Podcast
Podcast
- 06 Dec 2019
- Climate Rising
Developing the Wind Industry
Francis Slingsby: The onshore wind industry in the US has really led in many ways. It's been a real innovator in cost-cutting. So obviously at great scale you're deploying 10 gigawatts plus a year. I mean, it really is one of the defining features of the renewable generation in this country. Offshore wind, I think had a much choppier start.
David Abel: I'm David Abel, and this is Climate Rising, a podcast from Harvard Business School. Over the past decade, wind power has more than tripled in the United States and it's now the largest source of renewable energy in the country, accounting for more than 6% of the nation's electricity. That boom has created more than 56,000 wind turbines that generate enough electricity to power more than 200,000 homes. We now employ some 114,000 Americans. Coal, by comparison, employs just about 51,000. But the industry is now facing several unknowns. Lucrative federal tax credits are scheduled to start phasing out at the end of this year. At the same time, the industry has started investing hundreds of millions of dollars to build major offshore wind farms along the East Coast, but the first of those wind farms, which was supposed to break ground this year off the coast of Martha's Vineyard, has been delayed by the Trump administration. Joining us to discuss the future of the wind industry is Francis Slingsby, Development Director for Offshore Wind Projects in the United States for Ørsted, a Danish energy company that has become a global leader in offshore wind. Francis started at Ørsted a decade ago when it was still a traditional oil company. Since then Ørsted has exited the oil and gas business and now focuses on wind energy. And I think I recently read that the company is planning to officially ditch all fossil fuels. Is that correct?
Francis Slingsby: That's absolutely right. We're targeting by 2025 being completely net zero carbon emissions. We're converting our coal fired power stations in Denmark to biomass that will be complete by 2023 and obviously offshore wind and to a small extent other onshore renewables are really the future for our company.
David Abel: Biomass is interesting and maybe we'll talk about it a little later, but it's interesting how it's considered renewable energy. How big of a portion of the business will biomass be?
Francis Slingsby: Well, biomass for us really was very much the solution to legacy fossil generation. Denmark was historically one of the most CO2 intensive amongst the Nordic nations for generation. So Denmark really had this journey where they had to come up with something new and for them coming up with something new was looking to the wind. Originally back in the 1970s when you had the development of Vestas, which is one of the world leaders in the OEM, the turbine manufacturing piece and also Siemens who bought a Danish company that then was also another wind turbine generator manufacturer. And the state really were able to propel the development of the onshore space in Denmark and then back in 1991, some rather innovative engineers said, "Well, look, we think that this technology could be applied offshore where you have higher capacity factors." Offshore wind benefits very much from having the best in class capacity amongst the renewable technologies. Really in the range now of modern parks, about 50%, which is truly excellent. You'll also be able to build-
David Abel: That's because the wind just blows more steadily at sea than on land?
Francis Slingsby: That's correct. You have higher wind speeds and you have more constant wind speeds as well. You're also able ultimately to build much larger turbines. The turbine technology offshore, today we're using eight megawatt turbines, which are roughly two, possibly three times the size of conventional technology on shore.
David Abel: After years working in Europe, overseeing some of the world's largest offshore wind projects, you moved here to New England. Give us a sense of how different the wind industry is here that you encountered then it has been in Europe.
Francis Slingsby: Well, I think it's a tale of kind of really two stories. I mean the onshore wind industry in the US has really led in many ways. It's been a real innovator in cost-cutting. It's obviously at great scale. You're deploying 10 gigawatts plus a year. I mean, it really is one of the defining features of the renewable generation in this country. Offshore wind I think had a much kind of choppier start, but as you said, I mean the potential on the East Coast particularly where you see shallow waters at a distance from shore where you won't have a visual impact, which I think is a very important lesson, you see high and consistent wind speeds. And you also see the load being very proximate to the coast and our ability to bring jobs and electricity to the place where it's actually needed really came to quite a compelling cocktail.
David Abel: At the moment we have just five offshore wind turbines in the United States, a 30 megawatt project off Block Island in Rhode Island, which your company acquired last year for more than $500 million when it took over another offshore wind company. Why did Ørsted buy Deep Water Wind?
