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DOE: US offshore wind has turned a corner, but questions remain

Confidence in US offshore wind is at an all-time high, with developers controlling zones that could hold 14.8GW of capacity, but big questions remain about the market’s future viability, according to the US Department of Energy (DOE) in its latest market report.

Since the DOE released the last version of its Offshore Wind Technologies Market Report two years ago, the US market has turned a corner.

Developer Deepwater Wind completed its $360m, 30MW Block Island project, the first offshore wind farm built in the Americas, and major international players including Dong, Statoil and Iberdrola’s Avangrid have bought their way into the market.

Meanwhile, Maryland issued renewables credits for 368MW of offshore wind capacity, Massachusetts passed legislation requiring the state’s utilities sign 1.6GW of contracts by 2027, and New York established a 2.4GW offshore wind target for 2030.

The change from early 2015 – when the federal government failed to attract even a single bid for two large zones off Massachusetts put to tender – is striking.

Critical to this recent momentum have been price signals out of Europe, where winning offshore wind bids have fallen from around $200/MWh for projects due on line in 2017-19 to around $65/MWh for those due on line in 2024/25.

Those prices are not as straightforward as they may seem, the DOE notes, with various European auctions having important differences in how things like development and grid-connection costs are allocated, as well as the length of the contracts on offer.

Still, “a significant drop in offshore wind bid prices over the past year has emerged as a clear trend”, the DOE says in its latest Offshore Wind Technologies Market Report, published this week.

Private developers now control the rights to nearly 20 US offshore sites with the potential to hold 14.8GW of future capacity, the report says. That includes a dozen large zones allocated by the Interior Department’s Bureau of Ocean Energy Management (BOEM), and a handful of small demonstration projects that have obtained site control through state and federal agencies – among them the advancing Icebreaker project in Lake Erie and Dominion/Dong’s newly revived project off Virginia.

Beyond that pipeline, developers have submitted unsolicited applications for another 2.4GW of projects in frontier markets like California and Hawaii, with the intention of getting ready for future competitive leases.

Low costs will pave the way for US offshore wind: Dong

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There are also four zones – totaling a whopping 7GW – that failed to attract bidders in previous BOEM auctions, but which would likely elicit a great deal more enthusiasm were they put to tender today. In DOE’s estimation, BOEM will “most likely” put those four zones – off Massachusetts and North Carolina – back to tender “in the near future”.

For all the market’s recent enthusiasm, the report raises several fundamental questions, all of which boil down to cost.

  • First, are the price reductions achieved recently in Europe transferrable to the US? Compared to Europe, many US projects would be built in deeper waters and less-favourable market conditions – with energy generally cheaper in the US.
  • Second, will the Jones Act and other US supply-chain limitations impede construction? “Currently the lack of specialized US-flagged turbine, cable and heavy-lift platform vessels forces developers to rely to more complex and potentially more costly installation strategies,” the report says.
  • Finally, at the end of the day, will the US market be big enough to foster a domestic offshore wind industry? At the moment, “it is unclear whether the US project pipeline will be large enough to drive cost reductions through economies of scale and incentivize investment in domestic offshore wind supply chains and specialized installation/O&M vessels”.

To that last point, the report underscores the reality that offshore wind remains a small niche within the US – and global – energy markets, and even within the wind industry itself. Around 1.2GW of offshore wind was installed globally last year, within an overall wind market of 54.6GW, according to the Global Wind Energy Council.

All told, there’s 12.9GW of offshore wind operating around the world today, out of a 487GW global wind base. Even in Europe, home to nearly all of the world’s offshore wind, offshore accounts for less than 10% of the total installed wind capacity.

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