Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the BNEF podcast. Recently we talked about what's happening in
Speaker 1: the solar industry, So today we're going to pivot to
Speaker 1: another popular clean power solution, that's wind. We're going to
Speaker 1: have a specific focus today on what's happening in the
Speaker 1: United States, and that's because the Biden administration has set
Speaker 1: out an ambitious target of thirty gigawatts of installed offshore
Speaker 1: wind capacity by twenty thirty. While onshore wind has historically
Speaker 1: done well in the US, embracing offshore is relatively new,
Speaker 1: but with a quarter of all US offshore wind deals
Speaker 1: canceled in twenty twenty three, this ambitious goal is looking
Speaker 1: increasingly out of reach. So what lies behind these cancelations
Speaker 1: and is this an issue only facing the offshore sector
Speaker 1: or is the US onshore wind sector in an equally
Speaker 1: precarious position. To find out more, today I'm joined by
Speaker 1: two members of BNF's WIN Team, both based in New York, Chelsea,
Speaker 1: Jean Michel and Atten Jane, and they discuss some of
Speaker 1: their findings from bnfs recently published BNF Onshore and Offshore
Speaker 1: Wind outlooks for twenty twenty three. They share the impacts
Speaker 1: of the two eyes, interest rates and inflation on US
Speaker 1: offshore wind projects, and when a developer cancels one of
Speaker 1: these offshore wind contracts, what actually happens. In many other
Speaker 1: parts of the world, you can't immediately rebid on the
Speaker 1: same project. But in the US, well, we're going to
Speaker 1: find this isn't necessarily the case, and they're going to
Speaker 1: give us a little more color under what circumstances. We
Speaker 1: also return once again to a pod favorite urcut the
Speaker 1: Texas grid, where onshore wind developments have been rolled out
Speaker 1: with far less friction and grid connection wait times are
Speaker 1: significantly shorter than in other parts of the States. So
Speaker 1: what should other parts of the country be learning both
Speaker 1: good and bad from the lone Star state. We'll talk
Speaker 1: about that too. To access are onshore and offshore wind
Speaker 1: outlooks and other related insights and reports. B and EF
Speaker 1: subscribers will be able to find them on BNF dot com,
Speaker 1: on BNF Go on the Bloomberg terminal, or on BNF's
Speaker 1: mobile app. If you like this podcast, make sure to subscribe,
Speaker 1: and if you'd like to share it with others, make
Speaker 1: sure to give us a review, But right now, let's
Speaker 1: jump straight into our conversation with Chelsea and Aton. Chelsea,
Speaker 1: thank you very much for joining the show today.
Speaker 2: Hi Dana, thanks for having me.
Speaker 1: And Aton nice to have you.
Speaker 3: Here as well. Thank you, Dana.
Speaker 1: So we're going to talk about onshore and offshore when
Speaker 1: today and I like to actually think of this particular
Speaker 1: industry as one of the darlings of renewable energy. There's
Speaker 1: been so much positive conversation historically around wind and its
Speaker 1: capacity factors. Why do you think wind has historically had
Speaker 1: such a strong reputation within renewables.
Speaker 3: If you look at the story of the last two
Speaker 3: decades for renewables in the US, wind part actually has
Speaker 3: been the dominant force of clean energy transition in the country.
Speaker 3: And that's because wind has been able to enjoy a
Speaker 3: lot of subsidies in the US in the form of
Speaker 3: production tax credits. Those subsidies started way back in nineteen
Speaker 3: ninety two and continues till today and are going to
Speaker 3: continue at least for another ten years, and there are
Speaker 3: some estimates that maybe it can go all the way
Speaker 3: up to twenty fifty these subsidies. So wind power delivers
Speaker 3: cheap form of eleccity in the country. Developers enjoy the
Speaker 3: subsidy benefits, which means they enjoy a handsome returns. There
Speaker 3: is some concern with the macroeconomic situation today, but overall
Speaker 3: wind has been a profitable business for the developers. We
Speaker 3: have enjoyed a local supply chain for onshore wind in
Speaker 3: the country. That means wind generates jobs. So everyone actually
Speaker 3: loves wind and.
Speaker 1: That's onshore wind. But what is the history in US's
Speaker 1: relationship with offshore.