Francis Slingsby: Deep Water had established over many years a market leading developer position here. They brought a lot of local knowledge and local experience, which we viewed certainly being a Danish player that we could then blend with our technical expertise and ability in getting the projects built. Which has given us a 30% market share in the offshore wind industry in its entirety. We thought it was a very natural and very attractive combination of skills to bring that local developer knowledge and competence together with our industrial machine to actually build these projects efficiently, safely, and at the right cost.
David Abel: And give us a sense of where you're headed. What are your goals and what do you envision Ørsted doing here?
Francis Slingsby: Well, we now have through the acquisition of Deep Water and our partnership with Eversource, the unregulated part of Eversource here, we have three federal lease areas that we're developing to serve multiple markets and so we see that the markets are growing significantly. Massachusetts was the first state to come out with a 1.6 gigawatt target for offshore wind, which they then doubled to 3.2 gigawatts. Very good progress down in Connecticut. They're moving towards a two gigawatt target for offshore wind as well. New York increased from 2.4 to nine gigawatts of offshore wind and then down, Jersey as well, three and a half gigawatts down there. So we're going to see over the next decade is the targets for offshore wind being met and we see that the lease areas and that strategic acquisition of Deep Water gives not just the team but also the acreage offshore very well located to serve a number of markets and hopefully deliver on the ambitions of the States as they try to reduce greenhouse gases, generate jobs, and promote the offshore wind industry.
David Abel: Why do you think it's taken such a long time for the offshore wind industry to mature in the United States? Give us a sense of how significant offshore wind has become in Europe. Was the difference here mainly a lack of subsidies?
Francis Slingsby: I've only been in the US for two and a half years and actually I have to say I think it's moving very quickly. Relative to my experience in Europe. These are very large infrastructure projects and they also have very significant regulatory processes to go through.
David Abel: The tepid US interest in offshore wind is now, as you say, poised to change. Massachusetts doubled the amount of offshore wind that we are seeking to as much as 3,200 megawatts. As you say, other states are proposing even larger amounts of offshore wind. Last year, three developers paid a record, $405 million in a federal auction for the right to build turbines in some 390,000 acres of federal waters off New England. What's changed? Is it the cost of the electricity, the price of the turbines? Why does it make business sense now to build these here and do you expect the price to continue to decline to make these projects more competitive with natural gas?
Francis Slingsby: I think so. I think fundamentally the industry has matured. We as a company, were in the first year as I was working, building one project a year. Now we're building trains of projects and we're able to develop synergies between those projects, procure at scale. And also the generation capacity. The earlier projects were using 2.3, 3.6 megawatt technology; that was really the industry standard for many years from about 2012 to 2016. Now you're up at an eight gigawatt, you have Haliade-X, which is the General Electric turbine that slates as a 12 gigawatt, when that comes into service likely the next decade. The ability to have a much higher capacity on an individual position drives the cost down dramatically. And what we've seen in the last five years is that the costs in Northern Europe have effectively halved for offshore wind. Which makes us the cheaper alternative.
David Abel: Over what period of time?
Francis Slingsby: Over about five years. So I mean that trajectory was very acute as the industry industrialized and we expect to see further savings going forward as well.
David Abel: And there are some issues about price caps in terms of how much turbine developers can charge for their electricity. Where do you see this regulatory scheme going in terms of affecting the growth of the industry and how competitive it can be overall, especially with natural gas remaining as cheap as it is?
Francis Slingsby: We are very aware that our growth in Europe was built on let's say a climate agreement regulatory and we're ready to compete and we're keen to compete. What we're demonstrating now in Northern Europe where we had zero subsidy bids without any subsidy competing on the market terms. That is the trajectory that we see the industry developing on. The first projects in the United States are going to take some of the risk and some of that kind of startup risk that we need to see to realize them. So, I think we need to absolutely be aware that the first projects will probably come at a price. But as the industry matures, as we start to hit those targets, 3,200 megawatts in Massachusetts, nine gigawatts in New York, you're going to see the industry scale also helped to drive down the costs.
David Abel: Give us a sense of how the subsidies work in Europe compared to federal tax incentives here in the states.
