Less than a decade ago, offshore wind energy and solar PV were similarly priced energy sources. Unsubsidized installed costs for both exceeded $5 per watt, or more than double that for land-based wind. Despite their cost, both technologies were seen as the best hopes for supplying urban centers with green power, especially in the BOSNYWASH (Boston-New York-Washington, DC) corridor of the eastern U.S.
Retail energy prices in this corridor rank among the highest in North America, and lower cost energy from land-based wind was limited due to the lack of windy, sparsely populated sites and transmission constraints. With offshore wind’s ability to import large amounts of power directly to urban areas, and PV’s ease of siting on rooftops and parking lots, they comprised the great green hope of the future.
Fast forward to the present: PV costs have fallen by over half, propelling U.S. solar capacity additions of more than 15 GW combined in 2015 and 2016. State and federal incentives like the investment tax credit have helped fuel this growth. PV is such a hot technology that some state incentives, like net metering, may be scaled back or offset by new fees on solar systems. These fees are intended to compensate for unintended consequences on the grid whereby some systems costs are arguably being disproportionately shifted to non-solar customers.
In comparison, despite considerable interest in many states over the past 10 years, U.S. offshore wind has been a late bloomer, as evidenced by a long list of proposed projects that are stalled or have fallen by the wayside due to permitting, political or economic factors. These include Delmarva Power, Long Island Power Authority (LIPA; cancelled in 2007), Fishermen’s Energy, the U.S. Department of Energy’s (DOE) pilot demonstration projects in Virginia and Washington, and — most significant of all — Cape Wind in Massachusetts. Yet despite these setbacks, there is fresh hope for offshore wind.
The country’s first offshore wind farm—the 30-MW Deepwater Wind Block Island project—was commissioned in late 2016. New legislation in Massachusetts promises to create a 1,600-MW pipeline of much larger projects over the next decade. New York is a stir with a recently auctioned lease area awarded to Statoil and a 90-MW power purchase agreement awarded by LIPA to Deepwater Wind. Development activities by US Wind are continuing in Maryland, and the DOE has redirected pilot funding to pending demonstrations in Maine and Ohio.
These and other offshore wind activities are cause for encouragement, while PV’s growth will continue to benefit from current incentive programs and lower installation costs. However, six key attributes of both technologies appear to offer strong signals that offshore wind development in the eastern U.S. will be spinning up soon.
1. Scalability: Offshore wind is a utility-scale technology with the ability to replace the output of retiring coal and nuclear plants. Its output is connected directly to the grid at transmission-grade voltages. PV, on the other hand, contributes to renewable goals with much smaller projects. Ninety-five percent of PV projects and half the U.S. installed solar capacity come from behind-the-meter residential kilowatt-scale projects. The remaining capacity consists of commercial and utility-scale PV projects, largely in the 10-200 MW size range. These are mostly located in the desert Southwest, far from the load centers in the East where high population density and land use competition constrain PV system sizes. While offshore wind projects can easily reach capacities of 500+ MW, most eastern U.S. PV projects may only be 1/100 this size. This requires siting, approving and developing many more separate projects to satisfy a policy’s capacity target.
2. Time to Market: PV has clear advantages when considering time to market. PV’s modularity and lower permitting hurdles enable project development schedules of one to two years. Pre-development resource assessment studies are typically not performed for projects below one megawatt in size. A supply chain of products and installers is well established, and installations are far less complicated compared to offshore wind construction. In contrast, the time cycle for offshore wind development is five to 10 years, and a domestic supply chain has yet to take form. However, a fairly robust offshore supply chain in Europe can be tapped to jump-start the U.S. market, which will benefit from lessons learned from scores of existing projects.
3. Business Models: Due to its diversity in residential, commercial and utility markets, PV has the advantage of suitability for more business models that drive investment from multiple sources. For example, distributed PV displaces retail-priced energy, which incentivizes investment by homeowners. The solar system is either purchased by the user or leased from a third-party. Additionally, purchase rebates are available from many states, and the federal investment tax credit reduces capital costs by 30 percent currently (declining as of 2020). Furthermore, net metering is available in most states. It is not until PV reaches utility-scale that its business model approaches parity with the model for offshore wind. Offshore wind and utility-scale PV are typically sold at wholesale electricity rates through a power purchase agreement. Project financing relies on equity and debt. Depending on ISO market rules, generation may need to be scheduled (forecasted) for the same-day and/or next-day markets. Unfortunately, unless an offshore project is well along in the permitting process, it may not be eligible for the existing tax credits (PTC or ITC), which are phasing down. Compared to PV, this puts offshore wind at a disadvantage in terms of public policy support.
4. Land Requirements: Here, offshore wind has the advantage. PV requires roughly seven acres (0.03 sq km) of dedicated surface area per MW of peak capacity; this is twenty times more area per MW than the offshore wind farm requirement. An offshore wind farm’s turbines are widely spaced—on the order of a kilometer apart—thereby allowing other water uses. Solar development is usually close to electrical interconnection to support smaller project sizes. This means that the land used for solar tends to present more opportunity cost to local communities, whereas turbines can be sited miles offshore, far from prime real estate.
5. Diurnal and Seasonal Availability: PV production is limited to daylight hours (averaging 12 hours per day), with more energy available in summer than in winter. This plays favorably to the East’s summer peak energy consumption pattern. However, cloudiness, which is commonplace in the region, diminishes PV’s potential output and can cause strong instantaneous ramp events. Offshore wind generation, on the other hand, is unconstrained by time of day and can be available 24/7. In fact, there is a diurnal tendency for offshore winds to be stronger during the afternoon and evening hours when electricity consumption is greater (and electricity prices are higher). In summer, hot and hazy weather produces strong sea breezes, boosting wind farm output just when consumption is greatest. Offshore wind production is even stronger in winter and can be helpful in alleviating natural gas shortages and high electricity prices in New England.
6. Capacity Factor and Capacity Credit: In the eastern U.S., the capacity factor of an offshore wind farm is about twice as high as a fixed-tilt PV system (40-45 percent vs. 17-23 percent). Over years of operation this helps offset the greater initial investment incurred by offshore wind. In terms of capacity credit — the ability of a system to provide reliable generation to the grid during peak loads —offshore wind has been assigned a much higher year-round value. For example, in its 2016 Installed Capacity Manual,* the New York ISO has assigned offshore wind a capacity credit of 38 percent, while it assigned south-facing PV two values: a capacity credit of around 35 percent in summer and only 1 percent in winter.
Practically speaking, PV and offshore wind fill different niches. As friendly competitors, both technologies are expected to be important contributors to the Eastern U.S. energy mix during the next decade. PV has many advantages at present, and current policy conditions will catalyze its continued growth.
The good news is that while PV continues to boom, offshore wind may not be far behind, especially if it receives the type of policy support given to nearly every other energy technology—conventional or renewable. Offshore wind is thriving in Europe and witnessing surprisingly strong cost reductions thanks to a maturing supply chain and long-term market visibility. This result suggests that, given sufficient opportunity, the same outcome could be expected in the U.S.
*Installed Capacity Manual, New York independent System Operator, Rensselaer, N.Y., February 2016