Monday, June 18, 2018

Competition, Cooperation and Costs the Talk at OSW Conference

By Michael Kuser

BOSTON — Competition among states to set the highest offshore wind energy targets and to secure supply chain jobs is gradually giving way to a regional cooperation, the head of the Bureau of Ocean Energy Management said last week.

OSW Conference Offshore Wind Energy BOEM

Cruickshank | © RTO Insider

“In our view, all of the federal leases, they don’t belong to any particular state, and we need to be thinking about how to manage those assets on a regional community basis,” acting BOEM Director Walter Cruickshank said at New Energy Update’s U.S. Offshore Wind Conference, held June 7-8.

“And we’re certainly seeing that already,” Cruickshank added. “We’ve seen projects that were leased off of one state getting agreements with neighboring states.”

He cited the collaborative development efforts of Massachusetts and Rhode Island, of “Virginia and the Carolinas, and obviously in the New York Bight, where there are a lot of states that have stakeholder interest.”

New Energy Update held their annual U.S. Offshore Wind conference last week in Boston. | © RTO Insider

In May, Vineyard Wind, a partnership between Avangrid Renewables and Copenhagen Infrastructure Partners, won a contract to supply Massachusetts with 800 MW of offshore wind energy. In the same solicitation, Rhode Island picked Deepwater Wind to build a 400-MW version of its Revolution Wind proposal. (See Mass., R.I. Pick 1,200 MW in Offshore Wind Bids.)

Picking up the Pace

Panelists at the conference also discussed ways to reduce costs and speed up permitting.

Bull | © RTO Insider

The Department of Energy’s 2015 Wind Vision report set a goal of deploying 86 GW of offshore wind by 2050. The U.S. would need to use about 4.2% of the total technical resource area to reach the goal, according to the National Renewable Energy Laboratory’s September 2016 Offshore Wind Energy Resource Assessment. The technical resource area includes areas of the Great Lakes and the Atlantic and Pacific coasts with wind speeds of at least 7 meters/second and water depths of less than 60 meters (Great Lakes) or 1,000 meters (the oceans).

The 11 BOEM leases issued so far could produce 20 GW by 2030 “based on the physical capacity of these leases,” said Tom Harries of Bloomberg New Energy Finance. The typical timeline from lease to operation is five to seven years.

Pike | © RTO Insider

Stephen Bull, senior vice president at Norway-based Equinor (formerly Statoil), said he’d like “to see BOEM interact more at the state level, to really try to fast-track or work quicker to get wind energy areas out there.” Conference chair Stephen Pike, CEO of the Massachusetts Clean Energy Center, a state agency in charge of offshore wind development, asked about having BOEM pre-permit the leases to speed up development, as is done in Europe.

“That’s not the way the federal government works,” said Cruickshank, explaining that the bureau has no funding for capital-intensive marine surveys.

Floating Turbines

Although BOEM’s leases to date have been off the Atlantic Coast, BOEM is also looking to the Pacific, which will require floating wind technology because of the much greater water depths, Cruickshank said.

“We’re cautiously optimistic we’ll be able to move ahead with some of those leases later this year.”

Simmons | © RTO Insider

Daniel Simmons, principal deputy assistant secretary for DOE’s Office of Energy Efficiency and Renewable Energy, said improving floating platforms “is an important area for us just because so much of our wind resources offshore is in deep water.”

Musial | © RTO Insider

Walter Musial, manager of offshore wind at the National Renewable Energy Laboratory, who explored the levelized cost of energy for floating turbines, said about 58% of potential offshore wind areas are deeper than 60 meters.

“Floating obviously starts out a bit more expensive, but it’s a maturity thing, so fixed and floating turbine costs converge over time,” Musial said. “Actual costs are confidential — they don’t report them in the newspaper.”

Manufacturers need to see the market demand in order to develop optimized turbine systems for floating platforms, he said. “Up till now, every single deployment has been with a turbine that was actually designed for a fixed bottom system, so we’re sub-optimum,” he said.

But the industry is now moving beyond the floating prototype phase. “I’ve counted about 11 projects totaling 229 MW,” Musial said. “These are going in with some subsidies, but also with regular financing, and they’re going in all over the world.”

