Deepwater Wind is now testing its new $300 million, 30 megawatt Block Island wind farm, the first such project to be built in American waters — but does that mean the U.S. offshore wind sector is finally ready for primetime? We spoke exclusively to Keegan Kruger, who covers the sector for Bloomberg New Energy Finance, to ask where the sector is heading, and why America is lagging so far behind Europe when it comes to offshore wind.

 

How big a deal is Block Wind?

It’s a very significant achievement and an important showcase to future investors. Sure, it may cost twice as much as an equivalent European asset, but it’s gone a long way towards showing that the U.S. has the technological knowhow and willpower to get this kind of project built.

To put things in perspective, a year and a half ago, Cape Wind was dead, and nobody was talking about U.S. offshore wind. Today everybody’s talking about it and we receive a lot of questions about the potential in the U.S.

So will other developers be rushing to build their own wind farms?

We believe project developers will take a more measured approach and develop more demonstration projects in the near-term given the current limited policy support outside key regions. We would expect the first larger offshore wind farms to commission after 2020. That’s when things will start kicking into gear, as we see bigger projects being built in Massachusetts and elsewhere. 

Europe has been using offshore wind for decades. Why has it taken the U.S. so long to catch up? 

There are three things holding the U.S. offshore wind sector back. First, policy: unlike in Europe, there’s been no clear support for offshore in the U.S., and no mandates requiring utilities to buy offshore wind power. Offshore wind is expensive, so there needs to be a support mechanism in place to make it an attractive investment. 

Second, the Jones Act, which basically means that non-U.S. vessels used by wind developers can’t harbor in American ports. That means making multiple trips, which slows everything down — if you look at Block Island, we saw the vessels bringing turbines and parts all the way from Europe, and it took two full summers to build. 

Thirdly, it's geography. The fairly flat waters of the East Coast is good for offshore wind, similar to the projects we’ve seen in Europe. But the West Coast is more suited for floating wind, because of the steep drop-off in the continental shelf. People talk about a West Coast gold-rush, but what we’re actually likely to see is something more akin to the stately progress of a glacier, because right now floating offshore foundations are two to three times more expensive than traditional monopile or jacket foundations in shallow water up to 50 meters. 

So we shouldn’t hold our breath for West Coast wind farms? 

There’s still a lot that needs to be done from a leasing perspective on the West Coast. Trident Winds wants to build a 100-turbine project in Morro Bay, but they’re still very much in the early stages. There are leases being negotiated for floating-wind projects in Hawaii, too, but that will be a long process for the environmental permit, given the pristine nature in the area. 

That said, California and Hawaii have very strict renewable-energy targets — 100 percent by 2045 in Hawaii, and 50 percent by 2030 in California. If policies are put in place to support those targets, that could be a catalyst for offshore development. 

But things are looking better on the East Coast? 

Yes, the east coast is pretty well-primed for offshore wind. The big question is whether we can get to scale. Without a local supply chain, there can be no real move towards cost reduction. You can’t keep bringing turbines across from Europe, and taking three years to build projects — it’s not economic, and there’s too long a wait before you start seeing returns. But getting a U.S. manufacturing base in place is very tough, because the states aren’t going to give the necessary leasing unless that supply chain is in place, and the manufacturers aren’t going to invest unless there’s a signal from the states. 

That means that right now there’s a ‘chicken and egg’ problem. We’ve spoken to turbine manufacturers about the plan for a 1.6 gigawatt offshore wind zone off the coast of Massachusetts, for example, and we’ve asked whether that would be a significant enough commitment to lead them to invest in the sector. To put it bluntly, it isn’t. There still needs to be a lot more build out — in the region of 8 to 10 gigawatts — before we’ll see the supply chain coming to the fray. 

If the sector does take off, will the winners be U.S. companies, or European firms? 

It’ll be both. The first projects will be built by local developers, but with significant input from foreign manufacturers. DONG (CPH:DENERG), for instance, said in their IPO documents that the U.S. is a growth market for them. And that goes both ways — GE (NYSE:GE) already has an offshore turbine through it's Alstom acquisition and has been trying to acquire French offshore-wind group Adwen. That’s similar to what we’ve seen happening in Europe, with Chinese and Japanese developers buying stakes in European projects to learn how to develop assets in their home markets. 

Either way, though, the industry will be focusing on creating local jobs — it doesn’t help anyone to just import offshore wind technology from Europe. There’ll still need to be local manufacturing hubs, and local service infrastructure — American offshore turbines aren’t going to be serviced by people jumping in boats and sailing across from Europe. 

What kind of investors are getting involved in offshore wind? 

There’s a broad range of investors out there — it’s not just utilities funding projects any more. A lot of the equity investors we’ve seen are big infrastructure investors, like Macquarie Infrastructure Corporation (NYSE:MIC) and Copenhagen Infrastructure Partners. We’ve also seen pension funds coming to the fore — a lot of these institutional investors are finding that the return profiles for offshore wind assets are in line with the yields called for in their investors mandates. 

What should investors be on the lookout for? 

At the moment we’re very much focusing on policy. Without policy support, they’ll be no investment in the supply chain, and without that there can’t be the build-up. So we’re actively monitoring how each state views offshore wind, and what steps they’re taking towards that. If one state kicks things off with a strong mandate for power purchases from offshore wind, then it might be the catalyst for other states to follow suit. 

The final word: is offshore wind going to take off in the U.S.? 

Based on what we’re seeing, this has all the hallmarks of a growing industry. If Dong, or some other developer, can move into Massachusetts and build an offshore wind project for a cost that’s comparable to a European project, then it’ll show the sector has a future. So is this just noise, or is it actually happening? We need more time, and more demo projects, to be sure, but by 2020, we should have more clarity.

Ben Whitford is the U.S. correspondent for The Ecologist. He has written for the Guardian, Newsweek, Mother Jones, Slate, and many other publications.