Offshore Wind Initiative Launched as USA Project Edges Closer to Reality
As far as launchpads for global wind initiatives go, this coming week’s Subsea Expo may not appear an obvious choice. But the help, knowledge and support offered by HFI Consulting International and its new offshore wind service could be just what many delegates are looking for.
HFI consultant Patrick Phelan – who has many years of experience working with firms involved in offshore wind projects in northern Europe – believes that diversification will be the buzz word for many companies at the event.
“A growing number of companies that have traditionally operated within the oil and gas market are looking at opportunities to diversify and, for some of those at Subsea Expo, a natural fit will be offshore wind,” said Patrick, who is also chairman of the East of England Energy Group (EEEGR).
HFI Consulting International consultant Patrick Phelan
“It may be that many of the exhibitors and delegates will have technology relevant to offshore wind, but many will not be set up to make the transition from oil and gas because they are such different markets.
“Offshore wind does not have the same kind of hydrocarbon risk, but what it does have is a requirement for is heavy mechanical and civil engineering, and high voltage electrical engineering.
“The scale is completely different and in offshore wind, the scale is significant. You could have 120 turbines on one facility, which in turn means 240 cable ends to be pulled in and terminated. The reality is that some companies in the oil and gas supply chain are not geared up to operate at scale.
“Those companies are often the companies that will say that they cannot make money in this market, but those that have been in it for quite a while have been able to find ways of reducing costs. The margins are actually very good if you can find the economies of scale in producing 120 units instead of something one-off.
“It is complex but it can be done, and we will be more than happy to discuss this with potential customers at Subsea Expo.”
Offshore wind generation has undoubtedly been a huge success story in northern Europe, and with clean energy moving higher up the agenda, the market on a global level is expected to undergo fast-paced growth.
Countries in the Asia Pacific region could become major consumers of clean energy sources, while the industry in the United States – which is surprisingly underdeveloped - could be about to experience a boom.
A pioneering offshore wind generation project off the coast of Massachesetts will take a major step forward in the next couple of months – and other states on the eastern seaboard also have plans to follow suit.
Andrew Saunders is a partner in Saunders & Saunders, LLP – a legal firm in New Bedford to the south of Boston – and has been monitoring offshore wind developments on the east coast for some time.
“The US market is a fledgling in terms of offshore wind production, but it is the next global offshore market that will pop,” he said.
So why has the USA – usually considered a driver for advancements in energy technology – been so slow off the mark? Regulation, regulation, regulation!
The sale of electricity on both the retail and wholesale level is heavily regulated by each state, with the wholesale level overseen through regulation of power purchase contracts between the local utility and the producer.
The end users cannot simply choose the provider they want to buy their electricity from, with the government instead appointing one utility company as the supplier to a particular region of each state and then requiring that utility to shop the wholesale market for the best price. The power purchase contract which makes the most economic sense for the end user is what gets approved by the regulator.
To manage the peril of the supplier taking advantage of that monopoly and charging the end user too much, each state has a regulator that sets the price to the consumer, taking into account employment, infrastructure and transmission costs, as well as a reasonable percentage of profit for the local utility company.
Cape Wind was to be the USA’s first offshore wind farm and at the time was the only game in town. Unlike onshore electricity production in the USA where there are multiple energy producers competing against each other for the coveted power purchase contract, its development and operation was to lie in the hands of just one operator with a price per kW many viewed as being arbitrarily set.
It was to sell electricity to the end user at 21 cents kW – while the same electricity could be generated on land for just 4 cents kW. The location of the project also posed huge challenges and opposition. In the end, the economic assumptions going into the project were off base and the project could not transit into the construction phase.
Andrew Saunders of Saunders & Saunders, LLP
Andrew explained: “It was all about economics and the economics for the Cape Wind project just didn’t stack up. However, the Governor of Massachusetts then announced the target mandate of the state having 1600 kW of electricity being produced by multiple offshore wind projects by June 2027.
“Offshore wind is very much back on the agenda and it is different this time because there will be a derby to determine the kW price to be charged and more important the order of who will be first to develop and operate the wind farms. This no longer involves just one company or one project. The presence of three projects competing for a piece of the 1600 kW brings a positive dynamic which was missing from the Cape Wind project.
“Three companies have been given leases from the federal government to occupy parts of the ocean off the state of Massachusetts. We have three companies, each with a separate lease, and each one wants to be selected to proceed first. The bottom line is that whoever comes in with the best kW price will likely be selected to enter into the first power purchase contract for up to 50% of the mandated 1600 kW.
“With the power purchase contract in hand, the projects have access to the capital markets. Regardless of which of the three projects gets approval to proceed first, it is very likely all three of them will ultimately get awarded a separate power purchase contract as part of the 1600 kW mandate from Massachusetts.
“The bids went in in December and the winner is expected to be announced in April. Offshore wind in the USA is no longer an academic theory: this is happening, and it will be happening soon. Massachusetts may be the first for a large scale project, but other states including Rhode Island, New Jersey, New York, North Carolina and Maryland will follow, and there are also wind turbine proposals for the Great Lakes.
“This is a completely new offshore market for the United States and those who will operate the wind farms will have a definite need to tap into the technology, know-how and expertise that has been build up in Europe and other regions over many, many years.”