U.S. offshore wind woodmac.com U.S. offshore wind power ... · Shashi renders his knowledge and expertise to Wood Mackenzie’s research and consulting clients. Shashi has a decade

U.S. offshore wind woodmac.com

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Trusted Power and Renewables Intelligence woodmac.com

U.S. offshore wind power sector dynamicsAnalyst PresentationShashi Barla | 4 April 2019

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Wood Mackenzieoffices Wood Mackenzie Power & Renewables offices

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Leaders in renewables, EV demand and grid-connected storage

Over 500 sector-dedicated analysts and consultants globally, including 75 specifically to power and renewables

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Shashi Barla, Principal Analyst-Global wind supply chain and technology

Wood Mackenzie Power and Renewables

Shashi leads Wood Mackenzie’s Global Wind Turbine Technology and Supply chain practice. He is responsible for global wind turbine technology trends, supply chain trends, turbine OEM market share developments andproduct positioning strategies, global wind operations and maintenance trends and strategies, and supports ondue diligence projects. Additionally, Shashi is responsible for developing Wood Mackenzie's technology andsupply-related databases. Shashi renders his knowledge and expertise to Wood Mackenzie’s research andconsulting clients.

Shashi has a decade of experience in the global wind industry market intelligence, research and consulting.Shashi joined Wood Mackenzie in 2017, prior to Wood Mackenzie, Shashi was a global key account manager atLM Wind Power, Denmark, and has worked in various roles, primarily in the global market intelligence andstrategy function at LM Wind Power. Before LM Wind Power, Shashi was an analyst at GlobalData plc in thewind market intelligence, research and consultingdivision.

About the Analyst

Shashi BarlaPrincipalAnalyst


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Contents

1. Sector forecast and overview 32. Key sector drivers 73. Key sector barriers 134. Federal activities and corporate strategies 195. State profiles | Mid-Atlantic 266. State profiles | Northeast 337. State profiles | Pacific 39


1. Sector forecast and overview

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Source: WoodMackenzie

121GW of new offshore capacity or 18% of global total over the 10-year outlook

4.50

3.16

7.12

17.29

4.16

9.10

0.930.80

5.762.38

China, 1Taiwan, 4Japan,8

South Korea,9 Vietnam, 15

India, 16United Kingdom, 2

Denmark,10Ireland, 13

Sweden, 17Estonia, 18

Lithuania,19Netherlands, 5

Germany, 6France,7

Belgium, 11Turkey, 14Poland, 12

United States, 3Canada,20

2.2512.91

0.30

9.23

1.360.640.500.50

39.94

1.20

59.6GW

51.3GW

13.2GW

1817161514131211109876543210

´18 ´19e ´20e ´21e ´22e ´23e

AAGR: +16.7%

North America Western EuropeNorthern Europe Eastern EuropeSouthern Europe China

´24e ´25e ´26e ´27e ´28e

Asia Pacific (Excl. China)

China more than tripled the amount of capacity it added YoY, contributing 38% of the record 4.3GW of offshorecapacity grid-connected globally in 2018

Offshore market forecasts: 2018-2028e(GW)

Offshore top 20 markets: New capacity ‘19e-‘28e0 5 10 15 40


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US offshore wind sector to install more than 12GW through 2028Carbon policies, state initiatives and improving economics fuel an 82% sector CAGR over the forecast period

Bear BullBase

Total

4.9

12.9

17.3

0

2

4

6

8

10

12

14

16

18

-62%

+34%

30 24 18 12 ITC value (%)3.43.23.02.82.62.42.22.01.81.61.41.21.00.80.60.40.20.0

(GW) (GW)

’18

’19e

’20e 21e

’22e

’23e

’24e

’25e

’26e

’27e

’28e

0.7 0.72.3

1.1 1.9 2.3 1.8 2.2

7.2

4.0

3.4

3.23.5 3.3

3.33.5

1413121110

987654 8.03210

’24e’18 ’19e ’20e ’27e21e ’22e ’23e ’25e ’26e ’28e

(GW)

13.611.6

Onshore Offshore


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Source: Wood Mackenzie Power, EIA

US offshore wind sector state-level overview (East Coast)Connecticut (300MW | none)Like Rhode Island, Connecticut is small in size and electricity demand but has positioned itself as a “hitchhiker” on larger projects or solicitations in neighbouring states, boosting overall project scale and reaping cost savings. A zero-carbon energy RFP is underway but will likely award contracts to the existing Millstone nuclear facility.

