August 2018

Greater decarbonization efforts are driving the continued advancement of clean power. As a result, cost-competitive renewable technologies — such as solar and wind — are increasingly being incorporated into the global electricity grid. By 2040, the share of all renewables in total power generation is expected to reach 40 percent — by which time the International Energy Agency (IEA) estimates that global photovoltaic (PV) solar energy will become the largest source of low-carbon capacity [1].

Meanwhile, the Global Wind Energy Council (GWEC) predicts that worldwide wind-energy capacity will reach 817 GW by 2021, as wind power continues to make its mark on the market — second only to hydropower in terms of capacity in 2017.

However, as the renewables surge continues, there are changing technological, regulatory, and political landscapes to consider. On the one hand, assets are becoming increasingly viable — and by exploiting technological advancements, renewable power can provide solutions to regions suffering from less predictable supply and demand trends (often in remote geographical locations). On the other hand, the rate of industry development is still bound by restrictive policies, technology risk, and unpredictable weather conditions. If wind and solar projects are to further leverage the vast potential of renewable energy sources around the world, the risks should be understood and appropriately mitigated.

Advancements take hold

As wind and solar power become increasingly viable, S&P Global Ratings is observing a burgeoning pipeline of projects that are addressing local electricity challenges. Take the U.K. market, for example, where costs for offshore wind projects have fallen by a little under a third in just five years. In turn, we are increasingly seeing wind projects employing enhanced turbine and submarine cable technology — the Western Link initiative, for example, is a 1 billion pound bi-directional cable project that will transfer 900 MW of onshore and offshore-generated electricity from Scotland to England and Wales.

Similar projects are coming to fruition elsewhere. For instance, in the U.S., Cross Sound Cable is an under-sea transmission line moving excess clean electricity from renewable-rich New England to Long Island, New York, which has historically faced both gas and electric transmission constraints. The project can transmit 330 MW of hydrologic and wind power, and it and will deliver carbon savings equivalent to approximately 600 MW of wind capacity. What’s more, the cable is bi-directional, allowing electricity to flow in either direction according to the grid’s demand needs. The U.S. also has considerable offshore wind power potential that is yet to be explored — a 2012 study by the U.S. government-owned National Renewable Energy Laboratory (NREL) estimates potential offshore capacity at 4,200 GW. Wind speeds off the Atlantic coast and in the Gulf of Mexico are generally lower than wind speeds off the Pacific Coast and Hawaii, but the Atlantic has shallower waters that are more economically attractive due to the likely lower costs of installing turbines (see Chart 1).

There have been significant technological advancements for wind turbines, too — most notably in Europe. For example, one trend is the production of larger and more efficient rotors — and wind-turbine generators (WTGs) established on better foundations. And because offshore wind projects typically spend the largest proportion of capital and operational expenses on WTGs, rotor sizes will likely continue to increase as operators pursue economies of scale — thereby reducing their costs per MW produced and optimizing their yields and efficiency ratios. And as the costs continue to fall, the number of wind projects will continue to increase.

Advancements to PV technology also have resulted in solar power becoming more viable — with solar additions to the grid increasing at pace every year (see Chart 2). In Asia Pacific, for example, the Asian Renewable Energy Hub project will harness Western Australia’s wind and solar resources and export the electricity generated to Indonesia. In addition to the 2,400 MW of electricity produced by PV solar panels, more than a thousand 300-meter-high onshore wind turbines will also generate electricity to power 7 million homes — enough renewable energy to offset almost 1 billion metric tons of CO₂ during the project’s lifespan.

Elsewhere, U.S.-based Hannon Armstrong Sustainable Infrastructure Capital, Inc. last year issued $163 million of sustainable yield bonds to refinance its land leases, which support a portfolio of 57 utility-scale solar electricity generation projects, with a total generating capacity of approximately 1,200 MW; 73 percent of that is in California, adding to the state’s rapidly growing solar power capacity — in 2010, California laid claim to just 7 MW of capacity; today it boasts 8,618 MW [2].

Mitigating risks

Yet, with technological developments materializing at pace, there are myriad risks to address — not least possible environmental ramifications during the assembly and implementation phases. These can include considerations during the construction phase (including technology and counter-party risks) or during the operation phase (such as resource, regulatory, and market risks). Importantly, as technologies continue to advance, we can expect their associated risks to evolve, too.

