Offshore wind poised to take off in the U.S., Moody’s says

The U.S. offshore wind market is poised to take off in the wake of sharply declining costs and growing policy support, Moody’s Investors Service says in a new report.

In the March 29 report, Moody’s notes that over the past decade, offshore wind has grown to 17 gigawatts of global operating capacity (about 3% of global wind generation capacity). Europe accounts for the bulk of the projects (12 GW, or about 8% of European wind generation capacity), with the balance coming from Asia.

The U.S. brought its first project online in December 2016, the 30-MW Block Island offshore wind farm off the coast of Rhode Island, the report notes.

Meanwhile, the Long Island Power Authority has contracted for 90 MW of power from Deepwater Wind’s South Fork Wind Farm off the southern coast of Rhode Island and Massachusetts, east of Montauk.

Moody’s said that the current estimates show the global offshore wind market growing to nearly 32 GW by 2020, “almost doubling today’s cumulative existing capacity in just three years.” The U.S. will account for none of that growth “but should become a more material player after 2020, based on current market developments and a pipeline of 13 GW of projects at various stages of development,” the report said.

Political, regulatory support growing in the U.S.

Moody’s notes that states like Massachusetts, New York and New Jersey have established a legislative or policy target for offshore wind supporting the development of 7.5 GW of generation capacity by 2030. The objective is to create visibility and certainty in the offshore market and spur its growth, the rating agency said. These states have also launched or will soon launch solicitations for 3.3 GW of offshore wind capacity.

Excluding Maryland, which awarded two projects totaling 368 MW in 2017 for a fixed contract price of $132/MWh over 20 years, Massachusetts is furthest along, Moody’s said. The state issued a request for proposals for up to 800 MW of offshore wind to be awarded in April 2018. Three separate bids were submitted for a total of 2 GW of capacity. “The outcome of these bids will be closely watched because they will offer an important indicator of pricing for future New York and New Jersey bids,” Moody’s said.

The rating agency said that New York and New Jersey are expected to launch their own solicitations for up to 800 MW and 1,100 MW, respectively, over the coming year. The necessary offshore wind site leases have been obtained while procurement processes are at different stages of development.

The report said that New York is still working through its preferred procurement method while in New Jersey legislation was passed supporting the use of offshore renewable energy credits. (The New Jersey Board of Public Utilities on Feb. 28 approved an order that will begin moving the state toward a solicitation of 1,100 megawatts of offshore wind energy capacity).

Rapid decline in prices

While substantially higher than wholesale market prices, U.S. offshore wind prices have rapidly declined in the past few years.

The power purchase agreement for Block Island was priced at $244/MWh when it went operational 2016, while the long-term procurement contract for Maryland's Skipjack and Ocean City projects came in substantially lower, at $132/MWh the following year, Moody’s noted.

At today’s U.S. offshore wind prices, “costs remain high, even relative to the premium U.S. wholesale markets of New York City, Long Island, and Boston.”

But Moody’s points out that forecasts from the National Renewable Energy Laboratory project U.S. offshore wind costs will decline to more competitive ranges over the coming years.

In the Northeast U.S. in particular, the difference between the cost of offshore wind and forecasted market prices narrows to $30-80/MWh, with some of the lowest-cost sites located in Massachusetts, Maine, Rhode Island and New York.

Deployment of offshore wind at scale, particularly at the low end of the $80-130/MWh range, appears feasible within the next ten years, Moody’s said.

Northeast U.S. has most offshore wind economic potential

The U.S. Northeast, in particular New England, New York and New Jersey, has the most offshore wind economic potential, the report said.

“These states have ample sites favorable to OSW [offshore wind] development and benefit from natural attributes such as good wind speed, relatively shallow waters and proximity to shore and demand centers, all of which help contain cost.”

By way of example, the rating agency noted that NREL estimates that Massachusetts has 19.3 times the offshore wind technical potential relative to the states’ electricity needs, “while New York and New Jersey have technical potentials that are several times their electric needs as well.”

These states also have similarities with northern Europe, where most offshore wind growth has taken place, the rating agency pointed out.

Specifically, Moody’s said that:

  • Like Europe, the Northeast region’s access to natural gas has limitations. Existing natural gas pipelines in New York and New England, in particular, already operate at full capacity, and building new pipeline capacity has proved difficult;
  • The region has geographical constraints. “Siting onshore renewables near load centers is difficult because of a scarcity of available land, while building out transmission lines to more remote areas where onshore renewables could be built has also been problematic and can be less cost effective”;
  • Both Europe and the Northeast U.S. have adopted ambitious renewable energy goals. New York State, for example, is aiming for 50% renewable energy by 2030.

Moody’s noted that NREL, based on its assessment of the potential of offshore wind in the United States from 2015 to 2030, expects that the Northeast’s unsubsidized, economically viable available capacity will reach 144 GW by 2027, with Maine and Massachusetts representing the largest share at 65 GW and 55 GW, respectively.

The rating agency’s own estimates are more conservative since it does not expect offshore wind to be economical on an unsubsidized basis within that timeframe. “Still, we acknowledge that the price differential will narrow materially over time and support deployment of OSW at scale in these regions,” Moody’s said.