Rhode Island (400MW | none)Home to the first operational offshore wind installation, Rhode Island policymakers are particularly supportive of the sector, and are attempting to position the state to provide onshore support facilities for the region. Although it is the best US state for offshore wind on an economic basis, it has little need for new capacity.

Maryland (368MW | none)A first-mover state with a local content policy focus, Maryland launched the first US large-scale offshore wind solicitations in 2017. The state has access to several lease areas, which helped push down pricing, and is a candidate for future bull-case solicitations given costs and need for congestion-bypassing generation.

ISO-NE

NYISO

PJM

ISO/RTO

Delaware / North Carolina (DE,NC) DE | Pending governor’s decision after an extensive offshore wind study.

NC | A major potential market but with virtually no state-level policy progress thus far.

State name (contracted | offshore specific mandate)

Note: Unless otherwise indicated, mandates are binding. *PPA under renegotiation. **1.6GW by 2027 remains the only mandate in Massachusetts; H.4857 set a non-bindinggoal.

Maine (12MW* | 5GW by 2030 [goal])Significantly deeper coastal waters compared to the rest of the Northeast require floating wind installations, with an associated increase in costs. Relatively limited electricity demand and extreme transmission congestion in paths to demand centres farther south further disincentivize offshore development.

Massachusetts (800MW | 3.2GW by 2035 [goal]**) Home to the largest and lowest awarded cost US offshore solicitation thus far, Massachusetts has several positive indicators for additional offshore development, including strong policy mechanisms, onshore transmission constraints, developed port facilities and access to multiple lease areas with above-average windspeeds.

New York (130MW | 2.4GW by 2030)The state with the most potential for offshore wind deployment within the forecast period, New York features coastal demand centres behind severe onshore transmission constraints and aggressive emissions policies that include carbon pricing in wholesale electricity markets. Access to lease areas is currently lacking, however.

New Jersey (none | 3.5GW by 2030)Home to the most ambitious state policy in 2010, offshore wind development froze through much of governor Chris Christie’s terms and was revived in 2018 under a new administration, with a 3.5GW mandate that is again the highest in the country. If policies remain in place, their execution is supported by strong fundamentals.

Virginia (12-16MW | 2GW by 2028 [goal])Virginia has taken significant steps towards developing an offshore wind policy framework in 2018, but it remains in its infancy and subject to future political changes. Full-scale installations are not expected until near the end of the outlook period.

Clockwise from top left: policy framework, electricity demand, available lease areas/projects, emissions targets

Lease area Call area

Weakest Strongest


8


Source: Wood Mackenzie NAPS tool

Market maturity projectionsMaking up for 26 years of lost time, the US will rapidly ramp up its offshore wind capabilities in the next decade

Conditions 2018 2023e 2028e

Site availability

Supply chain development

Port and vessel availability

Know-how and labour availability

Insurance and financing

Policy support

Transmission availability

Need for power

Price fundamentals

completely immature EU equivalent While LCOE will compare positively to Europe by the end of the forecast term, the USwill remain disadvantaged on a net cost of new entry (CONE) basis given the lowerwholesale market prices in the US. Carbon policies, whether state-level or national, arelikely to close this gap, but not fully. The gap is lowest in Northeast winters, whenoffshore generation is highest and power prices spike on natural gas supply constraints.

Graph annotationbox

An example of the benefits of federal leadership, the Bureau of Ocean EnergyManagement (BOEM) leases federal waters for wind energy development, sufficient toinstall dozens of gigawatts of offshore wind.

