Goodbye, Gov. Christie. Hello, offshore wind turbines?

Source: Saqib Rahim and Benjamin Storrow, E&E News reporters • Posted: Wednesday, January 17, 2018

Incoming New Jersey Gov.-elect Phil Murphy (D) campaigned as the anti-Christie. But when it comes to offshore wind, the state’s new leader may want to thank his predecessor.

Gov. Chris Christie (R), who left office yesterday, stalled offshore wind development in the Garden State for years, but the delay may actually have benefited the industry. After rapid expansion in Europe, costs are falling, and analysts say North America looks increasingly poised for a wind boom at sea.

The Old Continent had deployed more than 12,600 megawatts in 10 countries as of 2016, according to trade group WindEurope. As the industry has scaled up, competition has intensified and project costs have begun to plummet, to the point that a project proposed off Germany last year — under specific assumptions — can operate without subsidy.

What that amounts to in the United States is that offshore wind is viewed as a lot more realistic — and a lot less risky — than it was a decade ago. And that, in the end, may be what gets it finally built at utility scale in America.

Murphy stands to benefit. The former Goldman Sachs executive campaigned on a promise to deploy 3,500 MW of offshore wind in New Jersey. That is more than any other state has declared so far, and the industry hopes he’ll quickly pull the levers of power to set projects in motion.

“Back when we were talking about it initially, everybody kept saying, ‘We want to be first.’ I was saying, ‘Are you sure you want to be first? Maybe it’s better to be third or fourth,'” said Stefanie Brand, who’s been director of New Jersey’s Division of Rate Counsel since 2007. “Prices have gone down, people have learned from their mistakes. We’re actually in a better position now.”

New Jersey is hardly unique. Offshore wind’s arrival in America has proceeded in fits and starts over the past decade. But developers who have worked in Europe are increasingly arguing that this decade can be different. And the argument seems to have persuaded states such as Maryland, Massachusetts and New York, each of which has advanced policies not to build symbolic demonstration projects, but to deploy full-scale power plants.

Perhaps no project better demonstrates the industry’s evolution than Cape Wind. The 468-MW project off the coast of Cape Cod, Mass., attracted more than a decade of legal challenges before its developer officially pulled the plug late last year.

The project failed, but it represented an important learning opportunity for offshore wind advocates, said Paul Vigeant, managing director at New Bedford Wind Energy Center.

When Cape Wind launched in early 2001, the regulatory process for siting windmills in the ocean was not well-understood, he said. While the project officially received a lease from the U.S. Bureau of Ocean Energy Management in 2010, opponents brought repeated legal challenges questioning the placement of the 130-turbine development.

Contrast that to today, Vincent said: States are now doing the spadework to avoid such lawsuits.

Massachusetts and Rhode Island officials took advantage of federal stimulus funding to map out the best site for turbines in the waters south of Martha’s Vineyard, he said. The planning took into account shipping lanes, migratory corridors and prime fishing grounds in identifying the best location for turbines. BOEM has conducted an environmental assessment for all three leases awarded in 2013 to developers seeking to build 15 miles off Massachusetts’ coast.

BOEM has approved 13 offshore leases along the Atlantic coast, a spokesman for the bureau said. Environmental assessments are required for each lease. An environmental impact statement will be conducted for each once project-specific details are submitted to the bureau.

“One of the biggest challenges for Jim Gordon and Cape Wind was the nascency of the state and federal permitting processes at the time when he wanted to build a wind farm,” Vigeant said, referring to the project’s developer. “If there is a silver lining in the last 10 years of the lull in development, it’s that permitting processes are so much better off. They are clear to follow and will be able to sustain the test of a challenge.”

U.S. ‘able to leapfrog’

While offshore wind struggled in the United States in recent years, technology has grown by leaps and bounds.

The trend is attributable to the industry’s expansion in Europe, where major developers have brought larger and larger turbines online and refined their business practices, analysts said.

Again, Cape Wind is instructive. The project called for roughly 2.5-MW turbines. The five turbines installed off Block Island, R.I., in 2016 are about 6 MW, and the latest round of turbines being deployed in Europe today are closer to 8 MW.

That has helped drive down costs, analysts said, for one simple reason: Bigger turbines mean fewer turbines for the same amount of power. And that means reduced installation cost.

Per-megawatt generation costs have fallen by about 30 percent since 2010 — the year Christie signed his offshore wind bill — according to Bloomberg New Energy Finance, which tracks the “levelized cost of electricity” for projects that have received financing.

“While the U.S. isn’t benefiting from setbacks, it’s able to leapfrog,” said Max Cohen, who tracks the industry at IHS Markit, a consultancy. “The industry can start at a more advanced point.”

But in other respects, the setbacks of the recent decade continue to weigh on the industry.