OSW Conference Offshore Wind Energy BOEM

Barter | © RTO Insider

NREL wind analyst Garrett Barter agreed, saying the current design paradigm of offshore turbines “won’t give you a cost-competitive floating system.”

Engineering and design are just a fraction of the total cost for a floating wind turbine. Most of the costs are the operational expenses, logistics, assembly and installation, and financing, he said.

“So you really need a systems approach that can tackle all these complexities at the same time, and not just focus on the turbine itself,” Barter said. He recommended multidisciplinary analysis and optimization, which is “a tool and also a state of mind where you connect the whole power production process, the whole load path, the controls that sit in between those two, and the whole balance sheet over the lifecycle of the plant.”

He said the offshore industry may have to evolve into a structure like that of the aerospace industry, where a global supply chain serves a system owned by the prime contractor.

Driving Down Costs

Experts say it will take several years for the U.S. market to mature before it matches the separate cost curves for the established European market

“We think the transition happens around 3 to 4 GW of installed capacity, which should be in 2028 in the U.S., and the industry will move onto the established cost curve and really see price reductions,” Harries said. “The regulatory route gets simplified, and then gradually you build your experience and you move down this cost curve. Supply chains gain experience, and routes to market become very clear.”

Cole | © RTO Insider

Jonathan Cole, managing director of offshore for Avangrid parent Iberdrola’s renewable business, wants to see nearly that much capacity entering the pipeline each year.

“As soon as possible, get to a place where this market is being fed with 2 to 3 GW of new projects every year, which means you’ve got enough volume to support a local supply chain,” Cole said. “That’s when you’ll truly see cost reductions and the industrialization happening.”

Cole said that so far, they’ve been able to lower development costs through tax credits, which are now being phased out.

“We’re hoping that the downside of removing the tax credits is going to be more than compensated by the positive … making a more efficient and optimized installation,” he said.

Northeast Advantage

Thaaning Pedersen | © RTO Insider

Vineyard Wind CEO Lars Thaaning Pedersen said tax credits are an important part of the price structure in Massachusetts, but “the benefits … these projects will bring to the southeast coast” of New England may be more important, such as avoiding the high cost of building transmission lines to bring hydropower from Canada.

The state “has taken a bold step already … and I’m confident that Massachusetts will be at the center of the industry,” Pedersen said.

Francis Slingsby, head of strategic partnerships at Orsted, congratulated Pedersen. Despite not winning the first round of the Massachusetts-Rhode Island solicitation, Slingsby said Orsted is committed to developing its Massachusetts lease areas, “which in our estimation are superb.”

Slingsby | © RTO Insider

“Wind speeds increase as you move farther north along the coast, which gives New England an innate advantage,” he added.

Beaton | © RTO Insider

Massachusetts Energy Secretary Matthew Beaton referred to the previous day’s tour of the New Bedford Marine Commerce Terminal, which was built for the deployment of offshore wind, as evidence of the state’s chance to lead the industry.

“To see international companies come in with Massachusetts companies made me realize … this thing’s for real, this thing’s happening, and we have all the pieces that we need,” Beaton said. “Eight hundred megawatts is just the starting point.”

White | © RTO Insider

Bill White, MassCEC director of offshore wind development, said, “Growth in Massachusetts is really about … what it will cost to ratepayers.”

Lavelle | © RTO Insider

John B. Lavelle, head of offshore wind for GE Renewable Energy, said volume will be the biggest driver of cost reductions. Lavelle said GE will “compete in the U.S. with our 12-MW platform that we just announced.”

Operating costs will come down partially through “a lot of automation,” Lavelle said. “You don’t want to send people 15 miles off the coast if you don’t have to.”

NY, NJ, Md. Moving Forward

Elisabeth Treseder, senior regulatory adviser for Orsted, said New Jersey’s commitment in May to build 3,500 MW of offshore wind by 2030 — surpassing New York’s target of 2,400 MW — “provides a lot of certainty and reassurance” to the market. (See Gov. Signs NJ Nuke Subsidy, Renewables Bills.)

