Photo Credit: DONG Energy
When the U.S. was ready to ramp up its solar industry, developers benefited from investments made in Germany, Spain and elsewhere in Europe that had funded gigawatt-scale annual deployments and pushed down costs. The same could happen with offshore wind.
By the end of 2016, 14.4 gigawatts of offshore wind capacity had been installed globally, with nearly 90 percent of the total deployed in European waters. Prices for projects coming on-line from 2020 have fallen to $50 per megawatt-hour in Denmark, the Netherlands and Germany. The United States, meanwhile, has so far managed to bring on-line just one modest commercial project, the 30-megawatt Block Island Wind Farm off of Rhode Island.
A bill introduced this summer by a bipartisan group of senators aims to help the U.S. catch up with Europe. On August 1, 2017, Senators Tom Carper (D-Del.) and Susan Collins (R-Maine) introduced the Incentivizing Offshore Wind Power Act with 10 co-sponsors.
In a clever twist, the legislation trades a calendar deadline -- typical for federal clean energy tax incentives -- for a deployment target. The bill would create a 30 percent Investment Tax Credit (ITC) redeemable for the first 3 gigawatts of offshore wind projects placed into service in both coastal waters and inland navigable waters like the Great Lakes.
“Offshore wind energy has the potential to power every home, school and business from Florida to Maine with clean, renewable energy,” said Carper, in a statement. “I’m proud to partner with Senator Collins to provide this growing industry the certainty it needs to draw private sector investments in new offshore wind facilities across the country.”
Why the deployment target instead of deadline year? In short, project developers need more time to get more steel in the water. To take advantage of the existing federal tax incentive -- developers can opt for either an ITC or a Production Tax Credit (PTC) -- projects must commence construction before December 31, 2019.
Developer interest in the sector is strong. The Bureau of Ocean Energy Management has conducted seven competitive lease sales for wind energy development in federal waters since July 2013. In December 2016, a 33-round bidding war ended with a $42.5 million winning bid by Statoil Wind U.S. LLC to develop 79,350 acres off the shore of New York. But it is unlikely many of the offshore projects in the pipeline will be able to claim the federal ITC/PTC before the 2019 expiration.
Sens. Carper and Collins cite the long development time required to build offshore wind as part of the justification for the legislation. “The ideal offshore winds are often found in federal waters -- requiring federal permits and other logistical complications that can add years to the construction timeline,” they said in a statement.
Stakeholder response
Key stakeholders welcomed the prospect of additional federal support.
“We are pleased to see continued bipartisan support in Congress for policies that can help the U.S. achieve this bright future and realize the vast potential of our offshore wind resources,” said Jim Reilly, senior vice president of federal legislative affairs at the American Wind Energy Association (AWEA), in an email.
“We’re committed to the offshore industry growing far past 3,000 megawatts, as DOE’s Wind Vision, for example, said is possible," he said. "We’ll be looking for opportunities to help make that happen.”
"We appreciate the broad support for the offshore wind industry and the jobs and reliable domestic energy that it creates. Support through an ITC extension will help to speed the growth of the industry and enable even greater development over the next decade. We appreciate Senators Carper and Collins’ leadership on this issue,” Lauren Burm, head of public affairs for Dong Energy Wind Power U.S., said in an email.
Denmark-based Dong Energy has built more offshore wind farms than any other company -- 3 gigawatts as of the end of 2016. The company recently opened an office in Boston and is aggressively pursuing opportunities in the U.S. market.
Building on state-level momentum
Carper and Collins’ push to create a long-term federal offshore wind incentive builds upon substantial state-level efforts to jump-start the industry, especially in New York, Massachusetts and Maryland, states with offshore deployment targets.
In an interview, Stephanie McClellan, director of the University of Delaware's Special Initiative on Offshore Wind (SIOW), said the Carper-Collins bill is “a very smartly designed bipartisan accelerant for offshore wind.” But she was quick to add that the bill would be “one accelerant of many that we have out there right now.”
According to McClellan, 5 gigawatts of projects are planned for construction over the next 13 years, with much of that coming in Massachusetts and New York.
McClellan and her team prepared offshore wind future cost studies for Massachusetts and New York. The states specifically requested that SIOW model costs without any federal support.
“In both of those cases, within the programs building out in three tranches over time, you get down to $100 per megawatt-hour, 10 cents per kilowatt-hour within a decade," she said. "We’re talking about, without any ITC, being able to have a...cost of energy that becomes, in the Northeast, a fairly competitive price."
Additional visibility into real-world pricing for the emerging U.S. offshore wind market is coming soon. On June 29, Massachusetts utilities issued an RFP for bids for 400 megawatts of offshore wind energy capacity. Under a law signed by Gov. Charlie Baker in 2016, the state’s utilities must procure 1,600 megawatts of offshore wind capacity by 2027. Bids are due on December 20, 2017.
“We’re going to see what kind of prices the big players like Dong Energy can bring here to the U.S. They may surprise us all and make our work far out of date,” said McClellan.
“This is a market-driven industry, and that market is well on its way, with record bids for the New York offshore leases, and steel in the water off Block Island,” she added. “This is the time for Carper-Collins, is how I think about it. There’s so much momentum. If we can get this bill over the hump, man, it would just take off.”