Notably, wind-farm projects face significant construction risks. For example, the U.K.-based Greater Gabbard wind farm, a 504 MW-capacity project constructed by Shanghai Zhenhua Heavy Industries Ltd., was subject to cost and schedule overruns after cracks in the monopiles were discovered. However, we believe that as the industry matures, construction risk is being better understood — and with understanding comes the improved ability to mitigate. There are also operational considerations, namely resource risk. For example, project owners must consider whether the project has the necessary wind resources to meet performance requirements. The development of more sophisticated undersea cables also means that projects are moving farther from shore — which, in turn, may also bring heightened risks (particularly in the form of harsher weather conditions and deeper sea levels).

These complexities can become accentuated when the technologies installed are different to those proposed during the bidding phase. Notably, we are observing that some Germany-based utilities are factoring in immediate technological advancements as part of their assumed costs for offshore wind projects to be built in the next decade. Limiting the environmental impacts during construction has also become progressively more significant for market participants: The TenneT project, for instance, requires all contractor ships to certify they do not discharge waste into the North Sea while installing undersea cables.

Similarly, solar power generators can come up against construction risk, market risk, and the risk of inconsistent energy generation because of a lack of sunshine. However, new technologies could help to mitigate this risk, with battery storage technology expected to be the next major disruption to the American grid. As the U.S. heightens its reliance on solar energy — often through state-based Renewable Portfolio Standards (RPS), such as in California — its intermittent nature could see grid stability become a risk. That is, unless large-scale batteries can come online to secure power consistency.

So, while there are still a number of risks for project owners to consider, what’s clear is that renewables projects are seemingly trending toward more advanced technologies at lower costs — and deeper market penetration globally. As both wind and solar advance, one can expect the technological risks, in some scenarios, to become increasingly complex — a factor that project owners must be prepared to balance. That said, the industry is not deterred. Renewable projects (and market opportunities) continue to be launched — benefiting from the promise of abounding renewable energy potential around the world.

References

1. www.iea.org/publications/renewables2017/
2. www.energy.ca.gov/renewables/tracking_progress/documents/installed_capacity.pdf

There is no question that 2018 is emerging as a watershed year for the offshore wind energy industry in the U.S., with several large wind farms having their site plans approved and states increasing their commitments and goals for offshore wind energy.

In the midst of this energy and excitement, we need to keep in mind that regional cooperation between developers, suppliers, and between the states is going to be critical to building a healthy and sustainable industry supported by a viable supply chain.

We use the term “co-opetition” to describe the combination of competition and collaboration, and apply it to remind the industry that no single state is going to own the entire supply chain. The U.S. offshore wind energy pie is big, and there is enough for every state so they don’t need to fight but work together on complex issues such as commercial fishing, navigation, environmental impacts, and supply chain development on a regional basis.

To those waiting for this technology to come online and start replacing fossil fuel power plants, a year or two or even five years may seem like a long time to wait, but timing projects so we have a “good pipeline” — a steady, consistent stream of projects throughout the 2020s — is important, so construction projects don’t stack up on each other and we don’t have huge, expensive pieces of customized offshore wind equipment and highly skilled labor forces standing idle one year and strained to the breaking point the next.

Federal Role

The Trump Administration is streamlining permitting, accelerating design, and reviewing a recommendation for a future offshore wind leasing program that could cover 20 GW of capacity, or 2 GW per year over a decade. All of these factors present a strong business case for offshore wind investment in the United States.

The two main federal agencies overseeing the offshore wind process, the Department of Interior’s Bureau of Ocean Energy Management (BOEM) and the Department of Energy (DOE), support the industry with auctions of offshore wind-energy areas, research, environmental and engineering review, industry guidelines, and outreach such as regional task force meetings and presentations at industry events.

BOEM has stated offshore wind fits the administration’s “All of the Above” approach to energy development and is working to streamline the offshore approval process, while DOE just issued an $18.5 million grant for offshore wind research and development, administered by NYSERDA (see New York below).

