Image: Siemens Gamesa
A lot has happened in the last year…
2018 culminated in record $405 million lease agreements for development rights for Vineyard Wind, Equinor Wind US, and Mayflower Wind. The 800 MW offtake agreement opens up an area near Martha’s Vineyard, located off the Massachusetts coast.
Entering 2019, Ørsted’s Revolution Wind project was awarded a fixed-price Power Purchase Agreement (PPA) from Connecticut’s Department of Energy and Environmental Protection. Revolution Wind added 100MW capacity, creating 700MW total offshore wind capacity to Ørsted’s portfolio, including projects in Rhode Island and Connecticut.
Consolidating these projects unlocked important synergies in terms of procurement, construction, and operation. In July 2019, Ørsted and Eversource conditionally placed the largest US wind power contract for 1.7 GW of Siemens Gamesa turbines. The order encompasses three projects:
- Sunrise Wind (800 MW)
- Revolution Wind (704 MW)
- South Fork (130 MW)
The Department of Energy Resources (DER) agreed to MA state procuring 800MW at $65 per MWh, enabling construction which is planned to commence this year.
In July, New Jersey awarded the largest PPA to date for Ørsted’s Ocean Wind project, adding 1.1 GW.
The scale was surpassed two weeks later when, after a 3-month delay, New York State Energy Research and Development Authority (NYSERDA) awarded 1.7 GW of 25-year offshore wind renewable energy certificates (ORECs). Four major developers had tendered proposals in response to New York State’s competitive solicitation process with two winning bids:
- Empire Wind – Equinor Holdings, Inc, a division of the Norwegian oil and gas company.
- Sunrise Wind – Bay State Wind LLC (a joint venture between Denmark’s Ørsted A/S and US firm Eversource Energy)
Once the NY and NJ contracts are signed, a total exceeding 4GW of projects have been given a route to market through the announcements of RFPs.
For context, the UK is the world leader with around 9GW of installed capacity. The addition of 4GW within the next 4-5 years in the US, is a significant undertaking. In terms of growth, the US is likely to become one of the top 3 global markets in the next decade.
There is now a pipeline of around 22GW in total leases that have been consented. Close to $1 billion was spent last year on signing leases and acquisitions. Massachusetts plans another RFP this year which will add another 800 MW in leases, for one (possibly two) projects and Connecticut has just initiated an RFP for 2 GW.
Getting to seven or eight projects – all with a route to market – is the breakthrough we’ve needed to kickstart the US offshore wind market.
Appetite and intention are clear. But, despite the early enthusiasm, we must overcome the early challenges to drive momentum in the industry. Offshore wind technology is mature, and we can apply a lot of what we already learned from the growth of European offshore wind. But the US has some unique aspects which I’ll cover here, as well as some of the potential ways forward.
As a recruitment consultancy, our primary focus is on resourcing the teams to take the upcoming offshore projects through development, construction, operation, and asset management. Besides the skills gap, other factors like supply chain, policy and regulation impact development – issues that can only be resolved through novel approaches and cooperation between states, developers, and the legislative branch.
Offtake Agreements will incentivise development
The New Jersey and New York offtake agreements are critical capital incentives to kick-start the industry from the demand side.
Companies have been very lean so far, Nobody was prepared to invest without the certainty that their project would progress to market and that there’s demand for the power. The Power Purchase Agreements (PPAs) will allow companies to ramp up investment in construction.
Organisation and cooperation
At the developer level, a lot of the current wind projects are joint ventures. As companies form new relationships, they need to determine how best to find synergies, consolidate internal processes, and decide who will take responsibility for each aspect of the project.
There are also state regulations and federal laws to consider. To progress, we need transparent negotiation to bring together these organisations to work effectively.
The Leasing Mechanisms need clear timelines
To date, leasing mechanisms have been ad hoc and lacked definitive timelines for leasing and options and when RFPs open out.
Longer-term, Massachusetts has written into state legislation an obligation to generate 1.6GW from offshore wind and need to commence another leasing round. This round also stipulates that the price below the $65 per MWh agreed for Vineyard, which is already extremely competitive.
In June, New York passed a climate plan to become carbon-free by 2050 and to get 70% of its electricity from renewables by 2030. NY state ultimately has ambitions for 9GW of offshore wind and New Jersey is targeting 20GW.
So far, without clear timelines and agreements in place, it’s been challenging to prepare for these projects. Large infrastructural construction projects like offshore wind are incredibly complex – they have complicated supply chains and require highly skilled personnel.
With more explicit timelines, developers will be able to forecast requirements and line up resources to prevent delays in construction and commissioning.
We need to close the skills gap
Because US wind is a relatively young project, there are few workers with the required skills and experience that can work in the US. We are working to identify those with the right mix of experience and eligibility.
