How long will offshore wind remain stuck in the doldrums?
American wind-energy execs gathered in Boston earlier this month for a major industry conference, where they touted increasing levels of investor and developer interest in America’s vast but hitherto untapped offshore wind resources. While the U.S. currently lacks even a single offshore wind installation, senior industry figures say the sector is ripe for a major construction boom, and that projects currently under development could spark a sudden rush to build large numbers of offshore turbines.
"There's a palpable sense that it's finally happening," says Bryan Martin of D.E. Shaw & Co., a hedge fund that is investing heavily in Deepwater Wind, a Rhode Island-based outfit that hopes to launch America’s first wind farm this year. "The U.S. tends to start small and ramp up very fast. I believe that will happen with offshore wind.”
The U.S. certainly has some catching up to do. Europe currently has 92 percent of the world’s offshore wind installations, with more than 11 gigawatts of installed offshore capacity, and 26 gigawatts of additional capacity in the pipeline. Last year alone, more than 3 gigawatts of new offshore capacity were connected to the European grid — a 108 percent increase over 2014, and the largest year-on-year increase on record. All told, the EU can now meet 1.5 percent of its total energy needs through offshore wind alone.
By contrast, the U.S. has no grid-connected offshore wind farms, despite having offshore wind resources estimated at 4,150 gigawatts — about four times as much as the total combined output of all her existing power plants — and huge numbers of energy-hungry consumers packed along its eastern and western seaboards.
Part of the problem is technological: while Europe has abundant wind resources in relatively shallow water, about 60 percent of America’s wind resources lie in deep waters that require advanced, costly solutions such as floating turbines. Regulatory and legal blowback have also been a major stumbling block for promising offshore wind projects — most notably Cape Wind, which has weathered at least 26 legal challenges, many funded by billionaire William Koch, and last month forfeited its crucial power-purchase agreements as utilities grew frustrated by the resultant delays.
Given such setbacks, why are U.S. offshore-wind proponents so bullish? One reason, paradoxically, is the high cost-of-entry for offshore wind developers in U.S waters: it’s assumed that once the sector proves its fundamental viability, developers will rush to build huge wind farms in order to benefit from economies of scale. That hypothetical construction boom could lead to 7.5 gigawatts of new capacity being installed over the next decade and a half, says Thomas Brostrom, DONG Energy’s general manager for North America. “The industry needs to think big,” he explains. “As a region you would need ideally 500 megawatts a year. And I think it is possible.”
There’s plenty of precedent for investors pouring serious money into offshore wind. Europe’s offshore-wind sector has attracted plenty of attention, particularly from institutional investors, and it’s projected that the sector will draw €10 billion in new investment over the next two years. What’s more, with the European offshore-wind sector maturing, investors could start looking to foreign markets — such as the nascent U.S. offshore sector — for new opportunities. “The underlying picture will shift – Europe will become less important, the rest of the world will become more important,” says David Hostert, European wind analyst at Bloomberg New Energy Finance.
In a bid to entice investment, Sens. Tom Carper, D-Del., and Susan Collins, R-Maine, are pushing legislation that would provide an investment tax credit for the first 3 gigawatts in offshore wind to be brought online. “A credit for the first actors will encourage private-sector development of offshore wind facilities across the country,” Carper explains. Other state and federal lawmakers are spearheading similar efforts: Sen. Edward J. Markey last month proposed legislation to extend a key offshore-wind tax credit through 2025, and Massachusetts House Speaker Robert A. DeLeo is pushing for a new competitive-procurement framework to promote the development of the state’s offshore-wind sector.
Such efforts are partly driven by the realization that offshore wind could make a serious dent in America’s carbon emissions. It’s been estimated that projects already under development along the Atlantic seaboard could reduce U.S. CO2 emissions by 9.3 million metric tons. And that’s just the beginning: the Department of Energy projects that the U.S. could build out 22 gigawatts in offshore wind capacity by 2030 — about the equivalent, in terms of carbon reductions, of shuttering 15 full-size coal power plants.
That all adds up to an unquestionably huge opportunity, and industry bigwigs are understandably keen to present existing offshore projects as a sign that the sector has reached a long-awaited tipping point. "To have steel in the water and to be talking about an existing domestic offshore wind industry is really critical," says Nancy Sopko of the American Wind Energy Association. "We're talking about an industry that is here, not one that is coming.” For investors, the big question is whether that optimism is well-founded — or whether the current crop of pilot projects will prove to be just another false start.
Companies to watch
* Deepwater Wind’s 30 megawatt Block Island project is on track to become America’s first offshore wind farm when it fires up later this year, and the company already has a second 1-gigawatt project planned a little farther down the coast.
* DONG Energy, which built the world’s first wind-farm in 1991, currently holds important wind-farm leases off the coasts of New Jersey and Massachusetts, and is actively scouting for more opportunities.
* Germany’s Siemens (ETR:SIE) and Spanish renewable energy firm Gamesa (BME:GAM) are planning to merge their wind-power assets, in a move that could leave them well-placed to capitalize on a U.S. offshore construction boom.
Ben Whitford is the US correspondent for The Ecologist. He has written for the Guardian, Newsweek, Mother Jones, Slate, and many other publications.