With the impacts of conventional power generation being seen around the world in the form of pollution and climate change, many countries are trying to increase the amount of power they generate from renewable sources. Offshore wind power generation projects have been very successful as a form of renewable energy in Europe and some parts of Asia so why have they yet to gain traction in the United States?
Perhaps the biggest obstacle in the implementation of offshore wind power generation projects is the cost. The financing of renewable energy ventures such as wind and solar farms is very different from conventional power projects due to significantly higher capital costs and lower operating costs as a result of not needing to supply fuel. Offshore wind generation is at this time particularly expensive and risky due to its development being in its infancy. There is only one commercial offshore wind farm in the United States, Block Island Wind Farm in Rhode Island, and it is set to begin operating later this month. The project cost $290 million to construct and consists of just five wind turbines, far too few to make the facility profitable in the near future .
Although offshore wind farms are more expensive to both install and maintain than onshore facilities, putting turbines in the water has some advantages. First, the most populated areas of the United States are along the coast, so generating power nearby decreases the cost of energy transport. In addition, high wind speeds offshore are both more consistent and occur at peak energy times compared to onshore wind.
Although offshore wind technology is currently very expensive, onshore wind farms were also expensive in their beginnings. In the past six years, the cost of onshore wind generated electricity has dropped by 66% . These statistics indicate that with the same level of commitment and financial support, constructing offshore wind facilities will too become more affordable.The United States government is involved with helping develop offshore wind energy generation through various departments and legislation. The US Department of Energy (DOE) has a goal to generate 20% of US energy from wind power by 2030, up from the 4.7% generated in 2015, and they see offshore wind farms as the key to achieving this goal . Since 2006 the DOE has invested over $300 million in offshore wind generation research and pilot projects, including Windfloat Pacific, a floating offshore wind farm in Oregon set to be commissioned in 2017 .
Clean Renewable Energy Bonds (CREBs) are available from the US government to non-taxable entities including state and local governments, rural electric cooperations, Native American tribal governments, and public and private non-profit organizations. A CREB holder receives tax credits from the federal government as an alternative to paying a portion of the bond interest. Though CREBs are a great way to make large renewable energy projects more affordable, funding is scarce and the program does not have enough money to distribute CREBs to all the entities that apply for them .
Although government support and assistance will help the offshore wind energy industry develop, it will not be enough to get it off the ground and profitable. The cooperate and public sectors will be essential to the success of the industry. The onshore wind energy industry in the United States relies heavily on project financing, a loan structure where investments are based on a project’s risks and future cash flow and the cash flow of the project is used as repayment to investors. Project financing is a limited-recourse type of financing where creditors have recourse only to the assets and cash flows of a specific project, protecting the project company in the event of failure but also allowing investors to maximize equity returns .
The main investors in the US wind industry are both domestic and international banks, energy companies, private investors, and cooperations. Many wind farms, including Block Island are funded by a combination of investors. Block Island’s funding came from Mandated Lead Arrangers Societe Generale of Paris, France, and KeyBank National Association of Cleveland, Ohio as well as the company developing it, Deepwater Wind, through equity investments from the company’s owners .
Due to US population centers being located along the coasts and the high and constant wind speeds at sea, I believe that offshore wind energy is important in the future of US renewables. However, the industry needs to be catalyzed either by large investors starting up the market or government regulations and policies being put in place. Large investments in offshore wind would drive down the development costs and improve technology, making wind farms more affordable to implement. Increased requirements for renewable power generation would force coastal areas to look to the ocean to harvest energy. These regulations would be beneficial implemented at the federal, state, or local level. Although offshore wind projects have high capital costs, there are funding options available that make investing in the future of renewable energy worth it.