We recently mapped US talent for offshore wind roles in Boston and New York. For key management roles in Permitting, Interconnection, Engineering and Finance Managers, we uncovered only a handful of eligible US candidates.
We expect that there will be significant European involvement, especially in the early days. Much of the existing talent in Boston is European. The people problem is a global one, but it’s particularly acute for the US. We are already placing highly skilled Europeans into new projects in upcoming locations such as Japan and Taiwan. Asia-pacific countries tend to have less stringent visa requirements that the US, who will have to become more competitive to attract key personnel that are in short supply.
One option is for multinationals to second their own teams from Europe to their US projects. For example, Vineyard Wind’s headcount grew this way from around ten to around 100 personnel. Ørsted is shifting personnel from the UK, where their portfolio is currently modest, through secondments to the US where ex-pats take up deputy roles. But rather than developing new talent, this doesn’t fundamentally solve the skills shortage and merely shifts the problem elsewhere.
We’ve also looked at US nationals working in European wind, but that pool is limited.
A longer-term solution would be to introduce a scoring mechanism to expedite work permitting for Europeans with essential skills. This is unlikely to be compatible with the immigration policies of the current administration so it could take time.
Another is to develop the workforce through centres of excellence. Companies can collaborate with organisations such as Massachusetts Maritime Academy and other higher education facilities in New England and surrounding states to develop the local skill sets.
We need novel solutions to work with The Jones Act
The 1920 Merchant Marine Act (The Jones Act) requires that only American-flagged transport vessels operate within 3 miles of the coast. The act sought to make US vessels available in wartime but has unintended consequences for offshore wind construction, which has specific requirements for transport and installation vessels.
Non-US vessels may only dock once before requiring additional customs clearance. The five-turbine 30MW Block Island installation, near Rhode Island, used feeder barges to shuttle components from the shore to a vessel outside of state waters. However, such a workaround may not be practical or cost-effective for multiple large projects.
Another option is to use a Canadian port for staging and transporting equipment.
There are no US-registered Jack-up vessels and commissioning a new build could take four years. Even if we deploy European cable vessels, European workers could be unable to go onshore between shift rotations.
States will need to cooperate
Each state operates autonomously, but cooperation between states will create new synergies in component manufacturing. It doesn’t make sense for each state to have its own cable manufacturing plant, blade manufacturing plant, and tower manufacturing plant. Rather, states can split manufacturing between – for example, blades in Connecticut, towers in Massachusetts, and foundations in New York. There isn’t a sufficient project pipeline to justify duplicating manufacturing. We need some joined-up thinking between states to create sustainable manufacturing jobs and a cost-effective supply chain.
We need to find industries with transferrable skills
Since there is no talent pool to draw from in US wind, we need to look to legacy industries for skilled personnel. We spend a lot of time mapping the market to find individuals with the talent, background and skill sets in other industries that we can target. We’ve discovered transferrable skills like maritime and subsea experience in oil and gas and aquaculture.
Again, this might not be a reliable long-term solution because those industries are competing for the same talent. It’s hard to avoid moving the problem from one sector to another.
Commercial functions like financial modelling and procurement can be sourced from onshore renewables. Once we enter the engineering phases, we’ll need to look for experience from the oil and gas sector.
The competition drives up of market salaries which might already pose an issue. High wages, particularly in Boston, can mean that US workers could have higher salaries than a European CEO in the same company.
New York and Boston (alongside San Francisco) are amongst the three most expensive US housing markets. If we are to recruit people from oil and gas, concentrated in Houston, the cost of living is a significant factor in attracting engineers to the NE seaboard.
Ideally, the wind industry will develop the right skillsets over time. The first projects are likely to be heavily European-focused. The second wave of projects will bring in more US nationals who will gain experience, become deputies, and transition up at the next stage. It’s a multi-year project that develops the US skills base over 3-4 project generations.
We need to develop the skills in supply chains and tier 2 companies
As well as the developers, we need to address the talent pipeline in supply chain companies, consultancies and other companies that feed into the projects. So far, organisations have managed to handle the permitting process with lean teams as small as 4 or 5 people. But when it comes to the delivery stage following an offtake agreement, recruitment will spike, and that’s when the challenges will manifest themselves. We need to prepare for rapid expansion and activity.
It’s an encouraging time for US wind. There is excellent potential for the US to become a leader in the energy transition. The appetite for change is there, and states like New York and Massachusetts have mandated targets for renewable sources of energy. We recently passed a tipping point where existing coal is more expensive than renewables, setting the future direction for the energy market.
Now that leasing agreements were announced, companies can get behind offshore wind and invest in these projects.
The industry is still preparing the groundwork, and we already know the challenges ahead in terms of personal and policy. Companies and states must get ahead of the problems by cooperating to find practical solutions.