Offshore Wind Plans

US strategy to harness segment potential

The offshore wind energy industry in the US has finally gained a foothold in many Northeast and Mid-Atlantic states, which have densely populated load centres and high electricity prices. Several states including New York, New Jersey, Massachusetts, Maryland, Connecticut and Rhode Island have already pledged or planned over 8 GW of offshore wind energy projects by 2030 in the waters of the Atlantic Sea. Other states including Delaware, Ohio, California, North Carolina, Virginia and Hawaii are also making swift progress on this front.

There is evidence of federal support as well. The Department of Interior’s (DoI) Bureau of Ocean Energy Management (BOEM), which is responsible for overseeing offshore renewable energy development in federal waters, has so far issued 13 commercial wind energy leases in the outer continental shelf. In December 2016, the Department of Energy (DoE) and the DoI published the National Offshore Wind Strategy. The report identifies a huge potential for offshore wind in the country. According to the report, 86 GW of offshore wind development by 2050 could create 160,000 jobs, cut greenhouse gas emissions by 1.8 per cent and reduce power sector water consumption by 5 per cent. In December 2017, the DoE announced a funding of $18.5 million for creating a public-private consortium to conduct research on reducing the costs of developing offshore wind energy in the US.

State-level plans for offshore wind

At the state level, Massachusetts is ahead of other states in harnessing its offshore wind potential for commercial power generation. The failure of the Cape Wind project has not dampened investor interest in the state. In 2016, the state signed a legislation that requires utilities to purchase 1.6 GW of offshore wind energy by 2027. In December 2017, three developers  Bay State Wind, Deepwater Wind and Vineyard Wind  submitted bids in response to the joint requests for proposal (RfPs) issued by Massachusetts’s electric distribution companies and the Massachusetts Department of Energy Resources to enter into long-term contracts for 400 MW (could be up to 800 MW) of offshore wind power. The winner is expected to be selected over the next couple of months.

In January 2018, New York released a master plan to develop 2.4 GW of offshore wind capacity by 2030. The state will issue solicitations for about 800 MW of offshore wind power capacity in 2018 and 2019. New Jersey also recently made a commitment to procure around 3.5 GW of offshore wind power by 2030. To this end, the state’s Board of Public Utilities has been directed to issue a solicitation for 1.1 GW. In February 2018, Rhode Island’s governor directed the state’s utilities to issue competitive RfPs for the procurement of about 400 MW of additional renewable energy including offshore wind. Rhode Island houses the country’s first-ever commercial wind farm, the Block Island Wind Farm developed by Deepwater Wind. The 30 MW project began commercial operations in December 2016. Connecticut also issued an RfP in February 2018 for the development of offshore wind projects delivering up to 825,000 MWh of electricity annually. In 2017, the Maryland Public Service Commission awarded the first offshore wind renewable energy credits to two projects  Deepwater Wind’s 120 MW Skipjack project and US Wind’s 248 MW project.

Delaware has formed an Offshore Wind Power Working Group, which is expected to deliver a report by mid-2018. Meanwhile, the Ohio Power Siting Board is reviewing comments on the proposed icebreaker offshore project on Lake Erie. California is exploring how offshore wind could be utilised to achieve the state’s clean energy goals. Dominion Energy Virginia in partnership with Denmark’s Ørsted (formerly DONG Energy) has proposed to develop a 12 MW wind farm off the coast of Virginia. In March 2017, the BOEM held a competitive lease sale for the Kitty Hawk Wind Energy Area off the coast of North Carolina. Avangrid Renewables was announced the winner. It signed the lease in October 2017.

There is strong investor interest in Hawaii as well. Alpha Wind Energy has proposed to develop two 400 MW floating offshore wind energy projects near Oahu, Hawaii. The company has submitted unsolicited applications for the projects to the BOEM. Statoil and Progression Energy have also submitted expressions of interest for leasing wind power development areas off Oahu.

Addressing the transmission challenge

The offshore wind energy industry is gaining momentum in the US. Given the combined efforts of various states and the support of the federal authorities, offshore wind could be the next big thing in the US electricity industry. However, sector growth is stymied by several challenges pertaining to technology costs, power supply contractual terms, availability of funds, supply chain management and skill development.

A key challenge among these is the development of offshore wind transmission infrastructure. At present, there is a lack of optimal grid infrastructure in the US, which could dampen developers’ interest in building planned offshore wind farms. Who will build the offshore links and network? What are the best technology solutions for the US? These decisions will influence how the US offshore wind energy industry eventually grows. Transmission links have a long lead time of 5-10 years, while wind generation projects require one to three years only. Thus, a collaborative and proactive approach at the policy, planning and industry levels is critical for building an optimal offshore transmission infrastructure solution to minimise overall costs and maximise the benefits of the emerging offshore wind projects in the country.

The Texas Competitive Renewable Energy Zone (CREZ) programme serves a precedent in this regard. Under the programme, the state authorities and planners took a proactive approach in building the transmission lines for the proposed onshore wind energy projects. Through CREZ, they ensured that a robust network was available before the projects started feeding power into the grid. Moreover, Texas grid planners and regulators selected the transmission providers through competitive bidding. Texas would not have been able to exploit its vast wind energy resources without the participation of a broad cross-section of stakeholders working together to design a solution to eliminate transmission bottlenecks.

