The value of offshore wind energy: What the US is missing out on

The US is a latecomer to the world of offshore wind. The first commercial offshore wind farm in the US, a small, five-turbine, 30MW installation off the coast of Rhode Island, only just switched on in December 2016. Since then there have been no new offshore farms, although a few preliminary plans for new farms have been announced for coastal waters off New York and Massachusetts.

Compare that to Europe. The continent now has 15,780MW of offshore wind, according to Wind Europe, 526 times the capacity that the US has. European projects added 560 new offshore wind turbines across 17 different offshore wind farms in 2017 alone.

A group of researchers at the Lawrence Berkeley National Laboratory (LBNL) is now asking: what is the value of the offshore wind that the US didn’t build over the last decade? Although many analyses have studied the falling cost of installing offshore wind, assigning a to offshore wind is ground that is less well-tread. Though it’s much more expensive to construct turbines in the ocean, offshore wind can also generate more value because sea breezes tend to be stronger and more reliable, and wind turbines can be built bigger.

Value ledger

The Berkeley researchers found that over the last 10 years, the value of hypothetical US offshore wind energy ranged from $40/MWh to more than $110/MWh depending on where the wind was sited and how renewable energy was priced in that region. This partially explains why so little offshore wind had been built in the US until now—in January of last year, offshore wind costs hit a low of $121/MWh in the UK. Not quite the cost/benefit ratio that gets investors excited, but as costs for offshore wind continue to fall, we’ll likely see that change.

The value of wind in terms of energy prices plus renewable energy credit (REC) prices was highest off the coast of New York, Connecticut, Rhode Island, and Massachusetts. (RECS are credits issued per unit of renewable energy produced that can be sold on a secondary market.) Unsurprisingly, the states where offshore wind would have been valued the most over the past ten years are the same states where wind developers are looking to put more offshore wind farms today.

Still, the researchers caution that “as energy and REC prices have fallen in recent years, so too has the market value of offshore wind.” Ironically, a growing renewable energy market has driven down prices for RECs, which could slow some offshore wind growth in the future.

SO2 late

Wind has value beyond a dollar amount, too. If you’re a policy maker trying to reduce emissions, offshore wind’s environmental benefits will vary by region, and the researchers tried to quantify that as well. Depending on where you are along the East Coast, offshore wind could replace coal-fired plants (a net-benefit, emissions-wise) or nuclear plants (no substantial change in emissions).

An interesting effect of not building wind is that it seems the US may have potentially missed an opportunity to replace high-polluting generators with offshore wind and instead shifted load from high-polluting coal to less-polluting natural gas. An offshore wind farm placed in 2007 would have displaced more harmful emissions, especially sulfur dioxide (SO2), than it would have in 2016, so it would have been more “valuable” then, environmentally speaking, than it is today.

Of course, not all retired coal-burning generators could have been replaced by variable wind, but if some fraction of their capacity could have been shifted to renewable energy instead, we may have seen a higher environmental return. Natural gas burns cleaner than coal, and using natural gas to replace coal is better than doing nothing, but it’s not quite as good, emissions-wise, as replacing marginally used coal capacity with emissions-free generation. In addition, it lowers the environmental value of replacing fossil fuels with renewables in the future.

The researchers also concluded that more offshore wind would have resulted in decreased demand for natural gas not just locally but nationwide. “When the marginal generation unit displaced by offshore wind is a gas-fired generator, offshore wind not only avoids emissions but also reduces the consumption of natural gas,” the authors note. “Because natural gas supply is relatively inelastic in the short term, reductions in natural gas demand can lead to price reductions, resulting in flow-through consumer benefits in the form of lower natural gas expenditures throughout the economy.”

How to move forward

A world facing climate change should want to lower emissions in whatever way possible, but the fact is that someone has to pay for offshore wind installations, and if the return on investment isn’t there, it won’t happen in the US, barring new subsidies. However, the authors of the paper make some suggestions as to how ocean-based wind installations can maximize their profits in the future.

One obvious suggestion is to make sure your installation is connected to the electricity market where you’d make the most money, but the paper notes that it could be worth it for wind installations to have “more than one interconnection point,” which would allow operators to arbitrage between the two markets. That practice “can increase value by $40/MWh-wind in some cases.”

Another interesting result was that “adding battery storage sized (in MWh terms) at roughly one-fourth of the offshore wind project capacity can increase value by up to $3/MWh-wind, with still-greater incremental value as battery size increases.” Batteries offer a tantalizing prospect to renewable energy developers, because they reduce the effect of wind’s natural variability. Energy storage has historically been very expensive, but as battery prices continue to fall, using batteries to store wind energy can offset some of the problems that come with a variable energy source. To estimate that value, we need only look as far as the Neoen/Tesla wind farm/battery installation, which has reportedly been very lucrative in maintaining grid frequency.

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