Biggest offshore bang for the buck in Northeast, study says

Source: Saqib Rahim, E&E News reporter • Posted: Tuesday, April 17, 2018

Location is the cardinal factor in real estate. It might also turn out to be of paramount importance for the U.S. offshore wind industry, says new research by Lawrence Berkeley National Laboratory.

An LBL analysis released today says that offshore wind seems to deliver more value to the grid if it’s closer to major load centers that sit in transmission-constrained areas.

Today, that implies higher values in New England and New York and comparatively modest ones off the Southeast coast.

“Where you’re interconnecting with the grid matters quite a bit,” said Andrew Mills, a research scientist with LBL. “The highest-value sites might not be the lowest-cost sites. You have to be able to evaluate both the worth side and the cost side in order to determine which sites might be most attractive.”

The research strikes at a question that policymakers in East Coast states are increasingly asking: Even if offshore wind is expensive to build, might it still be worth it?

Where states have historically balked at the cost of offshore wind farms, cost reductions in Europe have renewed their willingness to try. The offshore wind industry, pointing to experiences in Europe, is visiting American statehouses with the argument that their windmills can pump renewable electrons into some of the tightest locations on the East Coast’s grids, such as New York City.

Maryland, Massachusetts and New York have responded with policies to subsidize early projects in the hopes that costs will fall gradually. New Jersey’s developing its own policy, and a demonstration project off the Virginia coast could be running as soon as 2020.

But in the long run, the states’ intent is to get offshore wind built without subsidies. To that end, the LBL study points out that there is a difference between “cost” and “value.”

If offshore wind is one of the more costly ways to get power — it is the most expensive utility-scale renewable resource on a levelized basis, according to investment bank Lazard Inc. — it may also have other measurable values worth considering, the research said.

For example, the paper considered where the wind is being delivered, at what time of day and whether it helps reduce air pollution.

To quantify these different types of value, the researchers looked at real numbers from the past, specifically the 2007-2016 window. If there had been wind farms off the East Coast in this period, they asked, what value would they have provided?

One interesting finding, Mills said, was that the estimated value of offshore wind actually decreased over the time period.

The reason was that by 2016, cheap domestic natural gas supplies had driven wholesale power prices down in many markets. Lower-priced power meant, in relative terms, that offshore wind had less monetary value.

But this dynamic could reverse in future years, Mills said.

Another notable result: Even adding up all the value streams of offshore wind — power prices, less air pollution, grid benefits — the sum is still lower than the cost of building offshore wind, at least right now.

That suggests that if states want to build lots of offshore wind down the road, costs will probably need to come down to better mimic the value they’re getting, Mills said.

“Whether offshore wind is economically attractive will depend on tradeoffs between value and cost,” the authors said in summary of their findings. “Cost reductions that approximate those witnessed recently in Europe may be needed for offshore wind to offer a credible economic value proposition on a widespread basis in the United States.”