BOEM also recommends a regional approach. “The offshore wind industry is experiencing exciting momentum as a result of growing industry-wide confidence in the U.S offshore wind market, thanks to decreasing global costs, stronger state policy commitments, and this Administration’s commitment to American energy,” said BOEM’s Jim Bennett, Chief of the Office of Renewable Energy Programs. “However, experience has shown that it will take a concerted effort by the Federal and State governments to propel this industry forward. States and regions often find themselves with shared economic interest. To realize the full potential of offshore wind, we need to take a regional look at how the offshore wind industry is going to come together.”

Here is where we see the northeastern and mid-Atlantic coastal states going in the next six months or so:

Massachusetts

Perhaps the most dynamic of the East Coast states, Massachusetts has aggressively moved into a leadership position in offshore wind, highlighted by its announcement that Vineyard Wind had been selected out of three bidders for the state’s first, 800 MW solicitation in May. Vineyard Wind is a joint venture of Avangrid Renewables and Copenhagen Infrastructure Partners.

The Power Purchase Agreement (PPA) for Vineyard Wind’s 800 MW project was scheduled to be submitted to the Massachusetts Department of Public Utilities for approval July 31, 2018.Vineyard Wind has continued to advance the planning of its project and should be soon selecting some of its tier 1 contractors — including turbine manufacturers, foundation suppliers, and installation contractors. It hopes to start construction next year and begin delivering clean energy by 2021.

BOEM is scheduled to auction the two remaining offshore wind energy lease areas in the Massachusetts Wind Energy Area (MAWEA) by the end of the year, which provides the possibility of having additional offshore wind developers competing for the next Massachusetts Offshore Wind Solicitation next year.

To coordinate with the commercial fishing industry, the state is working with the Massachusetts Fisheries Working Group, Rhode Island Fisheries Advisory Board, BOEM, National Marine Fisheries Service, and others to establish the Southern New England Fisheries Science Panel to track interactions between fisheries and offshore wind structures. They also are working with the Massachusetts Clean Energy Center to create a state-wide workforce training program.

In June, the state Senate passed a law to raise its Renewable Portfolio Standard (RPS) to 100 percent by 2047. The state also has supported investing millions to redevelop and modernize dock space in the old whaling and fishing village of New Bedford for offshore wind.

Rhode Island

On the same day that Massachusetts announced the selection of Vineyard Wind, Rhode Island awarded Revolution Wind — a wind farm led by Deepwater Wind — its solicitation of 400 MW. Jeff Grybowski, CEO for Deepwater Wind, called the joint announcements “the first really large-scale procurement ever for offshore wind in the United States.” Deepwater Wind also developed the nearby Block Island 30-MW wind farm.

Revolution Wind hopes to start local construction of the project by 2020, with 50 turbines operating by 2023.

Connecticut

Deepwater Wind scored again on June 13, when it won a competitive bid to supply Connecticut with 200 MW of wind power. The state’s Department of Energy and Environmental Protection (DEEP) noted the project is expected to create about 1,400 direct, indirect, and induced jobs. Deepwater Wind has committed to invest $15 million in the New London State Pier.

Deepwater Wind will now work on negotiating 20-year contracts with electric utilities Eversource and United Illuminating, which will then be reviewed by the state’s Public Utilities Regulatory Authority (PURA) for final approval.

New York

Another regional powerhouse, New York is moving quickly to stake out its offshore wind territory and compete with Massachusetts to the north and New Jersey to the south. Gov. Andrew Cuomo kicked off the year with a call for a solicitation for a total of 800 MW of offshore wind in 2018 and 2019, part of his goal to generate 2,400 MW of offshore wind by 2030.

Equinor, formerly known as Statoil, leased 80,000 acres for $42 million at auction just south of New York City and Long Island in December 2016. Now the New York State Energy Research and Development Authority (NYSERDA) has requested and BOEM has agreed to a call for four new wind energy areas (WEAs) in the New York Bight between New Jersey and Long Island. BOEM has held several meetings on the proposal and set a July 30 deadline for comments from the public. BOEM hopes to hold auctions for the New York Bight properties in late 2019.

On June 15, NYSERDA was awarded an $18.5 million grant from the U.S. Department of Energy to lead the National Offshore Wind Research and Development Consortium. The agency already has begun bringing together the offshore wind industry, utilities, research laboratories, and other states (New Jersey has signed on). This national and independent consortium will help reduce industry barriers; advance technologies and methods to reduce siting and installation costs; address operations challenges; and foster job growth throughout the supply chain.