Francis Slingsby: In Europe you've had different systems, you've had a renewable obligation credits in the UK which really propelled the UK to be the largest offshore wind market alongside very favorable offshore climate that the UK has that makes the technology very suitable there. That really propelled the industry at the start. And then you've moved now to more of a feed-in tariff top-up mechanism, which is perhaps more on a market term there. You've seen in other countries, Germany for example, Holland for example, now the zero subsidy mechanism is very much entrenched there as well. So the transition away from subsidy to really competing on standalone merits and the benefits of the technology and the benefits of the jobs that it brings as well. This is really critical it's that offshore wind is generating jobs locally often in the most proximate location to the wind farms. So rather than taking the jobs necessarily to the traditional economic centers in states, we're able to bring the jobs to coastal communities to give that kind of regenerative story, which certainly I've experienced in the UK is very, very welcome. Our experience in the Humber region in the UK for example where we are building out Hornsea, is through the ability to have this kind of line of sight on a large pipeline of offshore wind projects. That predictability gives the industry confidence to invest and Siemens invested in a very large blade factory there which is actually building out a large part of the portfolio there and that's over a thousand high quality, high skilled jobs in an area that had really been in some ways not experiencing economic success until that point.
David Abel: Perhaps one of the unique challenges of building offshore here is the difficulty of operating in an environment that until now has been essentially monopolized by the fishing industry. You also have to navigate around the Marine Mammal Protection Act given that right whales, which are among the most endangered species on the planet, inhabit the areas where you plan to build. How distinct are these challenges compared to what you've dealt with in Europe? And do they pose a serious problem for the wind industry to build at a large scale?
Francis Slingsby: We've certainly worked with sensitive marine mammals and ultimately sensitive wildlife in our experience in Europe and we draw heavily on that experience. I think the nature of what we see here in the Northeast, particularly to the Northern right whale as you allude is absolutely critical. We have to take this incredibly seriously. And as a company we have on our staff a marine biologist who specialize in marine mammals. We rely very heavily on the advice there. We work very closely with the ENGOs to try and map out the right way to take this forward so that the industry, from the wildlife perspective, is doing everything we can to mitigate. We have sound dampening technologies in Europe that have been deployed in cases as well. So from a technological perspective there are some options there. But I mean we also realized that the greatest risk to wildlife is climate change and we want to make sure that we strike the balance right. So we put the wind farms in place as effectively with minimum impact on wildlife.
David Abel: And what about dealing with the fishing industry here which has, unlike in Europe, never really had to deal with this kind of a new entrant into their turf. How do you navigate those concerns, especially with what Vineyard Wind recently experienced when one commission in Rhode Island nearly killed what could still be and presumably will be given that they negotiate an agreement, the first major offshore wind farm in the United States?
Francis Slingsby: I mean obviously the developers take the approach that they need to do to realize that their projects. I mean we from Ørsted side, we see the coexistence with fisheries is absolutely critical. That been our experience in the many years we've been developing, constructing, and operating projects. And that's our ambition is to create coexistence. We want to be engaged. We have a very large outreach team we have on our staff gentlemen has got 50, 60 years experience of being a fisherman himself and he's part of our outreach on the docks down the South coast of Massachusetts. So you know, we really want to make sure we get that local knowledge and the local outreach in place. We were the first developers to join RODA, the Responsible Offshore Developers Association, which is, in many ways, bringing together the different groups and creating that sense of coexistence between the maritime stakeholders. We acknowledge we are relatively late to what is an established tapestry of different maritime stakeholders. And the fishing community is absolutely at the heart of that. And we acted proactively with our layout for Bay State Wind where we agreed to an East, West one mile separation in the layout. And this was exactly what the fishing communities were looking for. And we wanted to be responsive. We're pleased with the dialogue today, but we know there's a lot of work still to do.
David Abel: How important are the tax credits for your company in the larger industry? What does it mean for the future of wind development now that they're phasing out?
Francis Slingsby: I mean the tax credits, both the production tax credit and investment tax credit have been real drivers for the significant expansion of onshore wind, solar, and now offshore wind. Offshore wind, looking at the investment tax credit, is seeing this ramp down now from 24% in 2017, 18% in 2018, now down to 12%. And clearly we are building the business cases and enabling ourselves to generate this power based upon that tax credit system. So it is a very material piece of the puzzle as we look forward. But alongside the rest of industry, we're also preparing for a future where those tax credits aren't available. And we're working hard to find the right ways to optimize the scale and the production in the generating assets to ensure that this business continues to grow.