With virtually no offshore wind-specific stateside industry to speak of, the US will takethe better part of a decade to even reach a fraction of Europe’s capabilities. This is notnecessarily a deal-breaker; the US can leverage European resources to a degree andcan create unique, US-specific solutions to overcome obstacles, albeit often at cost.

One of the first elements of the sector to localize, aggressive state involvement in workertraining and domestic hiring practices will quickly yield a trained US labour pool, with theexception of specialized roles for supply chain elements not localized.

While underwriters and financing entities will grow more comfortable with the sector andcontingency costs will fall, US offshore wind projects will always hold the risk ofcatastrophic damage from Atlantic hurricanes, particularly given recent climate patterns.

Reliance on state-level policymaking will remain a crutch; on a federal level, popular opinion precludes the costliest European policies currently assisting offshore wind.

Balkanized policymaking is a particular impediment to the development of “backbone”infrastructure, especially RTO-led possibilities, with any new offshore transmission-specific policies from the Federal Energy Regulatory Commission (FERC) unlikelybefore 2021. Onshore interconnection upgrade requirements are also often extensive.

Despite relatively weak load growth in the Northeast, demand remains strong in nascentMid-Atlantic and Southeast markets like Virginia and the Carolinas, and high retirementexpectations in New York will require significant capacity additions to fill the supply gap.


2. Key sector dynamics

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Key sector drivers |

Investment tax credit

BOEM leasing

State initiatives

Battery storage

Global interest


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2.82.62.42.22.01.81.61.41.21.00.80.60.40.20.0

105100959085807570656055504540

’23e

’21e

’19e

’18e

’20e

’22e

’24e

’25e

’26e

’27e

’28e

Key sector drivers | LCOE reductionsCurrent pricing counts on availability of EU resources; overreliance on them renders cost reductions unsustainableOffshore wind LCOE by state, East Coast, 2018e to 2028e(USD/MWh) (GW)

Connecticut Delaware

Maryland Massachusetts

New Jersey New York

Rhode Island Virginia

Contracted capacity additionsUncontracted but forecasted capacity additions


0%

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

’22e’20e 21e ’23e ’24e

MVOWGE SGRE

US offshore turbine OEM market share forecasts 2020-2024e


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275 W/m2

500 W/m2

350 W/m2

200

160

120

80

40

240

280

320

3 4 5 6 7 8 9 10 13 14 15 16 17 18 19 2011 12

MW rating

Rot

or d

iam

eter

(m)


Contrasting product moves on next generation offshore platformsOffshore Western turbine OEMs thrive on power uprates, while Chinese emphasise rotor upgrades

Next generation turbine projections for Western and Chinese turbineOEMs

1st generation 2nd generationWestern OEMs Next-generation Chinese OEMs Next-generation


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US weighted average turbine rating will more than double in next 5 yearsTurbine OEMs leverage the European platforms into the emerging US offshore market to benefit from economies

Turbine rating developments globally Rotor diameter developments globally

2

3

4

5

6

7

8

9

10

11

12

13

14

15

Turb

ine

ratin

g(M

W)

2011 2013 2015 2017 2019 2021 2023 2025 2027Weighted average (Europe) Weighted average(APeC) Weighted average (US) Weighted average(China)

40

80

120

160

200

240

280

Rot

or d

iam

eter

(m)

2011 2013 2015 2017 2019 2021 2023 2025 2027

Hub height developments globally

70

100

90

80

130

120

110

140

Hub

hei

ght(

m)

2011 2013 2015 2017 2019 2021 2023 2025 2027Note: Based on annual grid-connected capacity. Interpolated. Source: Wood Mackenzie


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Key sector barriers | supply chain immaturitySupply to migrate as long-term demand visibility solidifies and state-funded port upgrades break ground

Sustainable domestic supply

A variety of manufacturers across the value chain produces blades, nacellesand other high-value components at competitive prices. Developers enjoy access to a fleet of specialized, JonesAct-compliant vessels including turbine installation vessels, crew accommodation and foundation installation vessels, an advanced installation port and staging area, as well as a deep and knowledgeable domestic labor pool.

