TODAY’S STUDY: ALL ABOUT OFFSHORE WIND RIGHT NOW
Offshore Wind Market and Economic Analysis; Annual Market Assessment
Lisa Frantzis, et. al., November 28, 2012 (Navigant Consulting)
The U.S. offshore wind industry is slowly transitioning from early development to demonstration of commercial viability. While there are no projects in operation or even in the construction phase, there are nine U.S. projects in advanced development, defined as having either having been awarded a lease, conducted baseline or geophysical studies, or obtained a power purchase agreement. There are panels or task forces in place in at least 13 states to engage stakeholders to identify constraints and sites for offshore wind. U.S. policymakers are beginning to follow the examples in Europe that have proven success in stimulating offshore wind technological advancement, project deployment, and job creation.
This report is the first annual assessment of the U.S. offshore wind market. It includes the following major sections:
» Section 1: key data on the global development of offshore wind projects, with a particular focus on progress in the U.S.; » Section 2: analysis of developments in the offshore wind technology sector; » Section 3: analysis of policy developments at the federal and state levels with the potential to affect offshore wind deployment in the U.S.; » Section 4: analysis of actual and projected economic impact, including regional development and job creation; and » Section 5: analysis of developments in relevant sectors of the economy with the potential to affect offshore wind deployment in the U.S.
Section 1. Global and U.S. Offshore Wind Development
There are approximately four gigawatts (GW) of offshore wind installations worldwide. Nearly all of this activity has centered on northwestern Europe, which has led the industry’s development since 1999, but China is gaining market position. Europe has seen 3 GW of offshore capacity additions over the past five years (2007-2011), and the rate of annual installations has grown from 225 MW installed in 2007 to nearly 1,258 MW installed in 2010.1 The emerging Asian offshore market has also gained ground in recent years, with China adding 107.9 MW in 2011, bringing its cumulative installed capacity to more than 200 MW. Various forecasts have predicted between 55 and 75 GW of cumulative offshore wind capacity by 2020.
Thirty-three announced offshore wind projects lay in varying stages of development in the U.S., primarily along the Atlantic Coast. Nine of these projects have reached what this report considers an advanced stage of development. A map showing the announced locations and capacities of these nine advanced-stage projects appears in capacity, but many of these projects still face challenges prior to achieving final development. As shown in the figure, three of these projects, representing about one-third of planned, advanced-stage capacity, lie in federal waters.
The average nameplate capacity of offshore wind turbines installed globally has grown from 2.98 MW in 2007 to 3.94 MW in 2011. This trend toward larger turbines will likely continue, driven by advancements in materials, design, processes, and logistics, which allow larger components to be built with lower system costs. The average turbine size for advanced-stage, planned projects in the U.S., however, is expected to range between 4.7 and 5.5 MW, indicating that the U.S. is largely planning to utilize larger offshore turbines rather than smaller turbines that have previously been installed in European waters.
Foundations for U.S. planned projects will likely follow similar trends as European projects, with mostly monopile substructures and increasing numbers of jackets and tripods. In the longer term, the most likely substructure types for the U.S. market will depend on site-specific requirements and the development of floating foundations.
Direct drive turbines will continue to gain market share. Some OEMs have begun designing offshore wind turbines that will utilize direct drive technology in an effort to alleviate costly downtime and maintenance issues associated with some traditional gearboxes. These potential costs will likely increase with the added logistical difficulty of performing such maintenance further offshore. Of the five U.S. projects that have committed to a turbine supplier, four will use direct drive technology.
Section 2. Analysis of Technology Developments
The added complexities of the offshore wind market mean that non-turbine costs may take on heightened importance relative to land-based wind. As a result, cost-reduction opportunities may arise not only from advancements in wind turbine technology but also from emerging trends and conceptual models in any one of several categories, including, trends in manufacturing, foundations, logistics and vessels, electrical infrastructure, and operations and maintenance strategies.
The design of offshore turbines will continue to deviate from that of land-based turbines. Significantly more attention is being paid to the demands of the marine environment. Design conditions unique to offshore wind turbines include higher wave loads, corrosive salt water, and a requirement for submarine electrical cabling and infrastructure. Offshore turbines are located further from human habitations and have significantly more challenging accessibility; as a result, newer offshore designs have enhanced turbine/nacelle access and area to perform more uptower repairs. Lower wind shear suggests that offshore turbines may not require towers as tall as might be preferred for land-based installations, despite a movement toward larger turbines.
Technological advancements and cost reductions in offshore turbines will likely be derived from incremental improvements in the various subsystems throughout the turbine. With blades, advanced composites including carbon fiber, new resins, epoxies and other materials are likely to be increasingly deployed. With foundations, it is likely that the combination of diverse seabed conditions, deeper water, and larger turbines will push the industry away from monopile foundations to alternatives such as jackets, tripods, gravity base structures, floating structures, and suction caissons. With drivetrains, high-energy density permanent magnets sourced from rare earth materials offer the potential to realize direct drive technologies, although new direct drive platforms lack an extensive performance record. It is not yet clear that direct drive generators offer superior performance and reliability under the actual working conditions experienced by offshore turbines. As a final example, lower cost power conversion is expected from deployment of higher voltage power electronics.