On July 12, Cuomo announced NYSERDA will procure approximately 800 MW of offshore wind through a solicitation issued in the fourth quarter of 2018, in consultation and coordination with the New York Power Authority and the Long Island Power Authority. Awards are expected to be announced in the second quarter of 2019. If needed, a second solicitation will be issued in 2019.

New Jersey

Despite being a little late to the party, New Jersey inaugurated a new governor in January whose administration is strongly committed to offshore wind. On May 23, Gov. Phil Murphy signed the Clean Energy Bill, which increased the state’s RPS to 50 percent by 2030, with an objective of 3,500 MW of offshore wind power built in.

Also on May 23, Murphy signed Executive Order No. 28, requiring state agencies to update the Energy Master Plan (EMP) that prepares a strategy for achieving 100 percent clean energy by January 1, 2050. The new EMP is scheduled to be finalized and published by June 1, 2019.

The state has three active projects, led by the small (24 MW) Fishermen’s Energy wind farm located about three miles off Atlantic City. Fishermen’s Energy, now owned by EDF RE, was scheduled to file a new application with the NJ Board of Public Utilities (BPU) by the end of July, and the BPU will have 90 days to review their proposal. If approved, Fishermen’s could have its four 6-MW turbines producing electricity by 2020.

The Danish developer Ørsted has the Ocean Wind project under way 10 miles off Atlantic City, which will provide electricity to 500,000 homes when fully built. Ocean Wind had its Site Assessment Plan (SAP) approved May 17, the same day it opened a new office in Atlantic City. Just to the north, U.S. Wind has a second major wind development planned for 183,353 acres.

New Jersey BPU is also working on its Offshore Wind Renewable Energy Credits (OREC) funding mechanism, a solicitation for 1,100 MW of offshore wind, and an Offshore Wind Strategic Plan, all due by the end of this year.

Maryland

The first state to pass legislation that uses ORECs as the funding mechanism for offshore wind, Maryland has one active offshore wind project: U.S. Wind near Ocean City.

On March 22, BOEM approved the SAP for the U.S. Wind project. The SAP approval allows for the installation of a meteorological tower; a seabed-mounted acoustic Doppler current profiler (ADCP) sensor; and a conductivity, temperature, and depth (CTD) sensor, so U.S. Wind can conduct the testing required for the next critical step, the Construction and Operations Plan (COP).

Virginia

Another state that is catching up on offshore wind, Virginia doesn’t have a formal RPS, but its Grid Transformation and Security Act of 2018 declares that 5,000 MW of renewable energy are in the “public interest,” including a carve out for 12 MW of offshore wind.

Dominion Energy Virginia (a utility) is partnering with Ørsted to build the Coastal Virginia Offshore Wind project 27 miles off Virginia Beach. This 12-MW demonstration project of two 6-MW turbines could be installed by 2020 and is directly adjacent to an 112,800-acre site leased by Dominion.

Once the Virginia State Corporation Commission (SCC) approves Dominion’s funding request for 12MW of offshore wind to be paid by the ratepayers — approval is expected this year — then construction may start. The state would then need to increase its offshore wind carve out beyond 12 MW to use the much larger commercial lease area held by Dominion.

To accelerate the state’s offshore wind development, the Virginia Department of Mines, Minerals, and Energy (DMME) posted a Request for Proposals May 22 from qualified contractors to “develop a plan to position Virginia as the East Coast offshore wind supply chain and service industry location of choice.”

Maine

A large northeastern state with 378 land-based wind turbines and good offshore wind potential, Maine is being held up because its governor opposes wind energy and claims that it would be too expensive for ratepayers (much like New Jersey’s former governor). In January, Gov. Paul LePage imposed a moratorium on new wind-energy projects until a new Maine Wind Energy Advisory Commission reports on wind power’s economic impacts. The commission also could affect the experimental Maine Aqua Ventus floating wind farm, which is being developed by the University of Maine.

The governor leaves office in January, and offshore developers and investors are waiting to see who wins the election in November before making their next moves.

North Carolina

Like Maine, North Carolina has a long coastline and tremendous wind resources off its shores but is being held up by state politics. The state has three WEAs: Kitty Hawk (122,000 acres), Wilmington West (52,000), and Wilmington East (134,000), but similar to Maine, it is facing resistance, in this case from the state Senate.

