Analysts place bets on Block Island to spur US offshore wind sector
Despite a recent setback for one offshore wind project, it would seem another has managed to dot its i’s and cross its t’s when it comes to bagging finance and marine industry experience.
By John R. Johnson
With the Cape Wind offshore wind project sinking fast, the focus for offshore wind development in the U.S. has shifted a few hundred miles down the Atlantic Coast to Rhode Island, where the Block Island Wind Farm is now projected to be the first offshore facility constructed in the United States.
With five turbines expected to produce 30 megawatts of electricity, Block Island is much smaller than the Cape Wind, which lost two purchase power agreements this month when it failed to secure financing by a Dec. 31 deadline. Cape Wind, which may re-emerge in a smaller scale, initially planned to produce 468 megawatts of energy from 130 offshore turbines.
While Cape Wind’s troubles are a setback for offshore wind in the U.S., they don’t represent a death knell.
Size matters
“I think we will see an offshore project begin by the end of this year, and that will be Block Island,” says Amy Grace, a wind industry analyst with Bloomberg New Energy Finance. “Block Island is a much more manageable size for your first project.”
Block Island is being developed by Deepwater Wind, which is backed by D.E. Shaw, an international investment firm with $34bn in assets. When the $225m project becomes operational by the end of 2016, the wind farm will generate over 125,000 megawatt hours annually, enough to power more than 17,000 homes.
Deepwater CEO Jeff Grybowski says that Block Island should not feel any negative impact from Cape Wind’s inability to secure financing, or from its loss of the PPAs.
“We have found a very robust market for our project among lenders and tax equity providers,” says Grybowski, who previously signed a PPA with National Grid to purchase energy from the wind farm.
“We have secured the equity needed for the project from our principal owner, the DE Shaw Group. We are in negotiations with commercial lenders for the construction loans for the project and expect to complete that process in the coming months.”
Full steam ahead
In the meantime, Block Island is moving full steam ahead. Fabrication of elements of the steel jacket foundations began this month in Louisiana. The fabrication of all 15 blades for the project has already been completed.
The next step is to install the five turbine foundations, which will occur this summer, followed by the submarine cables, which will be installed during spring and summer of 2016. Finally, the turbines will be erected in the late summer 2016, and the project will enter commercial operations during the fourth quarter of 2016.
“We believe that the Block Island Wind Farm is a critical first step for the U.S. offshore wind industry,” says Grybowski. “It will be a catalyst for the development of larger utility-scale projects, particularly in the important power markets in the Northeast including New England, New York, and New Jersey.”
Deepwater Wind has also partnered with Principle Power on its WindFloat Pacific project proposed off the coast of Coos Bay, Oregon. Principal Power is one the US Department of Energy awardees for offshore wind demonstration projects for this five turbine, floating foundation project. Water depths off the West Coast are too deep for fixed foundations, and Principle Power has successfully deployed a floating wind platform off the coast of Portugal.
“We believe that a demonstration-scale project on the West Coast is an important step in opening West Coast markets, just as Block Island is critical for the East Coast,” says Grybowski.
The timely permitting process, legal challenges, and the high cost of producing energy from offshore farms all remain deterrents to the North American market.
Factoring in utility offshore interest
“Most utilities aren’t interested in paying four times the market price of electricity for an offshore project just because they want to see offshore happen,” says Grace. “With the price of onshore wind coming down and solar coming down, it’s hard to make the argument that it is really worthwhile to pay so much more for offshore wind in the short term.”
One of the areas that could help propel the offshore wind sector in US waters is offshore infrastructure. Taking advice from European counterparts on offshore construction, installation, cabling, grid connection and maintenance is advisable to avoid unnecessary costs. But utilities must be incentivized to come on board to offshore wind. Perhaps cross border projects powering areas along the US and Canada border from jointly owned offshore project stakeholders could be an option.
Bringing in established players and networks
Grybowski believes that successful development of offshore wind in the US will require a careful marriage of European offshore wind experience and U.S. marine construction experience.
“We are working closely with both experienced European firms and experienced U.S. Gulf of Mexico marine contractors,” he says. “We believe that the U.S. Gulf of Mexico supply chain will allow U.S. projects to drive down project installation costs.”
Deepwater Wind’s in-house project team includes veterans of the global offshore wind and the global and American offshore oil and gas industries. Project manager Jens Hansen, for example, was a project director for DONG Energy and was personally responsible for the installation of seven offshore wind farms totaling over 750 MW of capacity.
It will be seasoned professionals, such as Hansen, with hands-on offshore experience that will guide utility decision makers to consider more seriously the offshore wind capabilities in North America. Offshore supply chain companies with a vested interest in new infrastructure projects will also come on board to support the cause, but the economics across the supply chain must be clearly laid out so that utilities can make educated long-term decisions, especially now when power costs from more established renewable energy sources are lower than ever.
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