America’s First Offshore Wind Farm is Under Construction. Where Will its Second Be?

This year’s Climate and Society class is out in the field (or lab or office) completing a summer internship or thesis. They’ll be documenting their experiences one blog post at a time. Read on to see what they’re up to.

Brandon McNulty, C+S ’16

The northeastern U.S. is a major electricity consumer with ambitious goals to transition to renewable energy. Solar and wind power are growing in the region, but perhaps its strongest renewable resource is a few steps behind.

The strength of offshore wind resources in the Northeast is well documented. Offshore winds are stronger and more consistent than those onshore, especially during hot summer days. This makes offshore wind a much more valuable and reliable resource than onshore winds. Despite this, offshore wind project development in the Northeast has largely stumbled because of higher construction costs and conflict over siting of early projects.

The nation’s first offshore wind farm is under construction off Block Island, Rhode Island. The first two of five turbines that will make up the 30 megawatt (MW) pilot project have just been erected, and developer Deepwater Wind expects the project to go online before year’s end. The upcoming completion of the Block Island Wind Farm raises the question of if there are any other prospective projects ready for development.

Seven Bureau of Ocean Energy Management-approved sites in the Northeast seem the most likely candidates because of the regions strong wind coupled with shallow waters over the extended Outer Continental Shelf. Offshore developers have already leased six of the seven sites, and the seventh site’s auction is set for later this year.

Source: Brandon McNulty, Brandon.P.McNulty@columbia.edu

The Northeast has all the assets to be a big offshore wind producer. But have bigger turbines and supportive policies finally pushed these sites forward enough to be market-competitive?

As a contribution to the Deep Decarbonization Pathways Project by the U.N.’s Sustainable Development Solutions Network, I’ve been modeling these seven prospective projects in ArcGIS to estimate energy generation and construction costs. Inputting this field data into financial models has helped create forecasts for the average cost of energy produced over the 25-year lifetime for each project as well as the minimum energy price that could support an industry-proclaimed 15 percent “hurdle rate,” or internal rate of return threshold for equity investors.

Given the long-term nature of offshore wind project development, my final analysis also included sensitivity to the Investment Tax Credit (ITC) rate , which was extended in late 2015. The ITC rate is currently set to begin declining from 30 percent in 2019 down to a permanent 10 percent rate in 2022, most likely before offshore developers could reap its full benefits. The price forecast of each project under a 30 percent and 10 percent ITC rate is displayed in the table below:

Source: Brandon McNulty, Brandon.P.McNulty@columbia.edu

While the large scale projects promise significant savings over the $244 per megawatt hour (MWh) price of the Block Island Wind pilot, it’s clear from the results above that offshore wind is still a relatively expensive source of energy, especially if projects aren’t able to benefit from a full 30 percent ITC. As the table above shows, two projects would be competitive with full ITC benefits even though none would be competitive if the ITC is allowed to decline to 10 percent as currently prescribed.

Considering the long-term development timeline of offshore projects, it’s very unlikely for either of these projects to begin construction by 2019 as required to enjoy the full 30 percent ITC. Cape Wind is especially unlikely to begin construction any time soon after 14 years of contention over the siting have caused delays that negated its contract with National Grid and NSTAR to purchase the energy. Therefore, there are currently no other projects in the Northeast ready for development without an extension of the 30 percent ITC rate for offshore projects.

Source: Brandon McNulty, Brandon.P.McNulty@columbia.edu

An exception is otherwise possible via another policy or regulator approval that would allow for a project to be contracted at an above market energy rate to support development of offshore to reduce emissions, diversify the energy mix, and support growth of a new industry in the region. Block Island Wind’s approval by regulators at $244/MWh and the even more recent Massachusetts mandate that 1,600 MW of offshore wind be contracted by 2027 are examples of policies that support adding offshore capacity without requiring competitive pricing. They do, however, support future price reductions for offshore wind by facilitating the industry’s pathway to benefitting from economies of scale, while providing clean energy and local jobs in the meantime.

Source: Brandon McNulty, Brandon.P.McNulty@columbia.edu

Given Cape Wind’s ongoing siting issues, Deepwater ONE appears to be the project most likely to follow Block Island Wind by winning the bid for the first major chunk of the 1,600 MW offshore mandate in Massachusetts. However, by extending the ITC at 30 percent for offshore wind, Congress could help consumers save $20/MWh ($73 vs. $93 with a 30 percent and 10 percent ITC respectively), or $79.5 million per year given its forecasted average annual generation of 3,973 gigawatt hours.