Which State Will Lead on Offshore Wind?
The U.S. wind industry is a major player in global markets with traditional onshore power generation applications, ranking No. 1 globally in 2008 and 2009, before losing out to China in 2010. Efforts to move offshore have, so far, been hampered by a lack of regulatory support in permitting and questions about financing.
Now that the American Wind Energy Association (AWEA) annual conference is behind us, which state does Pike Research believe will actually deploy the first offshore wind turbine in water?
Before we place our bets, let’s take a quick look at the big picture and highlight a few parameters about the U.S. offshore wind market culled from a recent Pike Research market forecast.
In the base case scenario from a Pike Research report released in April 2011 (www.pikeresearch.com/research/offshore-wind-power), the U.S. falls into third place behind Europe and Asia by 2017, with 2.9 GW of offshore wind capacity. If the Obama Administration’s permitting reforms succeed – and vessel, transmission and port infrastructure needs are met – the U.S. could more than double this capacity at 6.18 GW, represented by the aggressive scenario forecast. If gridlock on project permits and proactive support infrastructure persist, the U.S. could only see 579 MW come on-line by 2017.
Along the Eastern seaboard, every state but Connecticut is offering incentives or issuing requests for future bids for offshore wind power. Up to 10 GW of offshore wind is possible by 2020 if Atlantic states complied with RPS legal mandates and specific offshore wind development deployment goals. That goal seems reasonable enough, given the fact that the regional grid operator – PJM – recently reported that 10 GW of offshore wind could be integrated into its existing grid control area, without any need for major infrastructure upgrades.
Several new federal permits to build offshore wind facilities are expected over the next couple of years. There is also growing interest in the Great Lakes, with Ohio out in the lead. And then there is Texas.
As of early 2011, 13 offshore wind projects in the entire U.S. have advanced significantly through the permitting process. These projects total between 2.47 and 3.2 GW. From an ROI perspective, the best sites are located in federal waters, yet early efforts by some developers have focused on offshore wind projects in state waters, since this approach speeds up development/construction timeline.
The Atlantic Coast is the focus of development efforts in the United States, but Texas could bolster its bragging rights to the nation’s top wind power market by actually installing four 3 MW test turbines manufactured by Mingyang Wind Power Industry Group of China in the Gulf of Mexico this year.
These test turbines are just the first steps in what could become a 300 MW offshore wind project. Developed by a subsidiary of Wind Energy System Technology (W.E.S.T), a unique venture comprised of German oil and gas engineers and Gulf Coast environmentalists, the company is trading off a less robust wind resource for an easier state permitting process. Texas, unlike any other state in the nation, has jurisdiction over waters that extend more than 9 miles off the coastline. All other states, including those located on the Eastern seaboard, only have regulatory jurisdiction out to three miles.
However, projects off the Texas coast will be further from shore to access better wind resources, requiring different deeper water foundations. Hence, the focus upon relying on lower cost and smaller offshore wind turbines manufactured in China. Regional expertise with foundations and platforms associated with the offshore oil industry could give Texas a competitive advantage over other states when it comes to offshore wind.
From a policy perspective, the strongest market in the U.S. appears to be New Jersey. At present, three of the five “interim leases” offered for offshore wind projects in the United States have been secured off the New Jersey Coast, representing 1.4 GW of capacity.
With a new law – Offshore Wind Economic Development Act -- designed to maximize the offshore wind opportunity, and state funding up to $50 million to spur job creation and increase tax revenue, it should come as no great surprise that New Jersey boasts the largest amount of proposed offshore wind capacity at 1,400 MW. (But I’m not going to tell you what Pike Research forecasts for this state or any other, for that matter. You’ll have to buy the report for that level of data.) The federal Department of Energy (DOE) is also sinking $50 million into offshore wind development in four target states that include New Jersey.
The highest profile offshore wind project has been Cape Wind, which has been inching its way forward for about a decade. Yet the developer still has not been able to sell half of the project’s capacity, a critical factor in the project penciling out.
I was going to put my money on NRG Energy’s 200 MW Mid-Atlantic Park off the coast of Delaware, some 13 miles off the coast. NRG Energy has the clout and fiscal resources behind it, and has been extremely bullish on offshore wind power. The company’s well-publicized competition for a turbine supplier – and rumors that NRG Energy is leaning toward a European turbine in the 5 to 6 MW range -- show that the company is thinking BIG. However, in late May, the company announced the decision by Congress to not fund loan guarantees has delayed its installation of meteorological towers, which are used to validate wind resource estimates
My sense is that Cape Wind could be sinking fast. NRG Energy has the deep pockets, but Texans know how to get something done.