Today there are three primary conceptual models envisioned for producing, staging, and installing equipment: (1) import-dominated, (2) regional hub, and (3) dispersed manufacturing. These models source equipment as follows:
» Import-dominated model. The most likely major piece of equipment to be manufactured domestically is the foundation, since U.S. oilrig foundation fabrication experience could be transitioned to serve offshore wind, even for the initial projects. » Regional hub model. Only the very specialized electrical infrastructure equipment might not be produced in the region where the equipment is installed. » Dispersed manufacturing model. Production, fabrication, and investment are less centralized and would likely develop more organically as the industry matures and demand grows over time. Existing ports are adapted or retrofitted to accommodate the immediate staging, storage, lift capacity, and air draft needs of the industry, without trying to become exclusive sites for all future offshore manufacturing and staging activities.
As the industry matures, there will be a need for increased production of offshore wind vessels capable of installing 5+ megawatt (MW) turbines in deeper waters. Heavier rotors, nacelles, and foundations will require cranes with greater lifting capacity. Many of the vessels that have been taken from the offshore oil and gas industry for use in the offshore wind industry are too small, forcing contractors to make more trips to port. As the industry moves toward purpose-built vessels, these vessels will have larger storage capacity and larger cranes.
Much of the expertise gained in the oil and gas sector has been leveraged in the offshore wind sector. Early turbine installation vessels were jack-up barges repurposed from the oil and gas sector. Companies with expertise in oil and gas, such as Statoil and Fluor, have moved into offshore wind. Moreover, turbine foundation designs such as the jacket type have been adapted from the oil and gas sector.
There is a need for significant upgrades in ports since they were not designed with the offshore wind industry in mind. The three main wind-specific requirements for ports are sufficient quaysides, adequate laydown areas, and sufficient clearances. Quaysides generally need to be 200-300 meters long for vessels to be able to load and unload large components such as towers and blades. Laydown acreage is key for storage and preassembly of turbines and foundations. Overhead clearances of 100 meters are necessary to enable passage of vertically positioned tower sections, but, many vessels can accommodate horizontally positioned tower sections reducing the required vertical clearances. Lateral clearances must accommodate for either star or bunny ear rotor configurations.
The offshore wind industry faces similar transmission planning issues as the land-based wind industry. There has always been a “chicken and egg” dilemma when it comes to transmission expansion, often leading to project delays. Wind developers often will not build wind farms without sufficient transmission. Transmission operators often will not build new transmission lines without sufficient assurances that they will be able to recover their costs. Cost allocation methodologies are complicated as well, and require adequate advance planning time on the part of multiple stakeholders.
Improved siting of wind farms, new operations strategies and technologies, and enhanced access to turbines designed exclusively for the offshore market are anticipated to boost plant production and minimize operations expenditures. Operators tend to be focused on minimizing unplanned maintenance and replacing corrective maintenance efforts with more regular and more effective preventative maintenance. Advanced condition monitoring techniques might also include self-diagnosing systems, real-time load response, and enhanced abilities to manipulate and control individual turbines from an onshore monitoring facility. Coordinating preventative maintenance efforts with improved wind and weather forecasting should allow operators to minimize turbine production losses.
Section 3. Analysis of Policy Developments
U.S. offshore wind development faces significant challenges: (1) the relatively high cost of offshore wind energy; (2) a lack of infrastructure such as transmission and purpose-built ports and vessels; and (3) uncertain and lengthy regulatory processes. Various U.S. states, the federal government, and European countries have used a variety of policies to address each of these barriers with varying success.
For the U.S. to maximize offshore wind development, the most critical near-term policies are those designed to stimulate demand (i.e., policies that address high cost). A portfolio approach that incorporates multiple policy elements could be effective, similar to the U.S. land-based wind market, which has been stimulated through a mix of above-market Power Purchase Agreements (PPAs), Production Tax Credits (PTCs), Investment Tax Credits (ITCs), and Renewable Energy Credits to demonstrate compliance with Renewable Portfolio Standards (RPSs). However, other examples such as the Feed-in Tariff (FiT), which many European countries have used to stimulate offshore wind demand and U.S. states have begun adopting for smaller renewable energy projects, could also be effective.
Infrastructure policies are generally longer term and necessary to allow demand to be filled. Examples of transmission policies that can be implemented in the short term with relatively little effort are to (a) designate offshore wind energy resources zones for targeted grid investments, (b) establish cost allocation and recovery mechanisms for transmission interconnections, and (c) promote utilization of existing transmission capacity reservations to integrate offshore wind.
