Offshore wind power has become a significant component of several European countries’ electricity generation portfolios and now the US is looking to expand the power generating capacity of wind beyond its coastline.
The economics can be complex – particularly if the production tax credit expires at the end of 2012 – but offshore wind has the potential to become an affordable source of electricity for some of the largest US markets.
Offshore wind will first be developed in the northeast and then expand to other parts of the country as technology improves and costs decrease, Deepwater Wind CEO Bill Moore told the audience at the Renewable Energy Finance Forum Wall Street summit recently held in New York.
See earlier coverage from the conference here.
Northern New Jersey, New York City and Long Island are attractive to offshore wind developers because they are large markets with substantial onshore loads, existing power networks and relatively low interconnection costs, said Moore.
The power generated from an offshore wind farm in the New York metropolitan area could be cheaper than electricity generated from onshore installations in upstate NY, Moore told Breaking Energy on the sidelines of the conference.
Where the Wind Blows
Offshore coastal regions also have a natural advantage over onshore locations – sea breezes.
“I think we can beat upstate wind just flat out based on the higher on-peak capacity factor, because utility loads in New York City and Long Island on hot days are driven by air conditioning requirements and those same high pressure systems that give us these hundred degree days also give us daily sea breezes, it’s the same phenomenon,” said Moore.
The ability to generate power from strong winds during peak demand periods is a big advantage that Moore says could make offshore wind even cheaper than solar in the New York City market. “It helps reduce your delivered cost because you are producing a lot more at peak [demand periods] when energy is worth a lot more.”
Wholesale price suppression is a positive attribute of offshore wind, explained Moore. “We displace the most expensive generators at the top of the stack and we can really – during those peak periods – create reductions in the market clearing price for that hour that we’re generating – that are very substantial.”
The price effect at the wholesale level in combination with economies of scale from bigger projects and bigger turbines can help to significantly lower electricity costs for consumers. “If you compare a wind farm made up of 3.6 MW turbines versus one made out of 6 MW turbines, that’s 40% fewer structures you have to install and maintain over the life of the project – that means one-third less steel and the savings add up quickly.”
The projects that Deepwater Wind is proposing are much larger than the Cape Wind project. Cape Wind gets a lot of media and industry attention because it is farther along the development process and has a power purchase agreement in place.
But Moore said Deepwater’s projects will be farther offshore – beyond the horizon – and have much bigger turbines on much windier sites. He believes that will be the model that leads US offshore wind development.
The company is currently working to develop four main projects along the coast from New Jersey to Rhode Island and has ambitions to connect the central PJM network with New York City. One of Deepwater’s proposals is under review with the Long Island Power Authority.
NIMBY and Regulatory Obstacles
However, development challenges will need to be overcome before 6.0 MW turbines are spinning in waters along the US continental shelf.
Siting offshore projects has proven to be very difficult due to considerable public opposition. There continues to be a groundswell of opposition surrounding the Cape Wind project.
There are also substantial regulatory hurdles that must be negotiated, Moore said. The US Bureau of Ocean Energy Management has set up competitive auction rules that are overly complex in Moore’s view.
The BOEM is designing a regulatory regime for the Mid-Atlantic, which is the least attractive offshore wind market, Moore said, who believes The resources could be better deployed in the New England market.
Read much more about the state of the US wind industry in Breaking Energy’s white paper “Wind Rush” here.
Perhaps the biggest challenge is the looming prospect of PTC expiration later this year, which could significantly disrupt offshore wind project economics. Moore suggested the establishment of an offshore only PTC.
“Subsidies make sense for emerging technologies,” he said.