Seven Policies To Tap U.S. Offshore Wind’s $166 Billion Economic Growt…


As the COVID-19 recession trudges on, governments looking for economic recovery are embracing clean energy’s potential to create near-term jobs and long-term growth – especially when pairing economic recovery goals with climate goals.

New York State, among the hardest hit by COVID-19, has doubled down on its climate commitments, announcing America’s largest-ever combined renewable energy solicitation. Offshore wind was the announcement’s centerpiece—2.5 gigawatts (GW) of 4 GW total capacity solicited. The state also committed $400 million in public and private funding for port infrastructure to support the burgeoning industry and create local jobs.

Analysts estimate offshore wind could generate $166 billion in new investment and $1.7 billion in U.S. Treasury revenue by 2022, while supporting 80,000 jobs annually by 2035. Energy Innovation research outlines how offshore wind could tap that potential to become an abundant, low-cost, zero-emission way to meet midcentury climate goals. Policymakers should strongly consider including offshore wind policies and investments in their COVID-19 recovery plans.

Offshore wind as a low-cost renewable resource

Offshore wind technology costs have dramatically declined in recent years, and the trend is expected to continue. In the U.S., power purchase agreement prices for projects commencing operation in 2020 were $224 per megawatt-hour (MWh), declining to $58/MWh for projects fully installed and operational in 2025 (note these figures include the federal investment tax credit).

Looking ahead, National Renewable Energy Laboratory analysis forecasts offshore wind’s U.S. levelized cost of energy (LCOE) will plunge to $20-$30/MWh by 2050 – a nearly 90% cost decline over 30 years!

These cost declines are driven by a gradual transition from fixed subsidy to competitive procurement, financing opportunities with the certainty of power purchase agreements and offshore renewable energy credits, supply chain improvements, and larger turbine sizes that significantly increase capacity factor.

However, one sticky aspect of offshore wind pricing is associated transmission costs. IEA found transmission costs average about 20% of total project capital costs, and are highly dependent on existing transmission infrastructure. Policymakers should concurrently plan for offshore wind development and future transmission needs to reduce this cost on a per-project basis.

These cost declines are driven by a gradual transition from fixed subsidy to competitive procurement, financing opportunities with the certainty of power purchase agreements and offshore renewable energy credits, supply chain improvements, and larger turbine sizes that significantly increase capacity factor.

However, one sticky aspect of offshore wind pricing is associated transmission costs. IEA found transmission costs average about 20% of total project capital costs, and are highly dependent on existing transmission infrastructure. Policymakers should concurrently plan for offshore wind development and future transmission needs to reduce this cost on a per-project basis.

Offshore wind as an increasingly abundant, high-value resource

In 2018, 23 GW of offshore wind capacity was installed globally, roughly 0.3% of global generation capacity, up from 1 GW in 2010. That may seem small, but solar PV was the only renewable resource to grow faster than offshore wind over the past decade. Forecasts estimate between 11 GW-16 GW of offshore wind will be deployed in the U.S. by 2030, and the U.S. Department of Energy found the U.S. could develop up to 86 GW of offshore wind capacity by 2050.

Many East Coast states – with Republican and Democrat governors – have codified offshore wind targets to support increased development, creating more than 28 GW of committed demand for developers to meet by 2035.

But the East Coast is only part of America’s offshore wind story – more than 2,000 GW of total energy resource potential lies along our coasts. One reason the Northeast has a robust offshore wind project pipeline is its 100 miles of shallow coastal waters, which work well for fixed-bottom turbines.

The Western seaboard’s waters are far too deep for much of today’s commercialized offshore wind technology, making West Coast offshore wind noticeably absent. Indeed, nearly 60% of feasible U.S. offshore wind resources are at depths greater than 60 meters, and tapping that potential requires floating turbines.

Floating projects installed until about 2022 would still be considered pilot phase, but cost-effective commercial-scale projects could come online as soon as 2025. Floating offshore wind LCOE is also expected to fall as low as $70/MWh in 2030 from $175/MWh in 2018.  

High capacity factors also reduce cost while making offshore wind a more valuable grid asset than many other renewable technologies. For comparison, U.S. solar PV has a 25% capacity factor and onshore wind is at 35%, but expected Eastern U.S. offshore wind capacity factors are 40%-45%.

Offshore wind also adds value to the grid by flexibly meeting reliability requirements and resource adequacy needs, complementing solar production, and staying coincident with customer demand. ISO New England (ISO-NE) found that offshore wind provides fuel security, particularly during extreme weather, such as the 2018 bomb cyclone. ISO-NE modeled how a 1.6 GW offshore wind farm off Massachusetts’ would have changed its energy market response to the event, finding natural gas generation consumption would have been reduced 20% and oil consumption would have been reduced 7%.