Regulatory policy recommendations cover three general categories: (a) policies that define the process of obtaining site leases; (b) policies that define the environmental, permitting processes; and (c) policies that regulate environmental and safety compliance of plants in operation. An effective option for leasing policy is for the U.S. to further streamline the model set by the U.K. and the Bureau of Ocean Energy Management’s (BOEM’s) “Smart from the Start” program, which conducts leasing in three phases. An effective option for permitting policy is to conduct a new programmatic Environmental Impact Statement (PEIS) for offshore wind construction, then require only site-specific Environmental Impact Statements (EISs) for limited site-specific issues to reduce the time to issue a Final EIS and construction permits. An effective option for operating plant environmental and safety compliance is self-monitoring by owner/operators, balanced with government oversight in critical areas.
Section 4. Economic Impacts
A 500 MW reference plant installed in the mid-Atlantic in 2018 is estimated to have capital costs of $3.04 billion or $6,080/kilowatt (kW). Total operations and maintenance (O&M) costs are assumed to be approximately $68 million/year or $136/kW-year. On a per kW basis, these estimates are 2.5 to 4 times the cost of land-based wind. Offshore wind costs are expected to decrease by 3.7% per year in the near term, slowing to 1.5% per year by 2030. These cost estimates are key inputs to a new Jobs and Economic Development Impact (JEDI) model for offshore wind and are sensitive to multiple assumptions such as water depth, distance to the nearest staging port, foundation type, and financing rates.
The Offshore JEDI model shows that a 500 MW reference wind plant could support approximately 3,000 job-years over the construction period and drive $584 million in local spending over the same period. During operation, the plant (and the resulting local impacts) could support 313 jobs each year in the local economy and $21 million per year in local spending. These numbers are strongly dependent upon the percentage of local assumptions and would increase by three to fourfold if all components and services were sourced from the region.
In the high-growth scenario, the U.S. offshore wind industry could support ~350,000 FTEs by 2030, but in the low-growth scenario, it could be ~50,000. Given the supply chain and industry dynamics of the offshore wind industry, most jobs are in indirect and induced industries. These results are strongly dependent on the domestic sourcing assumptions. For the North Atlantic region alone over the same time period, construction and operation of offshore wind plants in the region could support ~70,000 FTEs in the high-growth case and ~17,000 FTEs in the low-growth case.
In the high-growth scenario, the U.S. offshore wind industry could drive $70 billion (in 2011 dollars) per year by 2030 but in the low-growth scenario it could be ~$10 billion. Given the supply chains and industry dynamics of the offshore wind industry, most of the economic activity is in indirect and induced industries. These results are strongly dependent on the domestic sourcing assumptions. For the North Atlantic region alone over the same time period, construction and operation of offshore wind plants in the region could drive $14 billion per year in the high-growth case and $3.5 billion per year in the low-growth case. These results are strongly dependent on the local sourcing assumptions. If more components and services were sourced locally, the numbers could increase by three to fourfold
Section 5. Developments in Relevant Sectors of the Economy
The development of an offshore wind industry in the U.S. will depend on the evolution of other sectors in the economy. Factors within the power sector such as the capacity or price of competing power generation technologies will affect the demand for offshore wind. Factors within industries that compete with offshore wind for resources (e.g., oil and gas, construction, and manufacturing) will affect the price of offshore wind power.
Factors in the power sector that will have the largest impact include: (1) the change in the price of natural gas, and (2) the change in coal-based generation capacity. Natural gas-fired generation is wind’s primary competitor in the U.S. Natural gas prices declined from above $4/MMBtu in August 2011 to below $2/MMbtu in April 2012, in large part due to the supply of low-cost gas from the Marcellus Shale. Between January 2010 and March 2012, 106 coal plant retirements had either been planned or executed, representing 42,895 MW or 13% of the coal fleet. Continued coal plant retirements could increase the demand for offshore wind plants in the U.S.
The development of a comprehensive annual market report is an important step for the U.S. offshore wind industry for two reasons. First, market assessments, especially those produced for government agencies, provide stakeholders with a trusted data source. Second, the production of a comprehensive assessment covering technical, regulatory, financial, economic development, and workforce issues will annually inform the creation of policy to remove barriers facing the U.S. offshore wind industry.
This report provides readers with a foundation of information to help set appropriate policies to guide U.S. offshore wind energy development. As discussed in this report, significant technological advances are already unfolding within the offshore wind industry, but clearly additional policies could help to direct needed improvements to further reduce offshore wind costs and to stimulate needed infrastructure development. Policy examples from other countries have shown that proper policy designs can stimulate offshore wind markets, and in turn, offshore wind markets can have a significant impact on economic development throughout the U.S. The analysis showed that in the high-growth scenario, the U.S. offshore wind industry could support ~350,000 FTEs in 2030, and 50,000 FTE in the low-growth scenario. Policies that can direct the market toward the higher growth scenario can therefore have a large benefit to the U.S. economy. As this report is updated and published annually for the next two more years, the Navigant Consortium team hopes that the information provided will prove to be a valuable resource for manufacturers, policy makers, developers, and regulatory agencies to move the market toward a high-growth scenario for the offshore wind industry…