Speaker 2: Wind bin Yeah, thanks Tina, and I guess if I
Speaker 2: could also add on a little bit more as well
Speaker 2: on the wind side of things. For being alling child,
Speaker 2: I think that if you compare the generation profile of
Speaker 2: a wind farm to a solar farm, right, wind's not
Speaker 2: going to cut out at night. When you're looking at
Speaker 2: the capacity factor of a wind farm, So a capacity
Speaker 2: factor being essentially you know how efficiently that wind farm
Speaker 2: works over the course of a year, Basically how much
Speaker 2: does it generate versus how much is possible for it
Speaker 2: to generate. Wind farm capacity factors tend to be closer
Speaker 2: to around thirty percent versus for solar when you're looking
Speaker 2: at closer to twenty percent, and so you're basically able
Speaker 2: to generate a lot more renewable electricity with the same
Speaker 2: installed capacity. Also, what wind has is it has scale,
Speaker 2: and so for onshure wind you might see projects in
Speaker 2: you know, the hundred megawat side of things, whereas for
Speaker 2: solar they're usually a lot smaller. If you go offshore,
Speaker 2: then you start to look at gigawatt scale, And for context,
Speaker 2: in the US, one gigawat project offshore can power around
Speaker 2: three hundred and fifty thousand homes. So that's a lot
Speaker 2: of renewable electricity that you're generating at a large scale
Speaker 2: at higher efficiencies. Now, if we take a look at
Speaker 2: the history of offshore wind in the US, it has
Speaker 2: been a series of stop go stop, go, stop, go,
Speaker 2: stop go, basically a lot of false starts. For context,
Speaker 2: today there are only seven turbines operating in the waters.
Speaker 2: So there's thirty megawats off the coast of Rhode Island
Speaker 2: and there's twelve megawats off the coast of Virginia. That
Speaker 2: being said, there are also two projects currently under construction
Speaker 2: right now that's over nine hundred megawats, almost a gigawatt
Speaker 2: that's going to be commissioning all next year into twenty
Speaker 2: twenty four, and so we started to see kind of
Speaker 2: the first really good signs of the US offshore wind
Speaker 2: industry to start kicking off when the Biden administration began
Speaker 2: to take over. So we saw lots of federal approvals
Speaker 2: come through. The first large scale offshore wind farm in
Speaker 2: the US was approved by the Biden administration. And we've
Speaker 2: also seen I mentioned that the first few projects start
Speaker 2: to get constructed. So that's kind of the overall history
Speaker 2: of the US about lots of false starts, but now
Speaker 2: we're starting to see some construction. And Atton hinted a
Speaker 2: little bit more about like the macroeconomic environment that we're
Speaker 2: in right now, which is meant that we've started to
Speaker 2: see a lot more struggles in the industry.
Speaker 1: Well, let's go into that, go into the macroeconomic environment.
Speaker 1: I think everyone is very used to thinking about inflation
Speaker 1: and higher interest rates at the moment, but this is
Speaker 1: hitting the wind industry in particular in the US quite hard.
Speaker 1: What are some of the obstacles that currently granted winners
Speaker 1: of auctions are being faced with and really questioning whether
Speaker 1: or not to move forward with some of the projects.
Speaker 1: That they have been granted the rights to do and
Speaker 1: to build.
Speaker 3: Yeah, I guess there are the two eyes which are
Speaker 3: the big problems right now for the project developers, the
Speaker 3: inflation and the interest rates. The inflation has come down
Speaker 3: from the peaks that we saw last year, but the
Speaker 3: interest rates are still very high. At the time of
Speaker 3: the recording of this podcast, I just had a quick
Speaker 3: check and the secured overnight financing rate the SOFA, which
Speaker 3: is like a benchmark to price loans in this country,
Speaker 3: that was at about five point three percent compared to
Speaker 3: near zero levels we saw during the pandemic. So developers
Speaker 3: are really feeling the pinch of these interest rates and
Speaker 3: they all have their backs to the wall because there's
Speaker 3: very little they can really do around the inflation and
Speaker 3: the interestate situation. And we actually did some analysis earlier
Speaker 3: this year around what has been the impact of inflation
Speaker 3: and interest rates on the US offshore wind project lcoees,
Speaker 3: and what we found was there's a near fifty percent
Speaker 3: increase in the costs of the US offshore wind Elecxcity
Speaker 3: just because of these challenges we have seen. If I
Speaker 3: have to run you through the math around it, I
Speaker 3: would go about by asking you to first remember there
Speaker 3: are a lot of sevens involved here. Back in twenty
Speaker 3: twenty one, the levelized cost of flexity for a subsidized
Speaker 3: offshore wind farm basically a project that had access to
Speaker 3: the federal tax credits, that number was about seventy seven
Speaker 3: dollars per megawata. Now, what has happened is inflation resulted
Speaker 3: in an increase in the KPX and OPIX for these projects,
Speaker 3: and the levelized cost of elixity went up by about
Speaker 3: seventeen dollars per megawata, and then the interest rates led
Speaker 3: to another hike of twenty seven dollars per mait what
Speaker 3: are to that number? But between the interest rate hikes
Speaker 3: and the inflation, we also saw the federal government pass
Speaker 3: the Inflation Reduction Act last year, and the IRA has
Speaker 3: provisions for bonus tax credits. Now, if we have a
Speaker 3: conservative estimate on what bonuses these projects can qualify, we
Speaker 3: can actually see the impact. In a minor decline, the
Speaker 3: LCOE goes down by about seven dollars per megawatar, and
Speaker 3: so net and net, what you come to is one
Speaker 3: hundred and fourteen dollars per megawatar. Number in twenty twenty three,
Speaker 3: compared to the seventy seven dollar you had. So seventy
Speaker 3: seven goes up by seventeen because of the inflation, goes
Speaker 3: up by another twenty seven because of the interest rates,
Speaker 3: goes down by seven because of the bonus tax credits,
Speaker 3: and net you reach at about one hundred and fourteen
Speaker 3: dollars per macota.
