New Jersey is about to embark on an ambitious program to develop the wind energy off its ample, and beautiful, coast. The challenge is to maximize economic and energy benefits at the lowest cost and with minimum disruption to the environment.
Fortunately, the Garden State can learn from the experiences of the European countries — notably, the United Kingdom, Denmark, Germany, and the Netherlands — that already have vast experience with offshore-wind development. My company, TenneT, has been responsible for much of the interconnection work in Germany and the Netherlands. Because TenneT has no interest in New Jersey’s offshore-wind industry — we’re far too busy here in Europe — we are happy to share some lessons learned with New Jersey policymakers.
Contrary to what some European wind developers have said publicly, we at TenneT have learned that it is best to keep wind generation and transmission separate. Building an offshore grid separately from the wind farms and offering access to the power grid on a nondiscriminatory basis is the key to creating a level playing field for competition between offshore generators. As can be seen in the declining prices offered by those generators in Germany and the Netherlands, providing access to an offshore grid stimulates innovation and cost reductions in the offshore-wind industry. After 10 years of experimentation, this is the clear result of the European experience.
How to avoid accidental monopoly
It is tempting to listen to wind developers who claim that they should build and own the transmission to shore. We have found, however, that this approach is shortsighted. Bundling transmission with wind generation is ultimately more costly because it limits competition. It reserves large amounts of the grid to first movers that can develop a wind farm and provide the connection to shore and it makes successive wind farms connect to more costly locations on the grid. The result is an accidental, unregulated monopoly. It doesn’t provide a level playing field for those developers that aren’t in the transmission business — and consumers will pay the price for the lack of competition.
Moreover, a carefully planned and separate grid minimizes the number of onshore connections, greatly reducing environmental impacts while providing numerous generators with the optimal connections to the land-based grid. With a separate grid and the competition that it creates, prices will continue to fall, multiple windfarms can be built farther and farther offshore, and turbines can grow ever larger and more efficient. An independently operated grid provides the pathway to scale quickly as technology continues to improve and wind developers can secure connections to the land-based grid from locations further offshore.
Sometimes, the UK experience with its integrated “windfarm plus connection” approach is used as a counter example. Undoubtedly, UK offshore-wind development is a success story, but the UK offshore system (with its thousands of miles of coastline) is a series of short connections to dozens of “near shore” electric substations. New Jersey is not comparable to the UK; with its iconic beaches and rare coastal ecosystems, it has a relatively small number of suitable connection points (and the amount of electricity must be maximized at each point to reduce the overall number of lines to the on-shore grid). It would be inappropriate for generators with a desire to build quick, fast and cheap to occupy these most desirable locations simply because they were most convenient for them.
Germany’s key lesson
TenneT has now connected 5,300 megawatts of offshore-wind power; New Jersey’s initial target is 3,500 megawatts. We plan to have 10,000 megawatts hooked up in Germany by 2025. In the early days of this campaign we incurred some “pioneer costs” for developing the groundbreaking technology constructed in deep water. However, they have yielded a market with robust competition with rapidly declining prices.
The most telling lesson remains that today the Dutch and German offshore-wind program is a success story because it embraced the offshore-grid concept, not in spite of it. The German energy community learned a key lesson: Build an offshore-grid connection right, from the start, create competition, and give the developers a chance to connect to that grid. Now this lesson is being adopted by the Netherlands, which has a 7,000-megawatt offshore-wind program in which multiple generators will be connected to shore by a separately owned, well designed, and carefully built offshore grid.
Only nine years ago, Germany had a mere 40 megawatts of installed power, and prices were high. By learning from the experiences in the relevant European countries, New Jersey should have faith in its vision for abundant offshore wind. As the European experience shows, if governments insist that transmission is built right — shared, independent and for the long term — scale, competition and good pricing will follow.