In a report released March 28, offshore wind advocates demonstrated the steady winds blowing off the North Carolina coast could provide 4.7 times the state’s electricity usage each year. Avangrid Renewables, which won the offshore wind lease for the Kitty Hawk parcel in 2017, stated in March that plans for a massive wind farm off the North Carolina coast are “moving faster than I think anybody anticipated,” according to CEO Laura Beane.

However, the company still faces some challenges, including the lack of infrastructure in that area, the relatively low cost of competing energy sources, and political obstacles.

Overall, it’s clear the U.S. East Coast as a region is moving forward and seizing the opportunities provided by the offshore wind-energy marketplace.

As the projects move toward completion, supply chains develop, and scale drives costs down, it will be essential for developers and state governments to team with the federal agencies and work together to avoid missing out on this chance to make the most of the global clean energy revolution.

t turns out that tapping into a free and abundant natural resource that exists everywhere is among the cleanest and most efficient ways of producing electricity. Investments and innovations over the past decade have brought wind’s costs down to their lowest levels ever — 66 percent cheaper than in 2009 — making wind power a mainstream source of reliable, affordable energy.

Over the past five years, the United States has more than tripled its wind-generating capacity, with wind representing 25 percent of new power generating capacity that came online. Wind also surpassed conventional hydropower as the largest renewable energy source by capacity.

Recent market trends show this impressive growth should continue in the years ahead, as wind has become the cheapest source of new electricity in many parts of the country.

Continued technological and manufacturing improvements also allow new turbines to reach stronger, steadier winds, meaning more electricity can be generated at a lower cost. As we continue adding new chapters to this American success story, let’s take stock of the state of U.S. wind power.

All In For Wind

Utilities and Fortune 500 companies continue to show a strong appetite for wind. Their demand has helped grow the number of new wind projects under construction or in advanced development 40 percent since this time last year.

In 2017, the industry added 7,017 MW of new capacity across 24 states, enough to power millions of homes. Forty-one states now have utility-scale wind projects, and by the end of the year, the U.S. had enough installed wind capacity to power the equivalent of 27 million American homes.

Overall, wind now supplies more than 6.3 percent of America’s electricity. However, figures are even more impressive at the state level. Iowa, Kansas, South Dakota, and Oklahoma now all generate at least 30 percent of their electricity using wind. In total, 14 states generate at least 10 percent of their electricity with wind.

Though Texas remains the country’s largest wind producer, New Mexico has made headlines by tapping into its large and abundant wind resources. In 2017, it had the highest rate of new wind-power growth in the country, putting the Land of Enchantment on pace to join the ranks of other wind powerhouses.

“I’m proud that New Mexico’s wind power capacity grew at a faster rate than any other state and generated an unprecedented level of private sector investment and job growth,” said U.S. Senator Martin Heinrich. “As consumers and major companies demand cheaper and cleaner power sources, our state stands to benefit and become an even bigger leader in this booming energy sector — especially in rural communities.”

In many states like New Mexico, wind offers new job opportunities and much-needed tax revenue that helps revitalize rural communities. It has not only allowed communities to profit from the passing breeze but has also done so in a manner that leaves 98 percent of the land undisturbed, so that it can remain useful for farming, ranching, or natural-habitat preservation.

Fortune 500 companies have also recognized the benefits of wind power. Many of them have committed to procuring wind energy for their energy-intensive manufacturing and data center operations. To guarantee a reliable and price-stable supply of renewable energy, many companies have entered into power purchasing agreements (PPAs). PPAs allow companies to contract with a wind-energy provider to buy electricity over a specified period of time at a fixed rate.

In fact, corporate buyers account for 94 percent of total non-utility wind deals. In 2017, companies contracted for more than 2,000 MW of wind energy. This helps them plan for the long term while also reaching internal sustainability goals.

“Helping to grow the renewable energy market is not only good for the environment, it is a strategic business move as we strive for long-term sustainability,” said Anheuser-Busch CEO Joao Castro Neves.

Already in 2018, companies such as Nike, T-Mobile, Facebook, and Bloomberg have entered into new agreements to buy wind power. The complete list includes first-time wind buyers such as Adobe Systems, AT&T, Brown Forman, Kohler, and Nestlé. Every month, the list of companies that have committed to buying wind gets longer.

