Big Challenges Remain for U.S. Offshore Wind

The U.S. could see as many as 10 GW of offshore wind capacity installed by 2020. But it won’t be easy, say industry experts.

“There are some 5 GW in planning right now, but who knows how much of this can be realized,” says Dirk Matthys, the North American chief executive of Spanish turbine maker Gamesa. He says that growth will hinge on how fast the government can streamline a new program to approve projects.

Other hurdles such as local opposition and the need for a new transmission network could also hinder progress, says Matthys.

Nevertheless, he believes it is possible to develop 5-10 GW in the U.S. within the next decade.

Washington’s incentive programs must also be increased for longer-term planning, observers add.

“There is a big lack of long-term incentives which you need for project planning purposes,” says Mark Rodgers, communications director at Cape Wind, the company trying to develop the country’s first offshore wind farm off the coast of Massachusetts.

According to Rodgers, the government has a project loan program and tax credit scheme in place for this year. But it’s uncertain if these programs will be extended into 2012 and beyond.

Cape Wind, which has secured power purchase agreements for the first half of the facility’s future output, hopes to begin building the 130 turbine wind farm late this year. However, the developer is still trying to find another buyer for the other half of the power.

Getting Smart from the Start

In an effort to help the industry out, the Department of the Interior launched the “Smart from the Start” scheme last year to hasten project review and approval times to 1-3 years from the more typical seven-year time frame.

The program created an “accelerated leasing process” to encourage more offshore wind development along the Atlantic seaboard.

Charlie Natale, a consultant with ESS Group, says Smart from the Start is substantially speeding up project approvals, helping early offshore projects gain traction in the U.S.

The program has enabled a string of projects from Maine to North Carolina to more quickly move into advanced stages of planning and permitting, with projects in Rhode Island, Delaware and New Jersey furthest along.

However, accelerated project approvals won’t have a major impact if the transmission infrastructure isn’t able to handle the wind farms. According to ESS’s Natale, the lack of transmission is the sector’s greatest challenge.

“The existing electricity transmission system doesn’t have the capacity to handle the additional and pulsating energy that will come from the offshore projects,” he explains, adding that costly electromechanical equipment will be needed to convert fluctuating voltage flows so the landline system can absorb the electricity.

Natale expects the first offshore farms will be hooked inland through a “zonal” approach in which different facilities will connect through so-called collector platforms. This is not an immediate solution yet as platforms like these are stil being tested in Europe.

“Right now the collector platforms are being deployed by Siemens and ABB in the North Sea so they will need to succeed there before they can be used in the U.S.,” he notes.

There are also plans for an Atlantic Wind Connection (AWC) mega project that will provide a high-voltage backbone from the Carolinas to New England. The network will be connected to the sea bed and jump off at two or three locations to feed into New England, New Jersey, New York and Virginia. When finished, it will have the capacity to deliver 6,000 MW of wind power to the mid-Atlantic states.

But, as Natale points out, this initiative will be “very expensive and complicated” and is seen as a long-term solution to the sector’s transmission woes.

Improving Technology

Transmission and incentives aren’t the only factors that need to improve; there is still plenty of room to advance the technology as well.

According to Gamesa’s Matthys, the industry can still do a lot to improve the efficiency and reliability of turbines. Specifically, he says, generation costs must come down to the Department of Energy’s recommended 12-13 cents per kWh in the near term, down from 20 cents today. Beyond that, developers must hit 10 cents per kWh in the next decade.

Gamesa recently teamed with Northtrop Grumman to build an offshore wind technology center and develop next-generation wind systems. Under the alliance, Gamesa will launch its first G11X-5 MW offshore prototype in the U.S. in the fourth quarter of 2012. The Madrid-based firm also intends to work on a 7 MW prototype, Matthys says.

Matthys boasts that Gamesa’s latest offshore turbines are more reliable and can last up to 30 years instead of 20 years like rival machines.

“The generation costs of offshore projects needs to be lower and the way to do this is to have a more reliable project. Our turbines help meet this requirement,” he explains.

If generation costs can be cut, offshore wind will start to gain market share in the U.S., even with transmission constraints. As Matthys explains, in some cases the transmission problem isn’t as big as it is for onshore projects.

“The big advantage of offshore is that it will be very close to the main energy consumption markets [in the East coast] like New York, Philadelphia, Washington, Baltimore etc,” he Matthys says. “The big onshore resources are in the mid west and you would need to build big transmission lines to meet these markets’ demand and this will also be expensive and challenging.”

However, even with some of this positive movement, it will take many years for offshore wind to catch up to the pace of onshore development in the U.S.

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Ivan Castano is a freelance journalist based in Miami. His work has appeared in Thomson Reuters’ International Finance Review (IFR), Dow Jones’ Financial News, Euromoney, Trade & Forfaiting Review and a range of trade publications covering the capital markets, private equity, loan, credit and restructuring markets. He is fully bilingual in Spanish and English having been raised in Ecuador, Colombia and Spain. Ivan has worked and lived in Los Angeles, New York, Madrid and London.

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