Speaker 1: Now, to put this in context, and I want to
Speaker 1: keep this show about wind, I mean, that's that's what
Speaker 1: we're here to discuss. But if the LCOE for wind
Speaker 1: is worsening compare to other industries, does it remain competitive
Speaker 1: and does it remain lower? Is that one fourteen that
Speaker 1: you pointed out per megawat hour? Is that cost competitive
Speaker 1: with natural gas in the US or coal in the US?
Speaker 3: Yeah, it still is quite competitive. You have to also
Speaker 3: think about it from this perspective that wind really has
Speaker 3: zero variable costs. Some of the variable costs associated with
Speaker 3: operating a gas turbine is quite high. Sometimes the fuel
Speaker 3: cost could be as igh as just the energy costs
Speaker 3: from an offshobin project. If your fuel costs are very high,
Speaker 3: and there is volatility associated with fuel prices as well,
Speaker 3: so it's not really a likeful like comparison. To make
Speaker 3: with say a gas or a coal project. But I
Speaker 3: think that one hundred and fourteen dollars per megota number,
Speaker 3: put in the right context is still quite competitive.
Speaker 2: And I guess if I could also just add something
Speaker 2: that one hundred and fourteen dollars per megawat hour that
Speaker 2: attens talking about, that's for offshore wind. So for onsure wind,
Speaker 2: this is lower. For solar this is lower. And so
Speaker 2: you know, I kind of want to make that distinction
Speaker 2: that offshore wind and onshore wind. They are still wind generation,
Speaker 2: but offshore is significantly more expensive and also just has
Speaker 2: a different generation profile. It has significantly higher capacity factors.
Speaker 2: So I mentioned thirty percent earlier on in the podcast.
Speaker 2: Offshore in the US can reach as high as forty
Speaker 2: five percent forty eight percent in some cases, And so
Speaker 2: with that in mind, there is a distinction between the two. Also,
Speaker 2: I think it's important to clarify that what Atten has
Speaker 2: been saying about interest rates and inflation, this isn't just
Speaker 2: impacting wind. This has impacted renewables and other technologies, other
Speaker 2: industries across the board, and so yes, while the price
Speaker 2: of wind is going up, we've also seen the price
Speaker 2: of solar go up. We've seen the price of so
Speaker 2: many different technologies go up and the last few months
Speaker 2: or the last year or so, and so yes, it
Speaker 2: might not necessarily be as competitive now as it was
Speaker 2: in the past. But I guess the opposite of the
Speaker 2: idiom rising tide lifts ale boats, but rising interest rates
Speaker 2: raise the cost of capital for everyone. And then the
Speaker 2: last piece on offshore wind that I think is important
Speaker 2: to mention is that it has the highest levelized cost
Speaker 2: of electricity across renewable technologies. So if you compare it
Speaker 2: to on sure wind, and you compare it to on
Speaker 2: your solar, offshore wind's a lot higher. And if you
Speaker 2: take a look at why it is that states are
Speaker 2: building offshore wind, it's not because it's the cheapest source
Speaker 2: of power, right, It's because you see sometimes really high
Speaker 2: price spikes in the winter due to high gas prices
Speaker 2: or gas shortages in the Northeast. And so offshore wind
Speaker 2: as a technology, because it generates a lot during the winter,
Speaker 2: it can kind of offset that price spike, so that
Speaker 2: provides additional benefits. These are also massive billion dollar infrastructure projects,
Speaker 2: so there's a lot of economic development opportunities associated with it. Also,
Speaker 2: environmental benefits as well. I mentioned the scale that offshore
Speaker 2: wind has gigawatt scale that you can build, and so
Speaker 2: there's all of these other pieces that aren't necessarily contextualized
Speaker 2: within an LCOE that adds the benefits to offshore wind
Speaker 2: and can make it more competitive in certain respects.
