There is a lot to like about the prospects for offshore wind development in the U.S. The basic ingredients are all there: higher sustained wind speeds offshore with the potential to increase electricity output by 50 percent compared to onshore wind farms, coupled with the added advantage that winds tend to blow strongly during late summer afternoons, when electricity consumption is peaking; technological advances leading to larger turbines with higher power ratings; and a cost structure that has seen significant improvement in the more mature European offshore wind industry as increasing efficiencies and scale have taken hold.
A path-breaking federal lease sale off the coast of Long Island, New York in December 2016 reflected the growing industry optimism. Norwegian energy giant Statoil paid USD $42.5 million for the rights to develop a 79,350-acre offshore site. The lease comprises an area that could potentially accommodate more than 1 GW of offshore wind, sufficient to power roughly 700,000 homes. In a company press release issued at the close of the auction administered by the U.S. Department of the Interior's Bureau of Ocean Energy Management (BOEM), the company declared, “The US is a key emerging market for offshore wind – both bottom-fixed and floating – with significant potential along both the east and west coasts.”
What will it take to realize that potential? The future trajectory of offshore wind in the U.S. ultimately depends on the interplay of a number of factors:
- Federal government: With many of the most appealing offshore lease sites sitting in federal waters, the willingness of the Interior Department to identify, study and ultimately auction off potential lease areas is critical. Under President Obama, the BOEM held six competitive lease sales for offshore wind tracts, helping to seed future development. Will the Trump Administration continue to facilitate access to offshore wind tracts?
Early indications seem encouraging. When Avangrid Renewables placed the high bid for a 122,405 acre site offshore Kitty Hawk, North Carolina on March 16, 2017, the Interior Department put out a press release that included a supportive quote from Secretary Zinke, who said, “Renewable energy, like offshore wind, is one tool in the all-of-the-above energy toolbox that will help power America with domestic energy, securing energy independence, and bolstering the economy.”
As seasoned Washington observers are aware, an official expression of support from a Cabinet secretary marks a deliberate statement of policy that, in this case, suggests offshore wind has been included in the government menu under the new Trump Administration.
- State government: Just as critical as federal support, if not more so, is the extent to which state governments view offshore wind as a policy imperative that they are willing to help facilitate, particularly if it aligns with a broader political goal, as is the case with New York Governor Andrew Cuomo’s commitment that 50 percent of the state’s electricity will come from renewable energy sources by 2030.
The Kitty Hawk lease offers an illustration of the counter-factual case. The lease site, which is roughly 42,000 acres larger than the New York offshore lease, sits in an area well known for its steady wind conditions. Yet Avangrid, a subsidiary of Spanish energy company Iberdrola, bid just over $9 million for the rights to the lease, less than one-fourth of what Statoil put up in New York.
The pivotal difference? While population density played a role, with Kitty Hawk located comparatively far from the nearest urban centers, the key factor is thought to be the North Carolina state government’s apparent lack of interest in facilitating purchase power agreements for offtake of an energy source that, at this point in the United States, remains substantially higher than competitors like natural gas and coal.
- Cost curves: As the industry starts to take hold in the U.S., costs will eventually come down. The question is how much and at what pace. While it is impossible to predict future costs with certainty, it can be helpful to look at cost curves in analogous industry spaces. In the onshore wind market, for example, the American Wind Energy Association found that the cost of wind-generated electricity in the United States declined 66 percent from 2010 to 2016. Meanwhile, in the maturing European market for offshore wind, according to Bloomberg New Energy Finance, the cost of constructing offshore wind farms has fallen 46 percent in the last five years, and 22 percent alone in 2016.
Challenges to cost declines in the U.S. include the development of a U.S.-based supply chain; uncertainty over revisions to the “Jones Act,” which has traditionally exempted the offshore energy industry from bans on the use of non-U.S. vessels for shipments to offshore installations; and broader issues such as a shortage of skilled workers that has long plagued America’s manufacturing industry.
- Technology: Underpinning these numbers are technological developments. As larger wind turbines with higher capacity continue to take hold, costs decrease accordingly. Other technological gains, such as stronger, reinforced wind turbines suited to the higher wind speeds of the offshore, allow the industry to flourish in new locations.
Perhaps the most significant technological leap just around the corner in offshore wind involves the arrival of floating wind turbines, a technology being pioneered by Statoil in a pilot project off the coast of Scotland. The advent of floating wind turbines is essential to the eventual build-out of wind farms offshore the U.S. West coast states and Hawaii, where the continental shelf drops sharply downward from the shore, in contrast to the more gently sloping outer continental shelf of the East coast and Gulf of Mexico.