The Next Big Thing

In early July Dominion Energy broke ground on the second U.S. offshore wind farm, called the Coastal Virginia Offshore Wind project and located 27 miles off the coast from the resort city of Virginia Beach. It was a purely symbolic moment and a literal “groundbreaking” since it took place on land and nowhere near where the turbines will be. Its purpose was to install a half-mile pipeline to the final stretch of cables connecting the turbines to a company substation close to nearby Camp Pendleton.

But it was significant nonetheless as it’s been three years since the first U.S. offshore wind farm – off Block Island in Rhode Island – came online in 2016, three long years that had consumers, developers and investors alike wondering, “Will this ever happen? What’s the holdup with offshore wind?”

It’s happening, all right, but at a much slower pace than expected. And the Virginia project is nothing to write home about – it’s only two six-megawatt turbines, even smaller than Block Island, enough to power maybe 3,000 homes. Purely a demonstration project. Proof of concept and all that. If successful – and completion is expected by the end of next year – it will provide the necessary operational data for development of an adjacent 112,800-acre site with capacity for up to 2 GW (gigawatts, or a thousand megawatts) of offshore wind. Now we’re talking!

European Expertise

Dominion’s partner in the project is Ørsted, the Danish state energy company formerly known as DONG (Danish Oil & Natural Gas). The Danes know a thing or two about offshore wind, which generates about half their electricity, and Ørsted is a global leader in the technology, design and development of offshore wind farms. Last year it bought Deepwater Wind, developer of the Block Island wind farm, and it’s moved fast in the U.S. market, where help is needed and European firms are only too happy to oblige.

The U.S knows all about land-based wind power where it ranks second in the world to China, of all countries, but not much about offshore wind, which is an entirely different ballgame. The wind blows a lot harder. The turbines are much bigger, the technology more sophisticated, the degree of expertise required much higher.

That’s where the Europeans come in. Europe leads the world in offshore wind. According to WindEurope, at the end of 2018 it had 18.9 GW of offshore wind power, 105 offshore wind farms and more than 4,500 offshore turbines in 11 countries. The U.K. has the most – nearly half of all installations – with Germany second and Denmark third. They’ve been doing it for nearly 30 years, ever since the Vindeby Offshore Wind Farm was built about a mile off the coast of Denmark in no more than 10 feet of water by – you guessed it – Ørsted, in 1991.

Last year Europe completed the world’s first floating offshore wind farm in the North Sea off Scotland at a depth of nearly 400 feet. That’s how advanced they are. And they’re anxious to export that expertise to the U.S.

The big players are Denmark’s Ørsted and Vestas and the German/Spanish giant, Siemens Gamesa. All three are partnering with U.S.-based companies to stake claim to the potentially huge U.S. market. Ørsted has the early lead and in June was chosen by the state of New Jersey to negotiate a 20-year contract for a wind farm off the coast of Atlantic City with a nameplate capacity of 1.1 GW – the first to exceed the one gigawatt mark.

Called Ocean Wind, it’s a partnership with the Public Service Enterprise Group, which serves more than two million electric utility customers in the Garden State. With a scheduled completion date of 2024, it would power more than half a million homes, create 3,000 jobs and have a 25+ years’ lifespan.

Ocean Wind joins Ørsted’s expanding portfolio in the U.S. that includes Revolution Wind, a 700-MW project off the coast of Rhode Island, South Fork Wind (130 MW) off Long Island, and Skipjack (120 MW) offshore Maryland – all scheduled for completion by 2023. In July it won another big one, this one from New York State, for an 880 MW project called Sunrise Wind that will provide electricity for Long Island.

Throw in Vineyard Wind off the coast of Massachusetts, touted as the U.S.’s first utility-scale offshore wind farm at 800 MW with construction expected to start later this year, and you have more than 5 GWs of offshore wind in the pipeline. And don’t you just love those names – Skipjack, Revolution, Sunrise, Vineyard!

The Opportunity

But 5 GWs is just the tip of the iceberg. According to the U.S. Bureau of Ocean Energy Management, which is responsible for offshore oil and gas operations as well as offshore wind, there are currently 15 active commercial leases for offshore wind development that could support more than 21 GWs of generating capacity. That’s more than Europe currently has.