Speaker 1: Now, these increased costs have led some developers to think
Speaker 1: about whether or not to proceed with certain projects, and
Speaker 1: my question really comes down to what happens then, What
Speaker 1: is the process of pulling out of a project, How
Speaker 1: prevalent is this across the different developers who have won auctions,
Speaker 1: and are they likely to then stay in the game
Speaker 1: for the future.
Speaker 3: Well, at the time of the recording of this podcast,
Speaker 3: we've just heard that the total projects that have been
Speaker 3: canceled so far this year is at about five point
Speaker 3: five gig awart, including the two point three gigawaut of
Speaker 3: projects that osted recently canceled. The other developers that have
Speaker 3: canceled some capacity include a Van Grade that have canceled
Speaker 3: I mean they have canceled around two gigaout of projects,
Speaker 3: and shall Ocean Winds they have canceled at another one
Speaker 3: point two gig awut so I think what essentially all
Speaker 3: these developers are now trying to look at is can
Speaker 3: they rebid in future auctions? And most states allow this
Speaker 3: levey for their developers essentially.
Speaker 2: So to contextualize, we've seen over twelve gigawatts of US
Speaker 2: offshore wind projects seek to either cancel or renegotiate their
Speaker 2: off take contracts. To put that into context, twelve gigawatts
Speaker 2: of offshore wind can power around four point two million homes,
Speaker 2: and that represents over half of all contracted US offshore
Speaker 2: wind capacity. Now what I mean when I say contracted capacity,
Speaker 2: So these are projects that have won contracts via a
Speaker 2: competitive solicitation in state auctions. So a state like New York,
Speaker 2: which has a target of nine gigawatts by twenty thirty five,
Speaker 2: will have these solicitations or these auctions to procure power,
Speaker 2: and developers will bid in and say, oh, I can
Speaker 2: provide it at this price, I can provide it at
Speaker 2: this lower price, and then usually some other elements like
Speaker 2: economic development, environmental benefits, et cetera, and then these contracts
Speaker 2: will be awarded. Now what's been happening is a lot
Speaker 2: of these contracts have been awarded in twenty nineteen and
Speaker 2: twenty twenty, where developers were making assumptions on what interest
Speaker 2: rates would be like, what inflation would be like, and
Speaker 2: we've seen over the last year or so how this
Speaker 2: reality has shifted, and so when they bid at their
Speaker 2: contract prices. In the US, this is union because these
Speaker 2: contracts aren't indexed to inflation. So in the UK you
Speaker 2: might have a fifteen year off take contract and then
Speaker 2: it'll go up by inflation each year. This is also
Speaker 2: the case for Poland partially for Ireland. In the US
Speaker 2: this is not the case, so you'll receive a flat
Speaker 2: price over the entire contract term, be that twenty twenty
Speaker 2: five years, or you'll receive a flat escalator, so it
Speaker 2: might go up by like one percent, two percent, three percent,
Speaker 2: et cetera. And so what has happened is that developers
Speaker 2: baked in certain assumptions on what the macroeconomic environment would
Speaker 2: be like when they needed to reach financial close. So
Speaker 2: this is around now for a lot of these projects
Speaker 2: that bid in twenty nineteen and twenty twenty. But the
Speaker 2: reality has shifted so much that it's put the economic
Speaker 2: viability of their.
Speaker 1: Projects at risk.