“We’re still waiting for the New Jersey Board of Public Utilities to finish its plan, which for us means focusing on the local supply chain and workforce development,” Treseder said. “New Jersey was very wise in passing a $100 million tax break for offshore wind manufacturing, which left them an additional pool [of incentives] for suppliers.”

Kenneth J. Sheehan, director of economic development and emerging technologies at the BPU, said the state is working to develop its master plan and its first solicitation.

Left to right: Kenneth J. Sheehan, NJBPU; Elisabeth Treseder, Ørsted; and Jim Lanard, Magellan Wind | © RTO Insider

“We are looking for suppliers, transmission, for all the factors that go into it, and the OREC [offshore wind renewable energy credit], the single price, up-front method of funding, takes all this into consideration,” Sheehan said.

Jim Lanard, CEO of Magellan Wind, asked Sheehan what his state’s position is regarding wind energy areas that could serve both New York and New Jersey.

“Half the New York Bight is in New Jersey, so we’re not practically upset about additional project development off our shore,” Sheehan said, referring to the Atlantic Coast region between Cape May, N.J., and Montauk Point on Long Island. “At the start, it’s every state for itself. … Everything could be supplied from New Jersey. And New York thinks the same of itself.”

Knobloch | © RTO Insider

Kevin Knobloch, president of transmission developer Anbaric’s New York Ocean Grid, said that particularly with New Jersey’s goal of 3,500 MW, there’s a sense of great urgency to get the first turbines in the water.

“We believe the wise approach is from the very first solicitations to separate generation from transmission, and open it up to competition,” Knobloch said. “In so doing, the state decision-makers still reserve the right to go with an offer that’s bidding on both attributes.”

OSW Conference Offshore Wind Energy

Harries | © RTO Insider

Doreen Harris, director of large-scale renewables at the New York State Energy Research and Development Authority, said the agency is also identifying new wind energy areas off New York City. There is a proceeding before state regulators now “to make the first utility-scale procurement later this year,” she said.

Christer Geijerstam, director of the Empire Wind project for Equinor, which bought the first New York lease in 2016, said that aside from preparing for a state bid, the company is “focused on project technical issues to reduce asset risks” prior to the hoped-for start of construction.

John Hartnett, business opportunity manager of U.S. offshore wind for Shell Wind Energy, said his company “had really jumped into the U.S. markets driven by the evidence of the northeast. Right now, we are investigating the upcoming lease opportunities, both in Massachusetts and New York, and are very hopeful to have site control in time to participate in the upcoming auctions.”

OSW Conference Offshore Wind Energy

Left to right: Christer af Geijerstam, Equinor; John Hartnett, Shell Wind Energy; Doreen Harris, NYSERDA | © RTO Insider

The Maryland Public Service Commission approved two offshore wind projects totaling 368 MW in May 2017, allowing the developers to receive ORECs. The projects are estimated to create 9,700 full time equivalent jobs and result in more than $2 billion of economic activity in Maryland, including $120 million of investments in port infrastructure and steel fabrication facilities.

OSW Conference Offshore Wind Energy

Beirne | © RTO Insider

Samuel Beirne, wind energy program manager for the Maryland Energy Administration, said that “most offshore wind developers have to contract through the state Public Service Commission [to obtain ORECs] … and most use a third-party consultant to help them.”

OSW Conference Offshore Wind Energy

Kenney | © RTO Insider

Aileen Kenney, senior vice president of development for Deepwater Wind, said the company’s 120-MW Skipjack project off Maryland will start construction in 2021 and go online the following year.

“Right now we’re mapping all the seafloor, doing bathymetry analysis,” Kenney said.

Production Tax Credit

According to DOE, the federal renewable electricity production tax credit is an inflation-adjusted 1.9 cent/kWh tax credit for wind for the 2017 calendar year. The credit lasts 10 years after the date the facility is placed in service.

The tax credit is phased down for wind facilities as a percentage reduction: for wind facilities beginning construction in 2017, the PTC amount is reduced by 20%; for 2018, 40%; and for 2019, 60%.

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