Are U.S. Energy Ratepayers Ready For Offshore Wind?
image credit: Block Island wind farm
- Mar 26, 2020 11:18 am GMT
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The U.S. wind energy industry has grown very fast to add much-needed energy to the U.S. energy supply mix. The U.S. is now the largest wind energy producer in the world, with Texas the largest wind producing state. In the U.S. today, wind power accounts for about five percent of all electricity generated. The total installed wind capacity in the U.S. through the end of 2016 is 82,183 megawatts (MW), as shown in Graph 1 below.
Graph 1 – U.S. Installed Wind Capacity in MW 2001-2016
Source: American Wind Energy Association website, http://www.awea.org/wind-energy-facts-at-a-glance
Not only has wind generation increased through technology advances, the price of wind energy has decreased to the $40-$50 per megawatt-hour (mWh) range (4-5 cents per kilowatt-hour kWh) which is very competitive with fossil fuel generation costs.
The National Renewable Energy Lab and AWS Truepower estimates that a capacity of 11,000,000 MW of potential onshore wind projects exists at 80 meters and a 30% capacity factor. The U.S. is fortunate to have a huge untapped onshore wind resource for economically-attractive future energy development that is 134 times the current installed onshore capacity.
Europe has developed its off-shore wind industry and per https://windeurope.org/about-wind/statistics/offshore/, has a current installed offshore wind capacity of 12,631 MW through the end of 2016.
Not only have the Europeans developed their offshore wind resources, but the most recent project by the Swedish firm Vattenfall made history was bid at only $55 per megawatt hour sold for an offshore wind development in Denmark, several times below costs 10 years ago and on a steady downward trend. Offshore wind can be developed in an economical and environmental manner.
The Deepwater Wind’s project near Block Island offshore Rhode Island just began commercial operations, making it the first operational offshore wind farm in America in November 2016.
Block Island Wind Farm is about 3 miles off the coast of its namesake island. Offshore wind developer Deepwater Wind spent roughly $300 million to build the project for 30 MW of capacity, or about $10 million per MW.
The company that’s buying and distributing the electricity, National Grid, will pay Deepwater Wind a price for the wind farm’s renewable energy that’s higher than today’s market prices from traditional sources.
All Rhode Island energy ratepayers are expected to pay an above-market price of $440 million for Deepwater Wind’s energy over the next two decades, according to a 2015 filing with the state Public Utilities Commission. Under the contract, Rhode Island ratepayers will pay National Grid for Deepwater’s wind energy who will in turn pay the Deepwater project a maximum of 24.4 cents per kilowatt-hour for the electricity in its first full year of operation. After that, the price will increase 3.5 percent per year to 46.91 cents per kilowatt-hour in 20 years. All Rhode Island ratepayers will see this increase in their energy bills, not just the 1,000 permanent residents of Block Island. Source: http://ripr.org/post/deepwater-winds-block-island-project-worth-cost-ratepayers
We should support renewable energy as its current price point is close to if not at parity with fossil fuels. I question the economics of the Deepwater Wind project when there are many other wind sites available in the US at a much lower price. Current wind projects are selling wind energy in the $40-50 per MWh range or about 1/6th the initial year cost of the Deepwater wind contract of $244 per MWh.
As wind energy prices continue to shift downward in the future with documented technological breakthroughs, Rhode Islanders in 20 years will be paying up to 12 times the current wind price of $40-$60 per MWh price. Is this economically smart for Rhode Island ratepayers when there are other renewable energy projects in the US that compete more favorably?
Current onshore wind energy in the $40-$60/mWh range is at or below natural gas generation cost. Is offshore wind energy in the form of the Deepwater project at $244/MWh going to $469/MWh in 20 years a reasonable value proposition for Rhode Island ratepayers?
The guaranteed 3.5% annual increase allowed for the Deepwater offshore wind farm is twice the US electricity rate inflation since 2009 of 1.7%. Source: https://www.greentechmedia.com/articles/read/electricity-rates-are-jumping-or-are-they
Going back to the Swedish firm Vattenfall’s $55 per megawatt hour bid for offshore wind development in Denmark, why is the Deepwater bid of initial energy of $244 per mWh 4.4 times the Vattenfall’s offer? With a guaranteed increase of energy prices from National Grid, wouldn’t that reduction in future financial attract a lower energy price from the developer?
More offshore wind projects are planned as shown in Figure 1 below.
Figure 1 – Atlantic Offshore Wind Energy Leases With Parent Companies
As wind developers propose these new offshore projects, I trust the electric ratepayers of New York contract with a company like Swedish firm Vattenfall which made history in November 2016 by bidding only $55 per megawatt-hour (MWh) or 5.5 cents per kilowatt-hour sold for an offshore wind development in Denmark. This compares with the Deepwater Wind’s starting energy price of $244/MWh going to $469/MWh in 20 years.
For Deepwater Wind, has the Rhode Island state government created advantaged conditions for off-shore wind farm operators by offering a “state financial guarantee’ to project investors to shield against commercial risk? If so, this puts any other project of on-shore wind farm in a disadvantaged position.
Copyright © March 2020 Ronald L. Miller All Rights Reserved