Speaker 2: And so that's what Atten was talking about a little
Speaker 2: bit earlier in terms of the rise in LCOE. Now
Speaker 2: developers are you know, kind of doing the maths and saying, wait,
Speaker 2: this isn't checking out in this way. And so in
Speaker 2: terms of the penalties data that you asked about, like
Speaker 2: what exactly happens when you want to cancel, there might
Speaker 2: be requests to renegotiate. So this happened in the case
Speaker 2: of Orsted and VP Equinora in New York, where they
Speaker 2: ask for off take price increases of around twenty seven
Speaker 2: to sixty six percent. The New York Public Service Commission said, no,
Speaker 2: we will not increase your prices. And so now the
Speaker 2: developers are at a place where they need to decide
Speaker 2: if they're going to cancel their contracts or if they're
Speaker 2: going to try and figure out other pieces to make
Speaker 2: the projects work. New York has also come out and
Speaker 2: said that they are willing to put forward a backfill auction,
Speaker 2: So in the case that these contracts are canceled, they'll
Speaker 2: put forward another solicitation, say sooner than usual, in order
Speaker 2: to try and backfill those projects and make up for
Speaker 2: some of that lost capacity. That's around four point three
Speaker 2: kigwats in New York in the case of Massachusetts Avon
Speaker 2: Grid and Shell Ocean Winds, the developers that Atton had mentioned,
Speaker 2: they have canceled their off take contracts entirely, and so
Speaker 2: they are paying forty nine million dollars and sixty million
Speaker 2: dollars in fees for canceling those off take contracts. And
Speaker 2: in the case of Oristed's Ocean Wind one in two
Speaker 2: projects in New Jersey, this is recent news, so we
Speaker 2: still have yet to see what's going on in there.
Speaker 2: But these projects have actually halted development altogether. So in
Speaker 2: the case of Massachusetts, these projects have said that they
Speaker 2: want to rebid at higher prices, but in the case
Speaker 2: of New Jersey, there's no indication of what the future
Speaker 2: of these projects hold. So there are some penalties, there's
Speaker 2: some renegotiation, there's a couple of different things that developers
Speaker 2: can take, but we've seen a couple of different approaches
Speaker 2: at this point.
Speaker 1: Now, wind farm development can take some time to get
Speaker 1: off the ground, and presumably if that moved a little
Speaker 1: bit faster, there would be less time for economic conditions
Speaker 1: to change so much in the amount of time it
Speaker 1: takes to get these things online. So let's talk a
Speaker 1: little bit about time. How long it takes to bring
Speaker 1: things online. There are a number of factors that weigh
Speaker 1: into this, including grid constraints, which we've actually talked about
Speaker 1: on this show in the past, and permitting delays. What
Speaker 1: is the state of play right now in the majority
Speaker 1: of the US, And let's leave Urkot to the side,
Speaker 1: because I actually want to come back to that and
Speaker 1: talk about how this is an outlier both in terms
Speaker 1: of how that electricity system is structured and what they
Speaker 1: have done to be come the leading state in the
Speaker 1: United States when it comes to wind.
Speaker 2: Dana, you highlighted like a really really key issue. So
Speaker 2: for offshore wind, these timelines can take eight to ten
Speaker 2: years in the US, can take as long as fourteen years,
Speaker 2: sometimes even longer as we're waiting to hear about the
Speaker 2: fate of some of these projects. And so with that
Speaker 2: in mind, New York recently awarded four gigawatts of offshore
Speaker 2: wind capacity to very early stage projects. And so these
Speaker 2: were projects that won seabed lease in a federal auction
Speaker 2: just last year and they're hoping to commission by twenty thirty. Now,
Speaker 2: I mentioned eight to ten years and sometimes as long
Speaker 2: as fourteen years, and so for US, we think they're
Speaker 2: going to commission into the twenty thirties, so later on
Speaker 2: than they're hoping for. And this is because of things
Speaker 2: like long permitting timelines, needing to figure out your transmission
Speaker 2: offshore wind again like huge infrastructure projects, and the US
Speaker 2: supply chain is extremely nascent on the offshore side of things.
Speaker 2: And because these projects just secured seabed leases last year
Speaker 2: and they won their off take contracts this year, this
Speaker 2: means that they are locked into pricing for when they
Speaker 2: commit in the twenty thirties, which is like a high
Speaker 2: level of risk that we usually don't see in other markets. So,
Speaker 2: for example, in the UK, you're required to have your
Speaker 2: permits as well as access to a grid connection before
Speaker 2: you bid for off take, and that's usually closer to
Speaker 2: when you'll reach financial close and have a better idea
Speaker 2: of how much your project's actually going to cost. I'll
Speaker 2: pivot to add and to talk a little bit more
Speaker 2: about the onshore side.
