S&P Global Ratings said the jury’s still out on the emerging US offshore wind sector, which it declared currently “uneconomic” in cost-of-energy terms and facing tough challenges over transmission.
With a levelised cost-of-energy (LCOE) above $85/MWh, if $20/MWh of benefit from the federal investment tax credit (ITC) is taken out of the equation, US offshore wind looks “substantially” more expensive than alternatives such as natural gas peakers and onshore wind at $68/MWh and $40/MWh, respectively, said the financial ratings giant in a new report on the sector.
S&P – which does acknowledge both a spiraling investor interest in US wind at sea and the potential for significant technology-driven cost reductions – reckons about 50% of the difference between American offshore LCOEs and European levels is bound up with infrastructure and grid connection costs, a difference it believes “will be tough to address”.
S&P, one of the world's largest ratings specialists that ranks companies and projects according to perceived risk for lenders, said: “We're cautiously optimistic about prospects for offshore wind energy output.
“However, given these estimates, the onus is on the industry to convince us of offshore wind's potential from a credit perspective.”
The S&P analysts said: “In discussions with industry experts, it became apparent that the major concern over US offshore wind generation doesn't pertain to resource risk, turbine performance, or even construction.
“Instead, unplanned costs of upgrading onshore transmission, placement of projects in independent system operator (ISO) queues to interconnect on time, and the areas to tie in offshore cables became the larger focus.”
The ratings group added that integrating 26GW of offshore wind off the US East Coast “will almost certainly require the development of networked offshore grids and approximately 3,000 miles of offshore transmission lines”.
Recharge reported last year how New York officials had identified transmission infrastructure as a major potential bottleneck for its 9GW offshore wind ambition, the largest of any US state.
In terms of meeting the transmission challenge, S&P’s analysts said: “Wind developers in the US could learn from the overseas experience. The industry has to avoid repeating the mistakes made by the oil majors during the LNG infrastructure construction in Australia, which experienced significant cost overruns due to duplication of infrastructure.
“This highlights the need to disperse the costs in a collaborative manner among developers and constructing offshore- and onshore-shared services wherever possible.”
In that respect S&P hailed as a “step in the right direction” plans by Anbaric for a huge offshore wind grid off New England, reported by Recharge last year and connecting up to 16GW of projects and able to direct renewable power to key centres like Boston.
And the ratings group recognised the powerful trends driving the US offshore wind sector forward.
“States are announcing offshore wind renewable targets because at stake is an opportunity to also jump-start a supply chain, estimated at $70bn, based on nearly 20GW of offshore facilities that we expect to be constructed over the decade to meet state policy requirements. Indeed, it's a race; build them and they will come.”