Pricing Offshore Wind Energy: Is Bigger Cheaper?

Todd Griset
December 08, 2010 | 7 Comments

Will doubling the size of Deepwater Wind's Rhode Island Sound project lower the cost of its power?

Renewable developer Deepwater Wind has announced its plans to double the size of its proposed Rhode Island Sound offshore wind project. Under the current proposal, Deepwater's second-generation development will now consist of 200 turbines to be installed in federal waters off Rhode Island and Massachusetts. Deepwater hopes to commence construction of the project in 2014, bringing the first turbines into operation in 2015.

What price will Deepwater get for its power? Looking at other offshore wind projects is illustrative of the kinds of pricing we might expect. For example, Deepwater Wind is also developing a smaller 8-turbine demonstration project in Rhode Island state waters, the Block Island Wind Farm.

The developer has already secured one major state approval to construct the project, although this approval is currently being challenged in state Supreme Court. The Rhode Island PUC has approved a contract with utility National Grid establishing a maximum starting price of 24.4 cents per kWh, with 3.5 percent increases over the the 20-year life of the deal.

Interestingly, back in March 2010, the Rhode Island PUC rejected a similarly priced contract between Deepwater Wind and National Grid, on the grounds that the price was not "commercially reasonable". In recognition that long-term contracting for renewable power is crucial to facilitate the financing and development of projects, the Rhode Island legislature enacted laws providing a statutory definition of "commercially reasonable" ("terms and pricing that are reasonably consistent with what an experienced power market analyst would expect to see in transactions involving newly developed renewable energy resources") and giving the PUC greater scope in its analysis. In response, the PUC approved the Block Island contract at 24.4 cents per kWh.

The recent approval by the Massachusetts Department of Public Utilities of a contract between National Grid and Cape Wind is also illustrative of the current pricing of New England offshore wind contracts. Under that deal, National Grid will buy half of Cape Wind’s output for 18.7 cents per kilowatt-hour, with a 3.5% annual escalator in each of the 15 contract years.

For the Rhode Island Sound project, Deepwater Wind suggested in a press release that its price might be in the "mid-teens" per kWh, provided that federal tax incentives are maintained. This relatively lower price (compared to the Block Island project) may arise from economies of scale.

As the Massachusetts DPU observed in its analysis of the Cape Wind contract, the nameplate capacity of the 28.8 MW Block Island project is just 6% of the capacity of Cape Wind's 468 MW, "presumably providing the Deepwater Block Island facility with fewer economies of scale" as compared to Cape Wind.

The larger Deepwater Rhode Island Sound project should benefit in similar fashion. I also suspect Deepwater Wind's larger project will benefit from its greater experience in project development by the time it gets to the Rhode Island Sound project. It will be interesting to watch as the Rhode Island Sound project moves forward, and Deepwater Wind lines up a buyer for its power.

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7 Comments

Andrew W
December 16, 2010

@Kfriesth: Can you share what the total installed costs are for the expected production, not "capacity" and any guidance on O&M?

$.018 per KwH doesn't add up if the installation is +$1 million per MW.

Thanks.

Kevin Friesth
December 16, 2010

The full size module prototype which the company had built and has been in testing and review since spring 2008, its data shows it is about 1.8 cents per kilowatt for the cost of energy.

Doing maintenance with the built in elevator and service lift makes it relatively easy to do maintenance of which was already tested in the full size prototype. Projected installed costs are based from the prototype to which we are building an expected 10 megawatt pre-commercial next summer that is projected at 1.059 - 1.067 million per megawatt.

The company also just signed an initial letter of intent for a power purchase agreement to sell the power from the new turbine under development.

The company is working on the design steps for the pre-commercial turbine as building a prototype and having jigs to build multiple units is a different story as the first one costs more but the followup units will be using the jigs instead of one off's like the prototype used.

The company is only using estimated costs as we only have a non-commericial prototype built as the next version is the polished version and will allow the company to have proper cost analysis.

It will also provide verification to assure the company of all costs for production of which the company will make more information available at that time.

A follow up one one comment is yes all the modules have powered independent yaw for each module.

The turbine doesn't need nor requires a subsidy of any kind to be financially feasible.

Hope this helps.

Andrew W
December 16, 2010

@Adrian-Akau: Really? Try doing maintenance on 40 seperate turbines on a stick up to 1200 feet tall. Do you wait until 10 of them fail or more? It's very expensive to be more than 100 feet in the air.

That scheme won't generate enough electricity to pay for the maintenance. Plus, it costs $30 million just to install one of them.

They don't publish their costs because they know it will kill interest in their project - like many wind and solar schemes.

Adrian Akau
December 16, 2010

Splitrock Wind Turbines, according to the web site, use towers 1296 feet tall which enables generators to function in modules at different air flows and permits them to get at the higher velocity winds. There is no information on construction costs or on projected Kwh prices.

Lisa Linowes
December 11, 2010

I'm afraid there is no basis for anyone to conclude larger projects would benefit from economies of scale. Further, if you read the testimony in the Deepwater case, which also would apply to Cape Wind, the agreed upon cost figures have the appearance of being reverse engineered from a required rate of return rather than derived from basic engineering estimates. BTW: Your piece omits the 4% payout to National Grid for being a party to the Cape Wind contract.

Andrew W
December 11, 2010

@kfriesth: How much will a 30mw Splitrock Wind Turbine cost? Installed.

Kevin Friesth
December 11, 2010

We are currently reviewing options for east coast offerings of our 30 mw turbines and are hopeful we can get the offshore version ready and tested in time for their deployment. As the Inventor of the Splitrock Wind Turbine I know it can meet the requirements and the needs for high density power generation. As such it will be interesting to see how this all plays out with the various interests engaged as they are presently.

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Todd Griset

I practice law with Preti Flaherty's Energy Group from our Augusta, Maine office. I focus my practice on helping clients including renewable power project developers, industrial and forest products manufacturers, and other commercial entities...