European-dependent development

European “imports” of installation vessels, know-how, component designs and equipment such as turbines, blades and substations are brought over wholesale and immediately brought to bear onLCOE. Labour is more evenly sourced between the US and Europe, expanding training opportunities.

Demonstration-scale

Demonstration-scale projects move without a domestic supply chain and reliance on – but limited access to –European resources.

<2021 2021 to 2025 2026+


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China, UK and Germany will be large offshore manufacturing hubs due to market size

0 10,000 20,000 30,000

China

United Kingdom

United States

Taiwan

Netherlands

Germany

France

Belgium

Denmark

South Korea

Nacelles Blades Gearboxes Generators Towers Converters Main bearings

Operational facilities Under construction / Potential Onshore facilities retooling

Onshore facilities will be leveraged for components not challenged by expensive logisticsOffshore market cumulative installs 2018-2027e

MW

Source: Wood Mackenzie Source: Wood Mackenzie


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Localization potential of jackets is high as jackets can be split into multiple components and the cost of assembly is labor-intensive and the costs for a facility is comparatively low. However, many European suppliers have faced challenges in this segment and developers have therefore split contracts amongst multiple suppliers. Similarly, the lead time and cost-out of offshore wind can be challenged without the setup

Turbines pose high requirements to vessels, both in termsof hook height, crane capacity and stability. Consequentlythis part of installation is more challenging to localize

While monopile installation requires lifting capacities upwards of 1,000t as well as heavy equipment for piling, jacket installation is less challenging, allowing for localvessels to be used

The offshore substation [5%] is the segment that most resembles the offshore oil and gas industry in terms of manufacturing and installation, so there may be some opportunities for US involvement. The onshore substation [4%] is, of course, localized by default.

Despite its simple design, the large piles of a monopile foundation imposes high equipment requirements that makes localization The European pile market is consolidated and localization potential is limited. Opportunities do exist, however, for the more labor-intensive transition piece elements.

Impractical to leverage existing facilities as these are situated inland (SGRE, Vestas) or away from an adequate port (GE). However, despite the low facility costs the case for nacelle assembly is limited due to comparatively low logistics costs in shipping nacelles from Europe.

High Europe-to-US transportation costs for a large and unweildly product and a labor-intensive (and job-producing) manufacturing process make blade production localization an attractive long-term option. The complexity of manufacturing and high costs of setting up a blade facility can make this choice unattractive from an OEM perspective, however.


Key sector barriers | solving the supply chain challengeA durable and capable supply chain is key to leveraging EU technological innovations and facilitating cost-out

US local content potential by main component

The high transportation costs, comparatively low facility costs and high steel content (95%) makes a strong case for towers to be localized. However, European suppliers have shipped offshore towers long distances in the past without much trouble.

High localization potential

[x] Share of CAPEXMedium localization potential

Low localization potential

US local content

Other CAPEX [18%]

Turbinesupply[33%]

Substationsupply

[9%]

Cable supply[9%]

Foundation supply[17%]

Installation [18%]

Tower

Nacelleassembly

Blades

Monopile supply

Jacket supply

Cableinstallation

Foundation installation

Turbine installaiton

Cable installation in Europe has been performed by bargeswith installed turntables before, and similar approaches may be used in the US to satisfy local content requirements. The Jones Act is less applicable to cable-laying, however, and the purpose-built cable installation vessels with integrated turntables currently in use in Europe decrease both installation time and CAPEX.


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Contact us

Source: Wood Mackenzie

Shashi Barla (Denmark)T +45 8736 2296M +45 2165 6665E [email protected]


mailto:[email protected]

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U.S. offshore wind woodmac.com U.S. offshore wind power ... · Shashi renders his knowledge and expertise to Wood Mackenzie’s research and consulting clients. Shashi has a decade