Speaker 3: Yeah, the onshore projects come up relatively quicker than offshore,
Speaker 3: but still take a lot of time. In the US,
Speaker 3: I think the average time varies at around four to
Speaker 3: five years, but in some cases can go even high
Speaker 3: as up to a decade or even more. And the
Speaker 3: major challenge that most of the project developers in the
Speaker 3: US phase for onshore is permitting. Researchers at the Columbia
Speaker 3: Law School identified about two hundred and twenty eight local
Speaker 3: and about nine state level restrictions that have impacted projects
Speaker 3: in about forty five states of the country, so we
Speaker 3: almost every state has the same kind of problems. And
Speaker 3: if you have to kind of like break down what
Speaker 3: kind of challenges these projects face, they're essentially like seven
Speaker 3: may types, and then if you have to bucket all
Speaker 3: the other challenges into other category, there's probably an eighth
Speaker 3: one as well. The most common form of wind farm
Speaker 3: limitation that we see in the US is about a
Speaker 3: required distance limit or sometimes called as a set pack
Speaker 3: limit between the turbines and public or private property lines
Speaker 3: imposed by the local councils. And we have seen this
Speaker 3: kind of a challenge really emerge in the Midwest States,
Speaker 3: which is really has become some sort of a hotbed
Speaker 3: for opposition for both onshore wind farms as well as
Speaker 3: solar projects in the country. And if I have to
Speaker 3: talk about some of the states that are really increasing
Speaker 3: the pressure on the developers or like really pushing back
Speaker 3: on wind par One state that comes to my mind
Speaker 3: is Indiana. Indiana has about twenty local counties where there
Speaker 3: is some sort of restriction that wind projects face. There
Speaker 3: are other important states with good wind resource like Nebraska, Ohio,
Speaker 3: Texas as well to an extent where the developers are
Speaker 3: really facing these permitting challenges.
Speaker 1: Pivot to Texas, the island grid for the lone Star
Speaker 1: state urcut. They have been able to get some of
Speaker 1: the projects down to as little as two years. How
Speaker 1: and why have they been able to pull that off?
Speaker 3: Yeah, so Texas is just Texas. As they say, in
Speaker 3: the last five year, wind projects have come faster in
Speaker 3: Texas than many other US par regions. And there's like
Speaker 3: a multitude of reasons for that. First thing. First, much
Speaker 3: of the land in Texas is actually privately owned, which
Speaker 3: means that it simplifies the negotiations that a developer goes
Speaker 3: through for land leases and right of the way compared
Speaker 3: to other regions where land ownership is a little bit
Speaker 3: more complex. ERCOTT also operates as an independent grid, which
Speaker 3: can allow for a faster integration of new renewable energy resources.
Speaker 3: Just because they can control all these permitting studies, technical
Speaker 3: assessments around par injection into the grid, and so on,
Speaker 3: and permitting can also be quick in the state because
Speaker 3: there are relatively simpler regulations. Texas also gets an advantage
Speaker 3: for easy access to equipment for the developers because it
Speaker 3: has a lot of existing wind factories inside the state,
Speaker 3: and also some of the neighbors, like Oklahoma, have a
Speaker 3: robust wind supply chain and a logistics network, so essentially
Speaker 3: getting equipment and getting services that are needed to build
Speaker 3: a wind farm is just easily available there. So while
Speaker 3: we have seen Texas really grow very sharply in terms
Speaker 3: of adding new wind capacity, that could actually change because
Speaker 3: there are risks building in the system. So earlier this year,
Speaker 3: Texas lawmakers tried to pass a bill that, if approved,
Speaker 3: would have allowed large scale wind and solar projects to
Speaker 3: first seek an approval from the state's Public Utility Commission
Speaker 3: before even beginning construction. That bill would have also required
Speaker 3: wind turbines to be at least about three thousand feet
Speaker 3: away from any property line. This could make it extremely
Speaker 3: challenging for the developers to find suitable project sites. There
Speaker 3: were other bill provisions which would have meant that the
Speaker 3: environmental impact of view process also becomes a little bit
Speaker 3: more complicated for the developers. Now, this bill did not pass,
Speaker 3: so right now the developers can have a sigh of
Speaker 3: a relief, but it can't be ruled out that similar
Speaker 3: provisions or similar bills could not be introduced in the
Speaker 3: state's legislature in future.
Speaker 1: So what I want to know is how well received
Speaker 1: or poorly received wind, a new build of wind is
Speaker 1: perceived in the United States. And I'm thinking immediately of
Speaker 1: this term nimbiism, which I'm sure many people are familiar with,
Speaker 1: the not in my backyard, folks, and the fact that
Speaker 1: there were projects in the state of Massachusetts which were
Speaker 1: often opposed by the Kennedys and off the coast of
Speaker 1: Cape cod that really weren't going to get the backing
Speaker 1: that they needed in order to get set up there.
