Even After Avangrid’s Winning Bid, ‘No Urgency’ for Offshore Wind in North Carolina
April 12, 2017
The company won a highly-anticipated federal government auction last month, bidding $9.1 million for the chance to erect hundreds of wind turbines in a patch of ocean just over the Kitty Hawk horizon.
But unless North Carolina enacts aggressive renewable energy goals like those in other Atlantic Coast states, experts say the state’s first offshore wind farm is still a decade or more away.
“It is a long-term play and a long-term investment for Avangrid,” said Katharine Kollins with the Southeastern Wind Coalition. Without policy incentives for offshore wind, she said, “there is no urgency.”
‘Waiting for Cost Curves to Cross’
The 191-square mile Kitty Hawk area could host up to 1,500 MW of capacity, enough to power more than half a million homes. The exact shape the offshore wind farm takes, and the timeline on which it is built, depend in part on the federal government.
The U.S. Bureau of Ocean and Energy Management must ensure the project doesn’t harm birds, marine life, or cause other environmental damage. It signs off on the company’s specific plan for how many turbines will be built and where. Each stage of the agency’s approval process could take years, pushing the project’s completion date until at least 2025.
But getting government permission is only one piece of the puzzle. Avangrid also must find a buyer for the electricity it wants to produce. That’s no easy prospect at current prices in the U.S., where offshore wind is still in its nascence.
Most of the industry knowledge base is still in Europe, and lengthy transmission cables, enormous towers and other parts must be shipped from overseas. These factors, combined with labor costs of building remote projects at sea, help make offshore wind in this country roughly 10 times the price of onshore wind.
The trends show prices falling, eventually. A Lawrence Berkeley National Laboratory study, for example, predicts technology advancements alone will lower offshore wind costs by up to 41 percent by 2050.
“They are waiting for the cost curves to cross,” said Kollins of investors at Avangrid. “They’re waiting for the price of electricity to rise and the cost of offshore wind to fall to where it is economically viable. Without a policy driver, that’s the only way for that to work.”
North Carolina, Virginia Outliers on Policy
Spurred by a desire to cut pollution and create local jobs in offshore wind manufacturing and engineering, many East Coast governments have adopted policies to force the curves to cross sooner rather than later.
Last spring, for example, an analysis found the construction of 2,000 MW of offshore wind capacity in New England would cut prices roughly in half, largely by creating a competitive, increasingly-efficient local workforce. Months later, Massachusetts adopted a requirement of 1,600 MW of contracted offshore wind capacity by 2027.
Rhode Island developer Deepwater Wind first secured rights to build turbines 30 miles from Long Island four years ago. Propelled in part by local commitments for clean energy, the company now plans to supply the Long Island Power Authority with offshore wind energy as soon as 2022.
A December auction for another area off the New York coast, three-quarters the size of the Kitty Hawk patch, drew $42.5 million. The winning bid by Statoil came on the heels of a commitment by Gov. Andrew Cuomo to build 2,400 MW of offshore wind by 2030.
Of the seven states where developers now hold offshore wind development rights, only North Carolina and Virginia lack policies to promote the resource.
Critics say this may explain why Dominion Energy, the Virginia utility who paid $1.6 million for its lease off Virginia Beach in 2013, has done little to move forward on a commercial offshore wind farm, and has all but abandoned plans for a two-turbine offshore wind test facility.
Janell Hancock, a spokeswoman for Dominion, said the company was still “evaluating all the options” for offshore wind, “but the economics remain challenging.”
“We’re all very disappointed in Dominion’s dropping the ball,” said David Carr of the Southern Environmental Law Center. “It would be very helpful to have state policies that are pushing the utilities to purchase that clean power and be willing to look at a longer-term investment.”
Proven Market in North Carolina?
As a publicly-traded, for-profit company in the business of producing and selling renewable energy, Avangrid has little motive to sit on its lease, advocates say.
And the company holds some advantages that could help it profit even without government incentives. For one, it has experience through its Spanish affiliate Iberdrola Group, which operates or plans four of Europe’s 80-some offshore wind farms.
Any Kitty Hawk project would also be situated within PJM, a regional transmission market spanning over a dozen states that includes the northeastern corner of North Carolina.
Within PJM, power can be sold to any customer, not just Duke Energy. Through this market Avangrid is already selling power from its 104-turbine onshore farm near Elizabeth City to the internet giant Amazon. It could find a similar customer for an offshore farm.
“They have experience working in that section of North Carolina. They have relationships. They’ve navigated a lot of the hurdles,” said Chris Carnevale of the Southern Alliance for Clean Energy. “They have proven that there is a market for wind energy in that section of North Carolina.”
Mixed Policy Signals
About eight years ago, with a new renewable energy requirement, a model ordinance for counties to permit wind farms, and other favorable policies, North Carolina was sending positive cues to wind developers, said Craig Poff, business development director at Avangrid.
“Those were the signals that were sent to industry that said, ‘Hey, come to North Carolina and do business,’” Poff told an audience at a recent conference in Chapel Hill. “What we saw at that time was a very clear path to advance [our onshore wind] project.”
But since then, signals have been mixed. The state Senate passed a bill last summer to limit wind farms near military bases. In January, 10 GOP state lawmakers said the Amazon project interfered with a Navy radar, and asked the Trump administration to shut it down.
The Senate bill, however, perished in the state House. The letter, whose claims were rejected by the Pentagon, didn’t work, and one of its most powerful signatories, Republican House Speaker Tim Moore, later softened his stance.
At the federal level, positive signs for offshore wind remain. President Trump’s Department of the Interior is continuing the offshore wind leasing process set by the previous administration, with Secretary Ryan Zinke himself commenting on the Kitty Hawk auction.
Advocates say Avangrid’s willingness to invest once more in North Carolina show the economic promise of offshore wind, notwithstanding the noise in the state legislature.
“Where the rubber meets the road is that private company investment,” said Carnevale. “They think that there’s a real shot. They think they can make a profit, and that’s really encouraging.”
Still, there’s the question of when.
“I hope North Carolina can figure something out from a policy perspective,” said Kollins of the Southeastern Wind Coalition. “Maybe policy makers at some point decide, ‘we really want this industry.’”
This article was originally published by Southeast Energy News under a Creative Commons Attribution/No Derivatives license.
Lead image credit: UK Dept. of Energy and Climate Change | Flickr