An important question facing the sector is who will build the transmission links for the upcoming offshore wind projects in the US wind farm developers, utilities or independent transmission investors. If the job is left to wind farm developers, there is a fear of losing out on the benefits of economies of scale. Several industry experts are of the view that this may not be an optimal solution for the numerous planned wind farms in the Atlantic Sea. An offshore grid connection link accounts for 10-20 per cent of the total project capex. Aside from capital costs, the potential costs related to failure and consequent plant shutdown can be huge. Also, offshore wind farm developers may not have the requisite skills and experience to deal with the transmission challenges. In the case of the Block Island offshore wind farm, the developer was to build the undersea cable link to the onshore grid. However, it sold the rights to build the link to the National Grid US, which is the offtaker of the electricity produced at the wind farm. The National Grid called it the Sea2Shore project.

The US can also draw on the experience of European countries for designing its offshore grid infrastructure. The UK and Germany are clear leaders in offshore wind energy. According to WindEurope, the cumulative offshore wind capacity in Europe stood at 15.78 GW as of end-2017, with the UK and Germany accounting for about 43 per cent and 34 per cent respectively. These countries have used two different approaches to deliver electricity from offshore wind projects to the onshore grid.

Under the approach taken by Germany, which is also followed by most EU countries, the offshore grid connections are owned, built and operated by transmission system operators (TSOs). The TSOs recover their costs by charging end consumers. Wind farm developers do not have to pay for the use of offshore grid links.

In the early years of offshore wind development in Germany, connection to an offshore wind generation plant was guaranteed by the concerned TSO on a case-to-case basis. The TSOs were required to build the interconnections for the wind farms as and when a generator presented the need. The TSOs faced several challenges, which led to delays in the development of these links and cost overruns for wind farm developers. This approach lacked coordinated effort to build an optimal offshore grid.

In 2013, Germany’s regulator BNetzA made it mandatory for the four German TSOs to develop offshore grid development plans called Offshore-Netzentwicklungsplan (O-NEP), which need to be updated annually. This coordinated approach has resulted in a better planned and executed offshore grid infrastructure, which enables sharing of transmission assets across several wind farms. This planning and coordination is expected to yield long-term efficiency gains. Several generators seek connections in the same area at the same time. In this situation, a coordinated effort by the concerned TSO can help create economies of scale. The regulators need to incentivise the TSOs to achieve this.

In the UK, the energy regulator Ofgem allows private third-party transmission companies, called offshore transmission owners (OFTOs), to compete for licences to operate and maintain the offshore links. The OFTOs are guaranteed a fixed 20-year revenue stream (subject to performance) for the operations and maintenance (O&M) of the transmission assets. Wind energy generators pay for the use of the OFTO transmission system. OFTOs receive these revenues from the National Grid, which eventually recovers its costs from consumers. The OFTO regime has been in place since 2009. Prior to that, offshore wind farm grid connections were built, owned and operated by wind farm developers themselves.

The OFTO regime has been executed in two phases – the transitional regime (up to 2013) and the enduring regime (since 2014). Under the transitional regime, wind farm developers constructed the necessary transmission assets and then transferred the ownership of these assets to the selected OFTO, which was then responsible for the O&M of the assets. Under the enduring regime, offshore developers have the flexibility to decide whether they will design and construct transmission assets or delegate the task to the OFTOs. Regardless of which party constructs the offshore transmission assets, the OFTO will have the ownership of the assets and will be responsible for their O&M. So far, the generators have chosen to build the offshore grid links on their own as they believe this gives them greater control over costs and delivery.

Industry experts are not entirely convinced that the OFTO regime is an optimal solution. The main reasons for introducing the OFTO regime were to deliver cost efficient investments, attract the necessary fresh capital and bring in technical expertise. However, it may not have delivered a well-coordinated effort to build an offshore grid. Experts also feel that the current OFTO regime may not have fostered technology innovation as the decision to construct the offshore transmission assets still lies with the generators and for generators costs are a key deciding factor.

Several regional collaborative efforts are also under way in Europe to promote HVDC for offshore wind energy infrastructure. For instance, the North Sea countries have signed a political declaration on energy cooperation and formed the North Seas Countries’ Offshore Grid Initiative for the coordinated development of an offshore grid. Under an EU-funded project called PROMOTioN, these countries are working together to evaluate the benefits of a meshed HVDC offshore transmission grid.

An key factor contributing to the rising popularity of HVDC is the declining cost of the technology. HVDC is already proving to be cost effective for several offshore wind energy developments in Europe. With little domestic experience in HVDC even for the onshore grid, the US definitely stands to gain from Europe’s learning curve for developing an offshore transmission grid.

In Massachusetts, private transmission developer Anbaric Development Partners (ADP) has obtained the Federal Energy Regulatory Commission’s (FERC) permission to develop a shared network for the state’s proposed offshore wind farms. The company has been granted the rights to solicit customer interest and sell transmission rights to a 2-2.4 GW HVDC offshore wind transmission system called the Massachusetts Ocean Grid. According to ADP, the proposed grid project will provide a common offshore interconnection point for multiple wind energy developers, thus saving the cost and time for building individual generator leads. The first part of ADP’s Massachusetts Ocean Grid is likely to come online by December 2021, while the full system will become operational by 2025.

Transmission challenges could slow down the growth of the US offshore wind industry. As grid connection processes are often slower than the development of new generation projects, it is time for the industry to devise an action plan for developing timely and robust offshore wind energy interconnection infrastructure. Proactive planning and strong regulatory support will play a key role in addressing the transmission challenges in offshore wind development in the US.

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