Top U.S. offshore wind policies

Policy has a large role to play for offshore wind to reach its full potential. Like solar and wind generation, offshore wind requires upfront policy support to scale with rapid cost declines, and de-risking offshore wind deployment immediately reduces capital costs associated with these enormous projects. Procurement targets, competitive procurement strategies, contracting practices, tax support, and transmission access can all ensure offshore wind becomes a boon for U.S. consumers and climate goals.

Establish and ramp up offshore wind procurement targets

Northeastern states have some of the most ambitious climate and clean electricity goals, but a dearth of usable land for renewable energy development makes offshore wind an essential technology for clean electricity goals. The same could be said for West Coast states once floating turbines are commercially viable, because transmission constraints make accessing regional onshore wind difficult.

While states have already codified offshore wind targets, state legislatures or executive offices should match ambition to their geography’s potential. Recent cost declines promise minimal economic risk, and increased targets support further deployment and cost declines.

Create competitive procurement processes through power purchase agreements or offshore wind renewable energy certificates

Power purchase agreements, or long-term electricity contracts between a generator and buyer based on pre-determined nameplate capacity, provide vital support to new industries by reducing financing risk. For example, New York’s Offshore Wind Master Plan recommends 20-25 year contracts for developers. A long-term, guaranteed price from a reliable purchaser expedites investing capital at lower cost and raising competitive project financing. Typically, the state public utility commission or energy agency creates an RFP to solicit these proposals.

State legislatures can authorize offshore renewable energy credits (ORECs), essentially a carve-out within a state renewable portfolio standard or clean energy standard that are typically issued by state energy agencies. Electric utilities can purchase ORECs from project developers. Ultimately, long-term contracts provide the lowest risk as fixed-rate credits create financial support for offshore wind investments while transitioning to market price exposure.

Extend the federal offshore wind investment tax credit; convert it to direct payments

Nascent industries need support, especially during tough economic times, and the federal investment tax credit does just that. Unfortunately, federal renewable energy tax credits have a history of needing frequent Congressional re-approval, creating industry uncertainty. Congress should extend the tax credits to provide more certainty.

Because of illiquidity, the government only provides 60 cents of incentive for every dollar it spends. Tax credits should be converted to direct payments so incentive dollars are used effectively. Policymakers can accomplish this by making tax credits refundable or converting them to direct cash grants.

Create an offshore transmission backbone

Transmission lines connect offshore wind generation to demand centers. Without proper foresight and planning, transmission and offshore wind can enter a game of “chicken and egg.” Or worse, transmission requirements foisted on individual developers may prohibit development.

Northeastern U.S. states should coordinate an interstate transmission backbone for offshore wind, similar to Texas’ Competitive Renewable Energy Zone, which connected markets with cheap onshore wind. Transmission backbones amortize and distribute costs, instead of laying cost burdens on generators, which may raise all developer costs. It may also incentivize developers to choose cheaper but less efficient technologies, and might unintentionally complicate land-based connections and seabed marine cabling.

The Brattle Group found up to $500 million cost savings and reduced environmental impacts for planned, multi-use transmission system to support 9 GW of offshore wind development. Planned transmission also better utilizes lease areas while reducing offshore wind curtailment.

Pre-approve siting for leasable land

Offshore areas should be approved for wind farms before the seabed is leased to alleviate project delays and increase stakeholder acceptance. During the Obama administration, the Interior Department’s Bureau of Ocean Energy Management (BOEM) awarded leases in areas vetted for major siting conflicts through comprehensive intergovernmental and stakeholder processes. Without federal leadership, states can take initiative by undertaking extensive research and stakeholder engagement to select ideal offshore wind siting areas and propose areas to BOEM for consideration, modeled after New York State’s efforts.

Establish offshore wind port infrastructure

Offshore wind requires significant port infrastructure to stage and construct turbines. New York Governor Andrew Cuomo recently announced $400 million private and public investment in offshore wind port infrastructure to support the industry and increase economic development, especially in disadvantaged and low-income communities. Port investment is an opportunity for continued offshore wind development and high-quality unionized jobs, and should complement any plan to scale offshore wind.

Offshore wind offers promise for economy recovery and climate goals

Offshore wind is dramatically declining in cost, significantly growing in capacity, and offers strong value to our grid. We know which policies and investments will elicit offshore wind development. We learned from the 2008 economic crisis that the clean energy industry holds the key to job creation and long-term growth. Let’s use this opportunity to invest in a promising industry to support our economy, workforce, and climate commitments.



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