interior secretary, played all the right Trumpian notes after this spring’s North Carolina lease auction — saying offshore wind “will help power America with domestic energy, securing independence, and bolstering the economy”.

“Offshore wind is a tremendous opportunity for American heavy industry to rebuild coastal infrastructure that will benefit the country for decades to come,” McClennan says. “That’s something that should sit very well with the Trump administration.”

As originally seen on Learn more about our Environmental practice here.

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