Fifteen miles east of the under-construction 30MW Block Island project — American’s first offshore wind farm — lie three huge development zones. The rights to this acreage are owned by a trio of financial heavyweights — Blackstone, Goldman Sachs and DE Shaw — whose presence would attract attention in any industry, let alone one still on the launch pad.
“These are not mom-and-pop shops,” notes Bryan Martin, head of US private equity at DE Shaw, a New York-based hedge fund that has $37bn under management and is the principal owner of Block Island developer Deepwater Wind. “We’ve all come to the same area and the same conclusion.”
How much offshore wind capacity gets built in the zones, and how soon, is anyone’s guess. But many see them as a catalyst enabling the US market to move beyond one-off projects and begin building self-sustaining momentum.
The question on the lips of many observers of the US offshore wind market is, “What’s the next project after Block Island?” But a more important question might be: “Where’s the first US offshore zone?”
Most of the pilot projects and development zones in US waters today are relatively far apart, making economies of scale difficult to achieve. But the trio of projects off southern New England would inevitably rely on some of the same regional ports and companies, perhaps creating the first taste of continuity — and competition — in the US offshore market. That would sweeten both the economics and the politics.
Large regional zones carved up by multiple developers have been critical in bringing down costs in the European market.
“The Massachusetts/Rhode Island zone has similarities with our East Anglia zone,” says David Rowland, director of new business at the country’s second-biggest wind developer, Iberdrola Renewables, referring to the 7.2GW area off the coast of eastern England owned by Iberdrola and Vattenfall.
“It’s a significant area and it’s in a strategically important location,” Rowland says.
“It has the ability to fire up and invigorate offshore wind in the US, leading to even bigger and better opportunities in the future.”
For offshore developers, the area has much to recommend it, starting with its proximity to the huge and renewables-hungry electricity markets of southern New England and New York.
Pilot projects and small one-offs like Block Island are one thing, but there must be a clear need for large amounts of power before big offshore wind projects get built in US waters.
“Is there a need for offshore wind here? In places like Boston and New England, the answer is absolutely yes,” says Thomas Brostrøm, Dong’s general manager for North America.
Brostrøm has been working “underground” in Boston since last year, when Denmark’s Dong — the world’s leading offshore developer — bought its Massachusetts zone from the UK’s RES, which had won it in a federal auction. Dong’s largest owner, after the Danish state, is Goldman Sachs.
Site conditions at Dong’s zone, known as the Bay State Wind project, are “comparable to the North Sea”, Brostrøm says, with wind speeds of around 20 miles per hour and water depths of 120-160 feet (36-49 metres), shallow enough for fixed foundations.
Deepwater Wind won its 1GW+ zone — known as Deepwater ONE — in 2013, in the first-ever offshore wind competitive lease auction held in the US.
The other, unnamed zone was won at auction by Blackstone-owned OffshoreMW. Through WindMW, OffshoreMW’s sister development company, Blackstone was among the first big US investors in the German offshore wind market.
“Without a doubt, these zones are qualitatively better than any other offshore site proposed in the US today,” says Jeffrey Grybowski, chief executive of Deepwater Wind.
The fact that all three were won through competitive auctions is important; they are not pilot projects in any sense. “But most importantly, they’re all 15-25 miles [24-40km] from inhabited land,” he says.
That means they’re unlikely to face the relentless litigation that dogged and ultimately derailed the pioneering Cape Wind project. “At the end of the day, that’s what stopped this industry from moving forward this past decade: large projects too close to shore,” Grybowski says.
“Litigation is a real thing in the US,” he says. “We should not be building multi-hundred-megawatt wind farms a few miles from the coast in this country.”
When Cape Wind lost its power-purchase agreements last year, many expected a deep pessimism to set in across the US offshore wind sector. In fact, while serious questions remain about the market’s timing, the sector has never been in better spirits.
GE, which re-entered the offshore wind industry last year through its acquisition of France’s Alstom, previously expected the US market would not become commercially meaningful until around 2025, says Anders Søe-Jensen, chief executive of GE’s offshore wind unit. These days, though, “I actually think it’s going to take off sooner than we’d predicted,” says the industry veteran, formerly with Alstom and Vestas.
Several factors help to explain the optimism coursing through the sector.
There’s Block Island, of course, whose construction is creating jobs and providing local politicians with the chance to get their pictures in newspapers standing next to large and still-exotic (in the US) offshore wind components. Block Island’s completion later this year will be national news, and some are hopeful that President Barack Obama will attend the inauguration.
There’s Dong’s purchase of the Massachusetts zone last year (followed this year by another in New Jersey waters), seen as key votes of confidence in the US market. And then there’s GE’s re-entry into the offshore wind business, with the US giant now the official turbine supplier for Block Island thanks to its Alstom acquisition.
Although the turbines that will be installed this summer at Block Island are being manufactured in France, with GE unlikely to build a US offshore factory for many years, “it’s critical that we now have a US manufacturer of offshore turbines”, Grybowski says. “It’s a game-changing difference in our business.”
One thing that’s not in short supply in the sector is realism. Everyone acknowledges that offshore wind is still expensive in the US, even in high-priced New England.
That said, there are powerful macro factors fighting the sector’s corner, including hard-won cost improvements and expertise coming out of Europe, and in the US Northeast specifically, the imminent retirement of multiple gigawatts of fossil-fuel generation capacity and a tight supply of land suitable for big onshore wind farms.
Many big developers that have not yet bought into US projects are known to be watching the market very closely, among them Iberdrola and Northland Power.
So when will the Massachusetts/Rhode Island zone begin blossoming with turbines? The developers themselves wish they knew.
Dong says the best-case scenario for its Bay State Wind project is a construction start early next decade.
Deepwater wants to build a 90MW starter project within its ONE zone sooner than that, and sell the power to New York’s Long Island. Grybowski also points to an energy bill making its way through the Massachusetts legislature as a potential near-term opportunity.
“We’re hoping that offshore wind will receive a specific mandate” in the Massachusetts bill, he tells Recharge. “It’s the most important policy discussion happening in the energy field in the Northeast right now.”
Ultimately, there are too many moving pieces — regulatory, economic and political — to begin marking calendars with any degree of certainty. But for now, at least, optimism seems to reign supreme.
“I think people are going to be surprised at how cheap offshore wind becomes in the US and how much we actually end up getting built, regardless of how much is [mandated] in legislation,” says Martin.