David Abel: And do you think that the offshore wind will be sustainable in terms of competing against cheaper fossil fuels like natural gas without the tax credits?
Francis Slingsby: I think that the constraints on alternative technologies in the markets where we find the demand, that offshore wind has tremendous potential. I think that certainly for gas in New England that is a challenging proposition for many reasons. Mainly transmission, fundamentally. But we see offshore wind as filling that gap very well.
David Abel: Every year it seems that turbines grow larger and more efficient. The latest designs rise more than 850 feet high, almost as tall as the Eiffel Tower. What does that mean for the future of the industry? If wind now accounts for just 6% of electricity in the United States, what do you expect that will be in another 10 years with many gigawatts offshore wind likely to be produced?
Francis Slingsby: The machinery, the hardware is just sensational and the growth in terms of the scale of these turbines and what their ability to generate and the innovations from moving from a geared solution to a direct drive, so a gearbox solution gets certainly the engineering folk in my company pretty excited. And being a layman on that side coming into the industry, it is phenomenal to see how these machines are able to capture a natural resource and convert that into clean energy. There's no doubt about it. What it means is that this industry is really very much becoming part of the backbone of a number of countries when they look at that kind of energy future and the generation mix. The UK recently committed to 30% of all electricity generation from offshore wind by 2030. And that is a tremendous goal for one renewable that will be alongside other renewable sources as well. So, we see that as very much the potential that we can get there, we can exceed that, and I think it's safe to say that the wind resource that we find and the capacity to deploy these phenomenal pieces of innovative technology to combat climate change, is equally as attractive off the Northeast of the United States. And that's one of the reasons I enjoy being here so much because it is a tremendous prospect.
David Abel: And we're also looking at other kinds of technology, especially in places where there are deeper waters like off the coast of Maine. And there's some discussion about having floating turbines. Is that something your company is looking at and what role might a floating turbine play in terms of allowing us to significantly increase the scale of offshore wind?
Francis Slingsby: Floating is a fascinating technology. I think it's a technology that whereas what we call fixed bottom, which is a foundation solution, is now a mature renewable technology. Floating is on the path to be there and you've seen a number of companies invest in floating technologies. Fascinating concepts, capable obviously of being deployed at much greater depths of water. That's the real attractiveness here. There is only so much shallow water that can be deployed. Certainly we feel that we want to realize the opportunity to build out the shallow water to the greatest extent possible because obviously you are closer to the load when you go to floating, unless you're in certain geographies, you have to bring the power further and that results in losses and greater costs as you transmit that power. But I'm very fascinated to see how the floating industry develops. I think it's a great innovation and I think it's got a very, very bright future.
David Abel: And what are some of the other opportunities in the wind industry? Let's say you were a student at Harvard Business School and you're graduating and you wanted to get involved with the wind industry. What would be the areas that you would want to focus on or where the opportunities lie?
Francis Slingsby: Well, I think as with all renewable technology, the intermittency is a solution that we need to solve. And I see offshore wind from the generation piece, is such a compelling technology that's available to us today to solve the pressing climate challenges we face. These are immediate climate challenges. The generation piece, we have the technology, we're capable of doing this. How that power is used and harnessed to create a stable, reliable, and cost effective solution. That is something which we really need to work through and obviously now we're seeing storage becoming far more of the dialogue. I think that needs to go a lot further. The rollout of EVs also as a potential supplement to that storage solution as well I think is going to be fascinating. But these are the kind of challenges.
David Abel: Meaning electric vehicles that could actually store in their batteries the energy that might come from wind turbine?
Francis Slingsby: Exactly right. I think as you get that significant rollout, and also if you look at the areas of climate change that we're dealing most effectively with, the replacement of fossil generation with renewable generation is, I wouldn't say a success story, but it's certainly showing the right prognosis when it comes to actually electrifying the transport sector. That is a major source of greenhouse gas emissions where we still need to have a lot of work to do and I find it very exciting to see that nexus between clean generation and EVs and storage, how one creates this kind of green system in the future.
David Abel: Francis, thank you so much for joining us. Francis Slingsby is Development Director for Offshore Wind Projects in the United States for Ørsted.
Francis Slingsby: Thank you very much, David, pleasure to be here.
