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September 2015 Issue

Offshore Wind Markets: US vs. EU
Brian Edmond
Deepwater Wind of Providence, Rhode Island, is on schedule to complete the first offshore wind project in the U.S., the Block Island Wind Farm (BIWF), a 30-MW project off the coast of Rhode Island. On the auspicious date of July 4, barges carrying the first two of five undersea turbine support structures left the fabrication yards of Houma, Louisiana, for the 16-day voyage up the East Coast. Deepwater is now installing the support structures anchored in 90 ft. of water and will install the wind turbines next summer, to be supplied by Alstom from France. The BIWF will demonstrate the feasibility of offshore wind in the U.S., and will help reduce the cost of developing larger offshore projects.

The BIWF is a bright spot in the development of the U.S. offshore wind industry as the Cape Wind Project in Massachusetts, which was to be the nation’s first offshore wind farm, is teetering on the edge of termination after a 14-year saga of lawsuits and regulatory hurdles.
Large-scale offshore wind projects in the U.S. are still very much in the development stage. The U.S. Department of Interior (DOI) has issued large leases off the coasts of Rhode Island, Massachusetts, Virginia, and Maryland for the installation of large-scale offshore wind farms. The winning bidders are now engaged in site analysis and planning activities, and are seeking to secure sources of revenue for their wind projects.

In addition to the federal leasing process, the U.S. Department of Energy (DOE) has provided a $47 million grant to each of three offshore wind demonstration projects incorporating new cost-saving technology. Dominion Resources was awarded a grant to develop a two-turbine, 12-MW project using an innovative twisted jacket support structure. Principal Power was awarded a grant to develop a five-turbine, 30-MW floating offshore wind farm in Coos Bay, Oregon. Fishermen’s Energy was awarded a grant to develop a 5-MW project offshore Atlantic City, New Jersey.

The Deepwater BIWF is progressing well, but the larger projects in U.S. federal waters are all trying to “trim their sails” to make progress.
The EU is a much different story. According to the European Wind Energy Association (EWEA), as of February 2015, the EU offshore wind industry had grown to 2,488 offshore turbines in 74 wind farms, providing more than 8,000 MW in 11 European countries. There are also 12 projects under construction that will bring the cumulative offshore wind capacity to almost 11,000 MW.

Ernst & Young has estimated that the levelized cost of electricity from offshore wind in the EU will decrease from €140/MWh in 2013 to €90/MWh by 2030, due to continued improvements in design, construction and operations; further development of the supply chain and service infrastructure; and technology advancements. The most significant driver of this growth is the “20-20-20” Renewable Energy Directive, which sets out the commitments of EU member states to achieve renewable targets that will result in total EU energy demand to be met 20 percent by renewables by 2020.

The National Renewable Energy Action Plans from EU member states provide a stable regulatory and economic framework in which the private sector is willing to invest capital in large offshore wind projects to achieve EU policy objectives. In turn, large projects provide the economies of scale necessary to lower costs through technology advancement and a build out of the EU-based supply chain.

The 20-20-20 Renewable Energy Directive was developed based on the intrinsic benefits of offshore wind and other renewable energy sources that are hard to quantify in traditional economic models. These benefits include: a decrease in the EU’s dependence on the supply of natural gas from Russia; projected job creation and economic benefits from developing ancillary services and supply infrastructure; the supply of power from offshore wind farms directly into high-load pockets in coastal cities; reduction in the need to operate the highest-cost sources of energy generation; and nonnuclear/noncarbon-based power generation at the scale needed for the EU to meet its carbon reduction mandates.

Why is the U.S. offshore wind market so far behind the EU? Most of the same intrinsic factors are in play in both markets—but a government policy mandate is lacking in the U.S. The lack of a direct mandate to promote offshore wind places the risk of starting a new industry solely on the backs of U.S. developers, investors, contractors, states, and utilities. These parties must work together to adopt, adapt and incorporate the technology advancements and lessons learned from Europe so as to make U.S. offshore wind a competitive energy source.
In addition, to be successful the U.S. offshore wind industry must promote the unique intrinsic benefits of offshore wind (e.g., price suppression, reduced need for onshore transmission, job creation), all of which are difficult to quantify in a traditional least-cost energy generation analysis.

Most importantly, the U.S. needs to achieve economies of scale by developing large projects that will help reduce costs. Importing turbines from France for the BIWF is a costly necessity due to the lack of a U.S. alternative. A U.S. supply chain of services, infrastructure and components is only justifiable with large-scale projects that will provide sufficient revenue opportunities for supply chain participants to make the required investment.
Unlike the EU, the U.S. is not critically dependent on Russian natural gas supplies, but reducing the U.S. consumption of fossil fuels by increasing renewable power generation will help keep our domestic fuel prices low by diversifying our energy sources—making our industries more competitive and reducing long-term energy costs.

Brian Redmond is a partner in Paragon Energy Holdings and is an expert in the development, financing and management of renewable and conventional energy projects. Redmond is on the boards of Deepwater Wind LLC, Noble Environmental Power and the Virginia Offshore Wind Development Authority. He has an M.B.A. from Harvard, an M.S.M.E. from Georgia Tech, and a B.S.M.E. from Virginia Tech.


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