INSIGHT: Unleashing the Potential of Offshore Wind

Bloomberg Environment | June 25, 2018

The next revolution in global energy production may be one you have to squint to see.

Over the last several years, large-scale deployment of offshore wind has emerged as a significant resource. This acceleration is spurred by experience in Northern Europe where continued improvements in turbines and other technology, learning-curve benefits, and economies of scale have slashed costs per megawatt hour by more than 50 percent over the past five years. In some circumstances, projects are being launched without explicit price subsidies. Turbines are being installed farther and farther offshore, where visual impacts (a frequent impediment to wind development) are reduced and winds are stronger and steadier.

Underscoring these benefits, a recent government-funded study by Lawrence Berkeley National Laboratory concludes that the total value in the northeast U.S. of potential offshore wind projects exceeds that of land-based wind. Some analysts forecast global deployment to increase fivefold over the next decade.

To realize the potential of this resource, policymakers and stakeholders must recognize and overcome its unique challenges. This article highlights siting, entitlement, infrastructure, transmission, development, and financing issues that are distinctive for offshore wind, when compared with onshore wind or with other marine projects. We contrast Northern Europe with two frontier regions: the United States, where a number of competing states have launched ambitious efforts, and Taiwan, which has a centralized plan to develop resources off its western coast.

Entitled Location, Financeable Project: A Tale of Three Regions

All energy project developers set out to acquire both a suitable site with all necessary government approvals and a long-term power purchase agreement (PPA) with financeable terms. But the differences for these objectives between onshore and offshore wind can be striking.

Land-based U.S. projects typically are built on privately owned property or on public lands slated for energy uses. Nationwide, there are hundreds or even thousands of suitable locations. For sites built on agricultural land located near existing transmission lines, the uncertainties associated with environmental reviews can be confined. Given the comparatively low costs of onshore wind power and the standardized process, a developer that acquires a suitable site has a good chance of being able to obtain a PPA.

American offshore wind development has proven decidedly more challenging. To achieve economies of scale, the individual project size will be much larger, limiting the number of PPAs that will be awarded. Because projects are now being sited 10 to 20 miles from shore and national governments lay claim to territorial waters for many purposes besides energy, such as fishing, navigation and national security, the sovereign’s role in leasing is much greater and nuanced than for onshore projects. When the military signals that large swaths of offshore locations may be off limits, as was suggested by the Navy for the U.S. West Coast in February 2018, many otherwise suitable options may be unavailable.

The Northern European experience can be profitably compared. Nations bordering the North Sea have established predictable regulatory frameworks for offshore development. Governments are increasingly awarding PPAs and site control concurrently. This enables the pursuit of ambitious programs in which the state not only acts as commercial lessor but also offers long-term policy and financial support through the form of aggressive renewable energy targets and, where necessary, price support mechanisms.

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Rob James is a partner in the San Francisco and Houston offices of Pillsbury Winthrop Shaw Pittman LLP. With over 35 years at Pillsbury, he co-leads the firm’s Projects team, focusing on energy project development, complex commercial agreements, and engineering, procurement and construction contracts, including public-private partnerships. In the electricity sector, in addition to conventional power generation and storage, he advises on solar, wind and geothermal projects. He is the editor and principal author of U.S. Energy: Regulation, Development & Finance (second edition), covering American electricity, oil and gas markets and projects.

Pillsbury senior counsel Andrew Weissman has been at the forefront of high-stakes, cutting-edge issues impacting the energy industry for more than three decades. Andy has helped to transform federal and state energy and environmental policy, assisting in the development of major energy regulatory programs as well as energy and environmental legislation. He is the leader of EBW Analytics Group, which provides independent expert analysis of natural gas, electricity and crude oil markets.

Bryan Stockton, a Pillsbury senior associate, helps clients navigate permitting processes for the construction of new wind, solar, and natural gas power plants; negotiate with regulatory agencies; resolve claims and litigation arising from environmental laws; identify and mitigate liabilities related to complex corporate and real estate transactions; contribute to the rulemaking process in advance of the promulgation of new federal air, water and fuels regulations; and resolve complex compliance issues.

The opinions expressed here do not represent those of Bloomberg Environment, which welcomes other points of view.