“As one of the world’s largest companies, we know how we source our energy is important,” said Scott Mair, president of AT&T Operations. “Many companies are focused on their own carbon footprint, but we believe our industry can do more. We’ve been working for a long time to ensure our wind projects deliver for both our business and the environment.”

Corporate procurement and PPAs will continue to play an important role in wind’s growth in the coming years.

2018 has seen a healthy start, with non-utilities accounting for nearly a third of PPAs. During the first quarter of this year, project developers have signed more than 3,560 MW of PPAs. That makes Q1 the strongest quarter for PPA growth since AWEA began tracking it.

The Promise of Offshore

While land-based wind continues to expand, the U.S. is also on the cusp of developing more offshore capacity. The development of offshore wind in the coming years represents billions of dollars of investment and thousands of new manufacturing and shipping jobs. Offshore wind farms offer the promise of efficiently providing electricity to major population centers along the coast, allowing us to tap into a new ocean energy resource. Offshore wind is a proven technology that holds enormous potential for the United States.

“The European offshore wind market is 27 years old,” said Roy Francis, vice president of Business Development for Gulf Island Fabrication, a Texas-based offshore energy construction firm. “We are taking the best from the mature European industry and pairing it with American know-how.”

Because of the success at the Block Island Wind Farm, America’s first offshore project, states are looking to tap into vast wind resources off the coast. By the end of 2017, there were already 17 offshore wind projects in various stages of development, spanning 11 states off the East, West, and Great Lakes coasts. These new offshore projects represent more than 11,600 MW of wind-power development.

Many states are looking to offshore wind to secure affordable energy, achieve renewable goals, and reduce carbon pollution. For example, Massachusetts utilities intend to procure 1,600 MW of offshore wind by 2027. New Jersey has also launched massive plans to develop more than 3,500 MW of offshore wind by 2030.

Other projects also are coming along. In 2017, Maryland’s Public Service Commission awarded Offshore Renewable Energy Credits (ORECs) to U.S. Wind and Deepwater Wind, which together will produce more than 368 MW.

New York also has announced ambitious plans to develop up to 2.4 GW of offshore wind over the next decade to help meet its goal of 50 percent renewable energy by 2030. The state released its Offshore Master Plan in January, which identifies areas for wind development and potential pathways to procurement. New York also intends to hold two requests for proposals (RFPs) over the next two years to launch development. On top of that, New York will invest $15 million in education programs to train workers for offshore wind jobs and developing its port infrastructure.

Offshore is a new frontier for the American wind industry, and it promises to support thousands of new manufacturing and shipping jobs across the country. This is only the beginning of the country’s ability to tap into the strong and steady winds off our coasts.

A Confident Industry Works for America

As interest from utilities and companies steadily increases and technological advances continue to drive down costs, American wind power will keep growing. And that means more benefits for local communities in farming and factory towns that need new opportunities.

American wind power invested $14 billion in new wind projects last year, and farmers and ranchers hosting turbines on their property received $267 million in lease payments in 2017 alone. Added wind revenue for local budgets also lessens the tax burden on many host communities, helping them pay for school improvements, road repairs, and law enforcement.

Every community has a story. For example, Nolan County, Texas, about 190 miles west of Fort Worth, has increased its taxable value five-fold since wind arrived.

“In pre-wind, our county taxable value was $500 million,” said Ken Becker, executive director of the Sweetwater Economic Development Corp. “In 2008, it was $2.8 billion.”

For some landowners, this translates to nearly $1,000 per month for a single turbine on their property. For the town of Sweetwater — population 10,000 — wind means stable job prospects for 18 percent of residents.

The reality of new career opportunities has not been limited to Sweetwater. These benefits are being felt across the United States. Today, more than 105,000 Americans across all 50 states work in wind, and as wind continues to expand, this number will only increase. Already, wind technician is the country’s second fastest-growing job according to the U.S. Bureau of Labor Statistics.

The U.S. wind industry has made massive strides over the previous decade. Forecasts and trends show American wind power is on track to supply 10 percent of the country’s electricity by 2020. As a mainstream source of clean, affordable energy for the United States, wind continues to work for America.