9 august 2018

Offshore Wind is Getting Cheaper. Oh, and Much Sooner Than Expected

Inside Climate News, August 9, 2018

Last week, Massachusetts utilities disclosed in filings the prices they will pay for electricity from the Vineyard Wind project, an offshore wind farm that will be largest in the country.

The initial number is so low that a nation of energy experts did a spit-take.

The price is $74 per megawatt-hour in the first year and then increases 2.5 percent each subsequent year of the 20-year deal.

“I don’t know anyone who was expecting prices to be this low,” said Michael O’Boyle, electricity policy manager for Energy Innovation, a think tank. “I was extremely excited.”

For some perspective, let’s look at a report issued this March by Moody’s Investors Service about the promise of offshore wind in the Northeast. It said prices could fall to $80 per megawatt-hour in “the longer term,” citing several forecasts.

As the report noted, the country’s only operating offshore wind farm, Block Island in Rhode Island, was selling power for $244 per megawatt-hour. Meanwhile, two projects being built in Maryland had contracts to sell power for $132.

At $74, Vineyard Wind is competitive with other forms of renewable energy in a region where solar and wind can be difficult to build because of high population density and challenges in getting approval for power lines.

Massachusetts officials say Vineyard’s prices are projected to save consumers up to 1.5 percent on their bills, compared to energy sources that otherwise would be used.

Keep in mind that almost nobody was expecting offshore wind to be even close to cost competitive at this point. The idea of consumers saving money is remarkable.

Some caveats: Massachusetts has substantial wind resources and so the Vineyard project, with 800 megawatts, has economies of scale that will not exist for other projects. I would not be surprised if new projects off of New York, New Jersey and other states come in at higher prices. Also, the competitive bidding process being used in Massachusetts likely contributed to lower prices than if the state had used some other method to select projects.

Vineyard Wind is being developed by Avangrid Renewables and Copenhagen Infrastructure Partners. It is a history-making project in many ways, as I noted when writing about it a few months ago.

And, it shows some of the benefits that Massachusetts will reap by setting ambitious targets for offshore wind, O’Boyle said. Indeed, the Vineyard Wind project was proposed as part of a larger effort to develop 1,600 megawatts of offshore wind, a target that will double under legislation I wrote about last week.

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