Wind Rush in Offshore Financing

Block Island Wind Farm
Block Island Wind Farm

Wind Rush: Lower Costs Driving Investment in Offshore Wind Business

Northern Europe is about 15 years ahead of North America when it comes to developing offshore wind at scale. At 200 Megawatts, Horns Rev I in Denmark went live in 2002.  Meanwhile, projects like Cape Wind off the coast of Massachusetts have long struggled to get off the ground.  Today, more than 11,000 MW of wind power are operating in Europe's North Sea and the nearby waters, while the US saw its first small installation – Block Island Wind Power (30 MW) go live in 2016.

For many years, observers believed that the US offshore wind business was doomed. There was too much cheap natural gas in the market, onshore wind and solar were cheaper alternatives, power prices were not high enough to provide good returns for developers, and “Not In My BackYard" politics were too strong for fledgling wind developers to overcome.

Offshore wind is finally taking off in the Northeastern United States, specifically in New York, Maryland, and Massachusetts. In addition to Deepwater Wind, which developed Block Island Wind Power, European players with deep pockets are driving the market. Statoil just paid $42 million for the right to develop a parcel off the coast of Long Island. Denmark’s DONG Energy, the largest offshore wind operator in the world, is active in Massachusetts with Bay State Wind.

Why the sudden rush to develop offshore?

In a word, cost. The projects of the 2000s often required sky-high prices to justify the investment (e.g., 22 cents per kWh). Technological advances, however, have radically reshaped the industry. Newer, bigger machines have driven costs down, and this trend is expected to continue for decades to come. More recent auctions in Maryland and New York have led to prices in the range of 13 to 16 cents per kWh. This is cheaper than fossil or transmission alternatives in places like Long Island. Moreover, contemporary auctions in Europe show that offshore wind can be delivered below 10 cents per kWh.

The “first wave” of six projects in the Northeast are expected to total more than 1,700 MW and cost nearly $9 billion in capital expenditures. This is not only very exciting for the industry, but is also important for Northeastern residents who face the shutdown of much of their fleet of older fossil fuel and nuclear plants like Indian Point in New York. The downside? These projects take a long time to permit and build.

The Block Island Wind Farm, first planned as early as 2009, did not begin operation until 2016. Negotiations between Deepwater and Rhode Island waged for several years before its contract was finally approved. Statoil's lease, meanwhile, faces legal challenges from a fishing industry that fears the disruption of its own business. We can hope that as American regulators and manufacturers grow more acclimated to the industry, planning and construction will face fewer obstacles. But for now, don’t expect to see many blades spinning before 2021. 

For additional information, read the New York Times article