U.S. Offshore Wind Power Capital Investment To Match Oil

Published On: July 8, 2020Categories: Tech3.2 min read

A decade ago, there was zero capital investment from the USA in offshore wind power plants. As we progress through the first year of a new decade, the outlook for the next 10 years is starkly different.

Research conducted by the energy consultancy Wood Mackenzie forecasts total capital investment in U.S. offshore wind projects to reach $78 billion by the end of 2029. That’s almost as much as the $82 billion planned as investment in U.S. offshore oil and gas development.

Offshore wind power as a significant contributor to the overall energy mix has been an established and growing reality in Europe for some time now. But the USA has been over a decade behind, preferring to focus investment on fossil fuels.

However, shifting policies and new clean energy targets in east-coast states is seeing the offshore wind power sector now belatedly burst to life. The Bureau of Ocean Energy Management (Boem), believes the federal waters of the Atlantic, off the east coast of the USA, could host 22,000 megawatts of wind generating capacity in the “reasonably foreseeable” future. That is enough electricity to power more than 10 million homes.

The positive momentum for increasing capital investment in offshore wind power that has been generated over the past 4 years stands in contrast to the fading fortunes of offshore oil. A healthy land-based supply, high exploration costs and newly intensified environmental worries means U.S. offshore oil production is only expected to expand by 200,000 barrels a day over the next ten years. That figure is based on Energy Information Administration (EIA) forecasts.

The offshore wind projects contributing to the sector’s growth include a proposed a 100-turbine site called Vineyard Wind in the ocean waters south of Martha’s Vineyard, the popular Massachusetts island. Boem is currently accepting public comments on the proposed instalment, which is a joint venture between Copenhagen Infrastructure Partners and Spain’s Avangrid, a subsidiary of Iberdrola. If approved the project, which would generate of to 800MW, would be the first large-scale offshore wind farm in U.S. waters.

Dominion Energy plans a 2600 MW project of the Virginia coast, with construction due to start in 2024. A two-turbine pilot has been recently installed. New York state is targeting 9000MW of offshore wind capacity by 2035 and New Jersey 7500MW.

In April, Virginia’s governor signed the Clean Economy Act into state law. It commits Virginia to installing 5200 MW of offshore wind capacity by 2034. The three east coast states all have Democrat governors and the current opposition party has placed climate change at the centre of its policies for the upcoming presidential contest.

Wood Mackenzie analyst Max Cohen comments:

“By and large, this is a northeastern phenomenon, driven by northeastern states seeing cost declines in Europe and being very interested in bringing offshore wind to their shores. And these projects will be close to demand centres like Boston, New York and all these coastal cities.” 

The economics around offshore wind have improved dramatically over the last ten years and continue to do so. However, installing turbines still involves significant upfront capital spending. Installing 250 MW of capacity costs around $1 billion, though that price tag is expected to drop by around 40% over the next 10 years.

Just a few years ago the lifetime cost of offshore wind generated electricity fell in the $150-$170 a megawatt-hour range. The Vineyard Wind project and others in the planning stage expect prices around $65-$85 a MWh. Around half the cost that was until recently the norm.

Environmental reviews examining the cumulative impact of all offshore projects in the planning stage have slowed down major projects such as Vineyard Wind. That uncertainty is, says Goldman Sachs, currently disincentivising investors. It also means Vineyard Wind could be denied federal tax credits due to expire at the end of this year.

But teething problems aside, the sector can be expected to gain momentum quickly when red tape issues lessen. If oil prices remain depressed for an extended period of time, it is not impossible that investment in offshore wind could end the current decade ahead of that for offshore oil. Especially in the United States, a nation and economy largely built on domestic oil, that would represent a milestone shift towards renewables.

About the Author: Jonathan Adams

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