“The demand for offshore wind has never been greater,” stated Acting Director Dr. Walter Cruickshank in releasing the bureau’s long-awaited report, The Path Forward for Offshore Wind Leasing on the Outer Continental Shelf. “Plummeting costs, technological advances, skyrocketing demand and great economic potential have all combined to make offshore wind a highly promising avenue for adding to a diversified national energy portfolio. The U.S. Outer Continental Shelf presents a world-class wind resource on both the Atlantic and Pacific coasts.”

Cruickshank went on to state that “Offshore wind is an abundant domestic energy resource located close to major coastal load centers, providing an alternative to long-distance transmission or development of onshore electricity generation in these land-constrained regions.”

And that’s really the key, isn’t it? “Close to major load centers” like Boston, New York, Philadelphia, Baltimore, Washington, D.C. and Norfolk, Virginia on the East Coast, Los Angeles and San Francisco and Portland and Seattle on the West Coast. Offshore wind makes sense in those regions. Onshore wind can take care of the rest of the country.

Providing further incentive is the promise of ongoing federal tax credits, critical to the success of any renewable energy project, but particularly one as expensive as this. Two bills recently introduced in the U.S. Senate – the “Offshore Wind Incentives for New Development (WIND) Act” and the “Incentivizing Offshore Wind Power Act” – would extend the Investment Tax Credit for such projects (currently at 30 percent) for up to eight years and provide much-needed breathing room for investors.

“Offshore wind has the potential to change the game on climate change,” stated Senator Ed Markey of Massachusetts, one of WIND’s co-sponsors, “and those winds of change are blowing off the shores of Massachusetts. Offshore wind projects are a crucial part of America’s clean energy future, creating tens of thousands of jobs up and down the East Coast and reducing carbon pollution. In order to harness this potential, we need to provide this burgeoning industry the long-term certainty in the tax code that it needs.”

Added Tom Kiernan, CEO of the American Wind Energy Association, “Without Congressional action, the federal Investment Tax Credit for offshore wind is set to phase out this year – just as the first wave of large-scale offshore wind projects prepare to begin construction. At this critical moment for a new U.S. energy industry, policy stability is more important than ever. We appreciate and strongly support proposals that would extend the Investment Tax Credit for offshore wind, jumpstarting the projected $70 billion build-out of America's offshore wind infrastructure, delivering large amounts of reliable, homegrown clean energy and tens of thousands of jobs to the U.S. economy.”

Cities like New Bedford, Massachusetts, the one-time whaling capital of the U.S., which has since fallen on hard times, are poised to benefit from the expected boom. And U.S. boatbuilders, not to mention the entire Gulf of Mexico offshore fleet, could find themselves swamped with new business in what is fast becoming a modern “gold rush.”

Roadblocks

But obstacles remain, including the controversial Jones Act, seen by some as inhibiting the required investment. Not so, says Joan Bondareff, chair of the Virginia Offshore Wind Development Authority and Of Counsel at Blank Rome: “I like to look at the Jones Act as an incentive for shipyards, not an impediment. It’s been around for 100 years and it’s a law we’re going to have to live with.”

Bondareff is right, and U.S. shipyards and suppliers are making the necessary adjustments. In some cases they are partnering with European companies to design and build equipment like installation jack-up vessels, crew transfer vessels and windfarm service boats. In other cases they are retrofitting the highly sophisticated, dynamic positioning-equipped workboats used in the offshore oil-and-gas industry. The consensus seems to be that there are sufficient vessels and equipment available to meet the first wave of offshore construction.

The other supposed constraint is port infrastructure, but this is a red herring as well. U.S. ports have been handling the turbines, nacelles and blades for the land-based wind power industry for years, and they will make whatever adjustments and investments are needed to accommodate the offshore buildout. And do so gladly.

How to Play It

If you want to get in on the action, one of the best ways is to invest in some of the companies mentioned in this article. The utilities especially, like Dominion Resources and Public Service Enterprise Group and New England’s Eversource, are an attractive proposition as they diversify away from traditional generating sources. The same goes for big oil companies like BP and Shell and Exxon, who are fast seeing the writing on the wall and diving into the bidding for offshore wind farm leases.

Last but not least, the developers and makers of wind farm equipment – Ørsted and Vestas and Siemens and GE (yes, GE, a major turbine manufacturer) – are all worth a look.