David Abel: And now some thoughts about the wind industry from Mike Toffel, a Professor of Environmental Management at Harvard Business School.
Mike: When it comes to building more wind energy capacity, whether it's onshore or offshore, I think it's helpful to focus on three costs: the technology and equipment, installation, and connecting it to energy users.
On the technology side, onshore wind is more proven and onshore wind has already come down such a substantial cost curve that in many places it's now cheaper than generating energy from fossil fuels. In the US, wind has been widely deployed in Texas, for example, because it's cheaper than the fossil fuels it's replacing. All told when you include capital installation and connectivity costs, onshore wind costs about half of offshore wind. Although the gap is expected to narrow in the future. And as offshore wind technology develops, it's interesting to note that offshore wind speeds and directions are more consistent than onshore. This enables offshore turbines to be more efficient.
Regarding installation costs, installing offshore wind is often more expensive than onshore and it might remain so for the foreseeable future. When I think about comparing costs of renewable energy sources, it's these two costs, equipment and installation, that I usually think about. But actually we also need to think carefully about the cost of connectivity, that is, connecting these power sources to the electrical grid. And that's where things get interesting.
First, consider connectivity for offshore wind. Given the problems we've seen with people not wanting their sea views to include a bunch of wind turbines, offshore wind might need to be sighted far enough offshore to be out of sight for quite some time. And while offshore wind companies don't need to negotiate with land owners for rights of way access, they do need to work alongside the marine and fishing industries and they need to bury cables to bring the power ashore.
That's the offshore story. What about connectivity for onshore wind? There's an interesting story that centers on Michael Skelly, an HBS alum who founded Clean Line Energy Partners. That company sought to build long haul transmission lines across the US from regions with plentiful renewable resources, such as the windy great Plains and solar intensive Southwest US, to regions where the power was needed. This was going to require securing a lot of rights of way access, some by negotiation and the rest by eminent domain. But that requires political support and the culture around land rights is pretty strong in those regions, which meant it wasn't obvious the politicians were going to fight against their constituents to require them to accommodate new transmission lines even if they would substantially boost the amount of low-cost wind and solar energy entering the power grid. It became increasingly clear to Skelly that a huge barrier to unleashing cheap, renewable electricity had more to do with the political process of connectivity rather than the technology itself. And since the politics of right away access for renewables is governed locally, there was a lot of political risk, which eventually scared away investors from the large-scale project. That's an unfortunate outcome and means that a project that might have added nearly three and a half gigawatts of solar capacity couldn't proceed due to politics and state's rights.
In contrast, one reason the cost of offshore wind has declined so much in Europe is not only due to significant technological advances in turbine efficiency, but also because of regulations that have de-risked the projects and thus lowered their financing costs. These types of policies might have prevented the demise of this massive wind power opportunity in the Great Plains. But its failure leaves us with the question: how can these remote areas that have the potential to generate so much renewable energy be put to use if a large-scale interconnected grid remains out of reach? I wonder, for example, could these renewable power centers in the Great Plains at least reach electric vehicle charging stations that could be set up along major cross country interstate highways?
A decentralized power supply that could reach more remote but well-traveled places could be a great use of onshore wind produced in remote areas. Because local politics might inhibit projects like Clean Line Energy Partners’ attempts to build long haul lines to decarbonize the grid, we need to rethink how to bring wind and solar online more efficiently. That might mean the need to reconsider the balance between eminent domain and local land rights, and it might require a rethink of how to bring this power to where it's needed.
At the end of the day, we're going to have to figure out ways to decarbonize our electricity production, and it's going to take a combination of technologies, creative business models, and better regulatory policies to make it happen.
David Abel: That's it for Climate Rising this week. I'm David Abel. In our next episode, we'll explore how climate is affecting the real estate industry.
Bryan Koop: If it happens once every hundred years, it's insurable. And if it happens twice every 50 years, it's expensive, but insurable. If it happens once every 20 years, it's called equity, meaning you're not going to be able to insure it.
David Abel: Thanks for joining us. I'm your host, David Abel. This is Climate Rising, a podcast produced by the Business and Environment Initiative at Harvard Business School. You can subscribe on Apple Podcasts or wherever you listen, and please leave us a review. We appreciate the feedback.
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