In Europe, many of the cost reductions are associated with how big the industry has become — in other words, its economies of scale that the United States doesn’t enjoy.

In the United States, that means a local service industry has yet to emerge, and much of the manufacturing done for those initial projects will be done in Europe, forcing developers to transport turbine components across the Atlantic and further adding to costs.

That is why large state offshore wind targets are so important, Cohen said. Massachusetts is now evaluating bids from three developers — the first round of a solicitation aimed at bringing online 1,600 MW of offshore wind. Maryland regulators last year approved two projects with a collective capacity of roughly 370 MW. And New York Gov. Andrew Cuomo (D) has said he wants to bring online 2,400 gigawatts of offshore wind by 2030.

“You need those state policies to ensure enough pipeline in terms of demand that will bring industry leaders from Europe and allow the development of economies of scale,” Cohen said.

New Jersey also now finds itself playing catch-up after years of delay under Christie. Massachusetts and Maryland are the early adopters of the industry, analysts said. The Bay State enacted a law in 2016 requiring electricity suppliers to procure more offshore wind. Maryland has offered its developers credits to bring projects online.

Close on their heels is New York, where Statoil ASA in 2016 bid $42.5 million to win a lease south of Long Island. Cuomo said in his recent State of the State address that he hoped to release a request for proposal for two solicitations for up to 800 MW of offshore wind in 2018 and 2019.

“In terms of New Jersey, in particular, we don’t forecast anything there for the next 10 years,” said Anthony Logan, a market analyst at MAKE, a Wood Mackenzie subsidiary. Of Murphy, he added: “Essentially, he’s saying all the right things. The will is there. It’s a matter of when can he flush out the policy. There is a nice big track record that is being developed that he can call on. They can study the mechanisms Maryland used versus, say, Massachusetts.”

Major project flopped under Christie

New Jersey experienced its own mini-drama with respect to offshore wind, concerning a tough-luck project called Fishermen’s Energy (Energywire, June 9, 2017).

Fishermen’s came into being at an optimistic moment for New Jersey. In 2010, Christie, who then styled himself as a clean-energy pioneer, signed a bill committing to support up to 1,100 MW of offshore wind. Fishermen’s was to be the first: a six-turbine, 24-MW project visible from Atlantic City. It was more of a demonstration project than a power plant, but the idea was to plant the flag of this new industry in Jersey.

But Fishermen’s ran into real problems with New Jersey’s Board of Public Utilities (BPU). Through multiple applications, the project couldn’t satisfy the board’s requirement that it provide “net benefits” for New Jersey. The BPU finally scuttled the project in 2014, saying Fishermen’s had irreparable deficiencies on issues such as cost and its suppliers.

To disgruntled supporters of offshore wind, this happened because Christie wanted to be the Republican nominee for president and couldn’t be seen as subsidizing renewable energy sources. But Christie has framed it differently. He called it an act of fiscal responsibility, because the technology was still too expensive and immature.

“Although offshore wind projects have not yet proven economically feasible in New Jersey,” a 2015 document said, “BPU remains interested in examining the potential for offshore wind projects to become part of the State’s energy portfolio, provided that the projects are economically viable and that New Jersey ratepayers and businesses are protected.”

Fast-forward to today. Two major developers, Ørsted A/S and US Wind Inc., hold federal leases for waters off the Jersey coast. Both are bullish on what they can do there. Ørsted claims its waters can host at least 1,000 MW, while US Wind estimates at least 1,500 MW.

Fishermen’s was never built, although a similar project in Rhode Island was, so New Jersey can’t claim to be first. But as offshore wind supporters point out, the state has many of the tools it needs to get started.

It has the bill Christie passed, which empowers regulators to come up with a financing mechanism. It has lots of friends in the Democrat-led Legislature, such as Senate President Stephen Sweeney, an ironworker who believes offshore wind will be a major jobs generator in his district. It has two companies champing at the bit to start building. Ørsted has developed more projects than any other company in the world, and US Wind has been given a funding stream for a 248-MW installation by Maryland regulators.

And, of course, it has an ally in Murphy, who campaigned on the idea that he could make New Jersey one of the greenest states in the union.

Thomas Brostrøm, president of Ørsted North America, expressed some caution when speaking about the Jersey market. There are lessons that the United States will have to learn on its own; for example, it’ll have to deal with the Jones Act, which impedes the specialized European vessels that have been key to getting costs down in Europe.

But the good news, he said, is that some lessons are transferrable from Europe. And that positions America to get to Europe’s current scale in less time.

“I think that can happen much faster here in North America, where I think we can see similar capacity figures, 10-15 [GW] in much shorter time here,” he said. “Just because the technology has become so much powerful and efficient. I don’t think you have to wait, that’s my point, 15-20 years.”