US investment in offshore wind power is predicted to rise from nothing 10 years ago to a level that nearly matches spending on offshore oil drilling, as an energy source established in Europe grows in popularity across the Atlantic.

Offshore wind projects are on course for about $78bn in capital spending this decade, compared with the $82bn planned for US offshore oil and gas development, according to energy consultancy Wood Mackenzie. 

In the decade that began with the 2010 Deepwater Horizon drilling disaster, US offshore oil development received $154bn of investment. The figure for commercial-scale offshore wind was zero. 

Offshore wind has benefited from targets set by east-coast states for clean electricity. About 22,000 megawatts of generating capacity is “reasonably foreseeable” in federal waters of the Atlantic, the Bureau of Ocean Energy Management (Boem) said — enough to supply more than 10m homes. 

“It’s huge. The last three, four years have obviously been a very positive development,” said Thomas Brostrom, chief executive of North America offshore at Orsted, the Danish wind group.

The outlook for US offshore oil is stagnant even as the Trump administration attempts to open new areas for drilling. With good inland oil supplies, high exploration costs and worries about the environmental impact, offshore production is likely to rise by only 200,000 barrels a day in this decade, the Energy Information Administration forecasts.

Wind power prospects off the US east coast

Boem is accepting public comments on Vineyard Wind, which would install as many as 100 turbines up to 837 feet tall in waters south of Martha’s Vineyard island in Massachusetts. Developed by Copenhagen Infrastructure Partners and Avangrid, a subsidiary of Spain’s Iberdrola, the 800MW project would be the first large-scale offshore wind farm in the US. 

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Last week, Dominion Energy finished installing a two-turbine pilot 27 miles off Virginia, a prelude to a 2,600MW full-scale project scheduled to start construction in 2024. 

New York state aims to have 9,000MW of capacity by 2035. New Jersey has committed to 7,500MW the same year and last month set aside land for a “wind port” to assemble turbines. 

Virginia’s governor in April signed the “Clean Economy Act”, which requires at least 5,200MW of offshore wind by 2034. All three states are led by Democrats — the party has made climate policy central to its agenda. 

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“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,” said Max Cohen, a Wood Mackenzie analyst. “And these projects will be close to demand centres like Boston, New York and all these coastal cities.” 

Offshore wind projects require high upfront spending: a 250MW project costs about $1bn, according to the International Energy Agency. However, the cost is likely to fall more than 40 per cent over the coming decade, the agency said. 

A few years ago, the lifetime electricity prices of the first offshore wind contracts were in the range of $150-$170 a megawatt-hour. The more recent Vineyard Wind and Revolution Wind — a Rhode Island project also backed by Orsted — had prices between $65-$80 a MWh, Mr Cohen said.

Bar chart of Installed capacity (GW)* showing Offshore wind outlook in select markets

Yet the projects also face uncertainty in the form of delays to permits and local resistance in some places. 

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Vineyard Wind’s progress was slowed after Boem required a second environmental review that examined the cumulative impact of all offshore projects. The federal agency has 16 active wind leases in Atlantic waters. “Investors continue to question when or if US offshore wind will finally receive the green light,” Goldman Sachs said. 

More delays could also mean the project misses out on federal tax credits for wind, which are due to expire at the end of 2020. Avangrid said it expects a final decision to be issued by then, a year later than originally expected. 

The first project proposed to serve New York, Orsted’s 130MW South Fork Wind Farm, has provoked beachfront homeowners to demand that the company reroute a power cable away from their neighbourhood. 

Fred Zalcman, Orsted’s head of government affairs, said: “We’ve done our best to identify alternative cable routes, trying to minimise environmental harm or local economic dislocation. And this route was clearly identified as superior.”

Offshore oil drilling has also proved unpopular outside its traditional confines of Texas and Louisiana. A federal plan floated in 2018 to offer oil and gas leases in the Atlantic and Pacific oceans was opposed by coastal governors, including Republicans.

The most recent region-wide sale of oil leases in the Gulf of Mexico raised $93m for 397,000 acres, roughly half of what was paid in the previous auction.

Boem’s latest wind lease auction raised $405m from bidders for three areas that totalled 390,000 acres.

Via Financial Times