TODAY’S STUDY: California’s Ocean Wind Opportunity
The Economic Value of Offshore Wind Power in California
August 2019 (Energy + Environment Economics)
Offshore wind power is growing rapidly around the world, driven by dramatic cost reductions and increased interest in carbon-free energy sources. While most offshore wind projects to date have utilized fixed-base platforms, there is growing commercial experience with floating-base applications that will unlock wind resources in deeper waters, such as those off the coast of California.
California is a large potential market for offshore wind due to its ambitious clean energy policies and economy-wide greenhouse gas (GHG) reduction goals. While California leads most states in renewable energy deployment, it will need several times more renewable energy capacity than is currently installed to meet its long-term policy commitments.
While California has studied optimal pathways and different scenarios for meeting its clean energy goals, it has yet to fully investigate its offshore wind potential. California’s long-term planning studies, which inform the state’s energy procurement, transmission investment, and associated policy decisions, have not formally modeled offshore wind as a future supply option for GHG-free energy. For this reason, Castle Wind has asked E3 to study the economic value of offshore wind in meeting California’s policy goals and to determine the potential market size and systemwide cost savings if offshore wind were to be deployed at scale. This study seeks to close a longstanding information gap by investigating the potential role of offshore wind to help meet California’s long-term policy goals.
In this study, E3 used its RESOLVE model – a resource planning tool used in many groundbreaking renewable energy studies in California and nationwide – and analyzed offshore wind economics using key input assumptions provided by Castle Wind. The RESOLVE model was given an unlimited amount of offshore wind potential in order to estimate the optimal capacity without regard to current federal offshore wind call areas or to existing onshore transmission limitations. The study finds that offshore wind could be a valuable and significant resource for meeting the state’s long-term climate goals:
É Our analysis finds that the least-cost portfolio for meeting the state’s energy goals would include 7-9 GW of offshore wind by 2040. This represents enough energy to power four million homes and meet approximately 10 percent of the state’s electricity needs.
É Modeling results across all scenarios found that including offshore wind in the state’s energy mix would produce ratepayer savings of approximately $1 to $2 billion on a net present value (NPV) basis.
É Potential ratepayer savings from offshore wind increase over time. Floating offshore wind becomes part of the least-cost portfolio by 2030, with demand increasing consistently in subsequent years as California’s policy goals become more stringent.
É The study also evaluates offshore wind relative to other resource options including out-of-state onshore wind (e.g., from Wyoming or New Mexico), and finds that offshore wind remains a valuable and least-cost resource option even if out-of-state wind is developed in the future. This is due to offshore wind’s proximity to in-state electricity demand and existing transmission infrastructure.
While this study identifies the economic opportunities presented by offshore wind, it does not make any policy recommendations or purport to answer questions related to offshore wind transmission needs, lease areas, future performance and cost improvements, supply chain and infrastructure development, and associated investment and job creation, each of which may merit more detailed studies. Instead, this report focuses on the high-level economics of offshore wind and the potential scale at which this resource may help achieve California’s long-term policy goals…
When envisioning a power system with large amounts of variable renewable energy, system planners must include information on the least-cost manner of reliably operating that system, in both the present and future. Full consideration of all resource options is important when planning for a future grid with different technical needs and economic considerations than the grid of today. Based on this study, offshore wind could be a valuable and significant resource for meeting the state’s long-term policy goals in the least-cost manner.
The latest cost estimates for floating-base offshore wind suggest that it could play a major role as an economic renewable resource under California’s clean energy and GHG reduction policies, with at least 3.5 GW of offshore wind by 2035 and a total of 7–9 GW by 2040 across all scenarios studied. If developed at this scale, offshore wind has the potential to save ratepayers approximately $1 to $2 billion on an NPV basis. Savings would increase over time to approximately $150 to $190 million per year in 2040. 32
Offshore wind development would directly offset the state’s projected reliance on solar PV and battery storage, with each megawatt of offshore wind replacing the need for approximately 1.7 MW of solar and 1.1 MW of storage. In the low GHG scenario (30 MMT case) modeled, 8.8 GW of offshore wind installed by 2040 would offset the need for 14.9 GW of solar generation plus 9.6 GW of battery storage.
The addition of offshore wind would therefore help diversify the state’s future energy mix. Given the unpredictable nature of resource costs in the future (e.g., see solar PV module tariffs or the volatile prices of oil and gas), offshore wind appears to be a valuable and significant resource that warrants further consideration for its ability to help meet California’s long-term decarbonization goals in the most costeffective way possible while diversifying the state’s energy supply and mitigating risks from heavy reliance on two specific technologies (i.e., solar PV and battery storage). If existing challenges associated with onshore renewable energy and transmission development persist or grow more restrictive in the future, offshore wind may provide the scalable resource option California needs to stay on track towards its 2050 goals.