Speaker 1: Are we finding that, as you pointed out, provisions being
Speaker 1: added regarding how close they can be to someone's property line.
Speaker 1: Are we finding that there is a a reticence to
Speaker 1: see wind farms set up in sight of everyday citizens
Speaker 1: and importantly headed into an election your voters, or is
Speaker 1: this something that the country's embracing as a domestic source
Speaker 1: of energy, and frankly, I think wind turbines are a
Speaker 1: bit beautiful.
Speaker 3: Well, I think it's a mixed bag of a situation
Speaker 3: right now because there are so many people people like
Speaker 3: me who really love wind farms. I may be a
Speaker 3: little bit biased, but there are many people like me
Speaker 3: who really see the economic advantage that a wind project
Speaker 3: brings to the community in terms of additional payments to
Speaker 3: the landowners, local jobs, and just like a creation of
Speaker 3: a new supply chain which wasn't really there earlier. So
Speaker 3: there are clear economic advantages that wind farm bring.
Speaker 1: Are they leading to a surgeon jobs in the US
Speaker 1: and does it have that as something that is making
Speaker 1: it popular.
Speaker 3: Yes, I guess one of the fastest growing jobs in
Speaker 3: the US actually is that of a wind turbine technician.
Speaker 3: So it is really adding to in some of the
Speaker 3: local communities, particularly in the rural parts of the countries
Speaker 3: in Midwest, which is a good thing for economy. So
Speaker 3: just because of all these job growths all the other
Speaker 3: benefits of the wind farm to a community, wind farms
Speaker 3: are actually become a topic which is bringing a lot
Speaker 3: of bipartisan support.
Speaker 1: Really, that's cool.
Speaker 2: I think, just like one thing to know is Dana.
Speaker 2: You mentioned the Cape Cod example. We saw Cape wind
Speaker 2: fall through as a project earlier on in the US
Speaker 2: offshrew win story. I think one key thing to know
Speaker 2: is that the offshore wind farms now are cited further offshore,
Speaker 2: and so people can get a little bit more behind
Speaker 2: an offshore wind farm when it's more of a speck
Speaker 2: in the distance rather than being right up front, close
Speaker 2: and personal.
Speaker 1: So let's talk a little bit about our market outlooks
Speaker 1: for both of these industries. Now, the Biden administration has
Speaker 1: a target of adding thirty gigawatts of offshore wind capacity
Speaker 1: by twenty thirty. Do we see that happening? And more
Speaker 1: simply put, what do our market outlooks tell us regarding
Speaker 1: what we think will be built in the near term
Speaker 1: in the medium term.
Speaker 2: To be blunt, no, we don't think that the target
Speaker 2: is going to be met. In fact, since we've been
Speaker 2: forecasting the US market, we've never once said that thirty
Speaker 2: gigawatts is going to be reached. So this wasn't one
Speaker 2: of those situations where the target came out and we said,
Speaker 2: oh my goodness, like they're going to meet it. There's
Speaker 2: a lot of bottlenecks in the US that stifle this build.
Speaker 2: So we've talked a lot about permitting, mostly from the
Speaker 2: onshore side of things, but for offshore this is also
Speaker 2: very rigorous. So it's not only the federal permitting process
Speaker 2: that you have to go through, but also you're dealing
Speaker 2: with local permits. You know where exactly that cable is
Speaker 2: going to be when it falls onshore. You're dealing with
Speaker 2: state permits. You're also dealing with your transmission service operators
Speaker 2: on a regional basis, and so there's all these different
Speaker 2: entities between the states and the local government and the
Speaker 2: federal government, and you have to get all your ducks
Speaker 2: in a row. That usually working in all of these
Speaker 2: different pieces is not what a lot of more mature
Speaker 2: European markets have been doing as they build offshore wind.
Speaker 2: So this stifles a lot of US offshore wind build
Speaker 2: I also mentioned it's a nascent industry, and so you
Speaker 2: really do have to build up that supply chain. If
Speaker 2: you take a look at the projects that are currently
Speaker 2: under construction right now, Vineyard Wind and South Fork Wind,
Speaker 2: they're receiving a lot of their components from Europe, and
Speaker 2: so you have these foundations, these turbines, making days long
Speaker 2: strips over the Atlantic and that introduces a level of
Speaker 2: risk for delays, and you know it can create a
Speaker 2: domino effect. So this is something that or Steit highlighted
Speaker 2: in a key reason for the cancelation of their Ocean
Speaker 2: Wind one and two projects is that supplier delays caused
Speaker 2: a knock on effect and when you're dealing with components
Speaker 2: being shipped from so far away, this means that you're
Speaker 2: taking on a higher level of risk in this newer
Speaker 2: market rather than compared to a newer market in Europe.
