Over the past year, Europeans have seen contracts awarded for unsubsidized offshore-wind projects. This is good news for New Jersey and its ratepayers as the state starts to move forward on Gov. Phil Murphy’s ambitious offshore-wind program.
That milestone, 20 years in the making, is a real success because in some places in Europe offshore wind is now competitive with conventional power supplies without ratepayer or taxpayer support. Reaching parity between offshore wind and other energy options should be the long-term goal of New Jersey’s offshore wind policy because it will allow self-sustaining, clean-energy production and job creation that ratepayers can afford.
Since this is such an important milestone, let’s consider how zero-subsidy bids happened in Europe and how we can repeat that success in New Jersey. In April 2017, Germany awarded zero-subsidy contracts to EnBW for its 900-megawatt He Dreiht offshore-wind project, and to Ørsted for its 240-megawatt OWP West and 240-megawatt Borkum Riffgrund West projects. And in December 2017, the Netherlands received three competing zero-subsidy bids for the Hollande Kust Zuid offshore-wind project.
Two big factors are responsible: technical advancements that create scale economies and utility-provided offshore transmission facilities. Offshore wind turbines have increased in scale from less than 1 megawatt decades ago to 8 megawatts today, and 10 megawatts soon. Fewer large, high-capacity turbines are less expensive per megawatt-hour of energy output than many small turbines. Advancements in higher-voltage submarine cables also produce economies of scale. Higher-voltage circuits transmit more energy, and voltages have been steadily increasing.
U.S. offshore wind developers can readily purchase the biggest, most-efficient wind turbines to access the economies of scale that these giant machines provide. But it takes New Jersey’s utilities to plan offshore transmission networks that link efficiently with existing land-based transmission networks to take advantage of the unique economies of scale in transmission technology. Individual wind farms cannot employ efficient scale offshore transmission circuits or make efficient upgrades to the land-based grid needed to move large amounts of offshore wind energy to New Jersey’s consumers. Germany and the Netherlands succeeded in lowering costs in part because their utilities designed and installed efficient, high-capacity circuits and allocated the available transmission capacity to multiple wind farms.
Zero-subsidy bids are more likely where government policies support vigorous competition. All the European zero-subsidy bids have occurred where transmission to the wind-energy area was provided by the utility operating the neighboring land-based power grid. New Jersey’s utilities are required by federal law to provide nondiscriminatory open access to the grid, so if they built and operated New Jersey’s offshore grid there would be a level playing field that would promote greater competition and lower offshore-wind costs. The alternative would be to let individual wind developers build offshore transmission, and it is likely they would use their private control over grid connections to restrict access and competition.
Just as open access to highways and railroads promotes competition in goods, an open-access offshore grid would be good for New Jersey. The savings ratepayers get from a smart approach to offshore transmission will allow New Jersey to afford more of the governor’s clean energy agenda.