Speaker 2: And so with all of that in mind, we recently
Speaker 2: updated our US forecast and it looks like by twenty thirty,
Speaker 2: we think the US is more likely to install roughly
Speaker 2: half of that thirty gig go out target.
Speaker 3: Yeah, on onshore picture is a little bit more rosier
Speaker 3: than offshore in terms of we're going to see an
Speaker 3: increase in the installers going from next year onwards. So
Speaker 3: we think between now in twenty thirty, you has got
Speaker 3: to add about one hundred and twelve gig of new
Speaker 3: on shore wind projects, which is if you actually add
Speaker 3: both on shore and offshore projects combined, would be nearly
Speaker 3: enough to really double or nearly double the total installed
Speaker 3: wind capacity in the country. So yeah, onshore wind is
Speaker 3: actually going to be a major driver of growth of
Speaker 3: the total wind power sector in the country between now
Speaker 3: and twenty thirty.
Speaker 1: Zooming out to the global picture. As we prepare for
Speaker 1: COP twenty eight, the first week of December, we'll be
Speaker 1: releasing a white paper which focuses on the tripling renewables ambition,
Speaker 1: which is part of the COP twenty eight, part of
Speaker 1: the targets that they're setting forward. Can we talk about
Speaker 1: what percentage of global power generation currently comes from wind
Speaker 1: and well where it was in the not too distant past,
Speaker 1: and where we think it might go.
Speaker 2: Yeah. So, essentially, in twenty twenty two, global wind power
Speaker 2: generation accounted for about eight percent of global generation, but
Speaker 2: that is up from four percent six years prior, so
Speaker 2: I think that's a pretty interesting statistic.
Speaker 1: So, following on to that discussion about tripling renewables, if
Speaker 1: not wind with it, faced with all of these obstacles
Speaker 1: that have cropped up recently and our need to decarbonize
Speaker 1: quickly in order to meet net zero targets which enable
Speaker 1: us to limit planetary warming, what else is there and
Speaker 1: is there anything that you believe can fill that void
Speaker 1: from a capacity standpoint that wind does.
Speaker 3: Yeah, there are very few technologies which are carbon free
Speaker 3: and can deliver electricity at scale and at a relatively
Speaker 3: competitive price, and wind is one of them. Now, solar
Speaker 3: is also another technology if it is discod but like,
Speaker 3: you don't really get solar energy during the nighttime. So
Speaker 3: essentially that if you have to really meet round the
Speaker 3: clock electricity supply, you need a reliable electricity source which
Speaker 3: can provide electricity not just during the daytime but also
Speaker 3: nightas and wind that source. So I guess policymakers do
Speaker 3: really need to understand if they do not really support
Speaker 3: wind power, if they do not make building new wind
Speaker 3: farms easy, if they do not fasten up the permitting process,
Speaker 3: the transmission hurdles, how are you going to meet your
Speaker 3: zero carbon elexicity demands in the future. So if I
Speaker 3: don't really see a lot of options beyond wind at
Speaker 3: this point in.
Speaker 2: Time, and if I could just add one last piece there,
Speaker 2: I mean, I think it's important to remember that wind, like,
Speaker 2: even though you have higher capacity factors and thus you're
Speaker 2: able to generate more renewable electrons with the same capacity
Speaker 2: compared to other renewables. That being said, it's still variable,
Speaker 2: and so when we're talking about the energy transition, battery
Speaker 2: storage is going to become a lot more important. We've
Speaker 2: been seeing a lot more announcements around pairing offshore wind
Speaker 2: with electrolyizers and using that add some flexibility to the
Speaker 2: grid and add some flexibility for developers as well, and
Speaker 2: so thinking about all of the different ways in which
Speaker 2: you can store that power, dispatch it in ways where
Speaker 2: it can be used a little bit more flexibly and
Speaker 2: where the demand is, and you know, upgrading the grid
Speaker 2: and all of that great fun stuff I think is
Speaker 2: going to be key because wind, I think is a
Speaker 2: really important technology in the transition, but it can't do
Speaker 2: it alone.
Speaker 1: Aton Chelsea, thank you very much for joining today. Thank you, Dana.
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