Navigant Research Blog

Key Developments Are Laying Foundation for US Offshore Wind Market

— September 16, 2016

TurbineAmericans who don’t obsessively follow the wind power industry were recently greeted with the news from mainstream media outlets that the United States has installed its first offshore wind installation. The 30 MW Block Island project off Rhode Island is developed by Deepwater Wind, and commissioning and grid connection will be finalized over coming weeks. The broader question to industry followers and the American public alike is whether this heralds the beginning of an offshore wind market in the United States.

The US wind market still lacks the long-term policy certainty and incentives that counterparts in Europe and China have implemented. By the end of 2015, total global offshore wind capacity reached nearly 12,000 MW. A remarkable 3,755 MW of that total came online in 2015 alone, driven largely by Germany, and China is expected to install over 1,000 MW of offshore wind this year. Those figures put the one 30 MW US project in perspective.

However, the foundations are in place to see a strong US market develop in the early 2020s when multiple large-scale projects in the 300 MW or above range are likely to be built. The following are key developments driving the US offshore wind industry now and in coming years:

  • Federal Ocean Leases: More than 16,000 MW in the offshore wind project development pipeline is slowly advancing due to 11 offshore wind site lease auctions orchestrated by the federal Bureau of Ocean Energy Management (BOEM), plus favorable Northeastern state policies.
  • Tax Credits Extended: Supportive tax policies in the form of the Production Tax Credit (PTC) and the Investment Tax Credit (ITC) were reinstated in late 2015, and critical new timeline flexibility announced in mid-2016 now allows wind projects that begin construction by 2017 to have 4 years to complete construction and receive 100% tax credit value. The next 3 years provide declining tax credit values (80%, 60%, and 40%) if projects begin construction in years 2018, 2019, and 2020, providing a window of policy enactment that will see wind projects being installed through 2023.
  • US Department of Energy (DOE) Demonstration Projects: The DOE has awarded three Advanced Technology Demonstration Projects in New Jersey, Ohio, and Maine for the Fishermen’s Energy Atlantic City Windfarm, Lake Erie Energy Development Corporation’s Icebreaker, and the University of Maine’s New England Aqua Ventus I projects, respectively. All three are eligible for up to $40 million each, contingent on reaching milestones and congressional appropriations.
  • Massachusetts: Legislation was passed in July 2016 requiring utilities to contract for 1,600 MW of offshore wind.
  • New York: Long Island utility company PSEG has selected Deepwater’s 90 MW project as the winner of its all-resources RFP. NYSERDA will also participate in the upcoming BOEM New York lease auction to support a future offshore wind RFP.
  • Carper-Collins ITC Bill: There is a current bill on the docket in the US Senate to extend the 30% ITC to up to 3 GW of offshore wind. Recent cost estimates have taken the cost of the bill from $3.5 billion down to $535 million, making it more attractive to lawmakers.
  • Costs Dropping: A new cost analysis by the National Renewable Energy Laboratory shows credible scenarios for cost reductions below $100/MWh by 2025 in some areas of the United States. Results in recent European contract auctions are supporting this, including DONG winning a contract for 700 MW at €72.70/MWh (~$80.52/MWh) and Vattenfall winning a Danish near-shore tender at €63.8/MWh (~$71.15/MWh).
  • Abundant Resources: Today, a technical potential of 2,058 GW of offshore wind is accessible in US waters using existing technology. This is equivalent to an energy output of 7,200 TWh per year—enough to provide nearly double the total electric generation of the United States in 2015. The DOE says US national wind strategy should and could successfully develop 86 GW by 2050.
 

How to Select a Winning Solar Provider

— June 2, 2016

Rooftop SolarWith the extension of the 30% Investment Tax Credit (ITC) through 2021, Navigant’s forecast indicates that annually installed commercial and industrial (C&I) solar PV capacity will continue to grow year-over-year through 2022. Because of this, it is especially important to provide resources for the C&I sector to facilitate the decision to go solar. Navigant Consulting has been working with the U.S. Department of Energy (DOE) Better Buildings Alliance (BBA) for 2 years to promote solar PV for commercial buildings.

Most recently, Navigant supported the development of the 7 Steps to Selecting a Solar Provider guide, which outlines the process of procuring solar PV by issuing a request for proposal (RFP). Learning about solar is the first step, and the BBA’s On-Site Commercial Solar PV Decision Guide provides direction on the key aspects of a commercial solar installation. Defining project goals and provider selection criteria are the next two crucial (and often overlooked) steps that are required in developing an RFP to procure a custom project. If project goals are not clearly defined, solar provider bids will not be able to develop customized proposals, making it very difficult to compare offers. Clearly defining project goals feeds directly into developing a detailed and a well-written RFP. Consistently applying these defined selection criteria to shortlist providers and select an awardee is a key sign of a well-thought-out procurement process.

Solar Provider Selection Process

AndreaBlogImage

(Source: Navigant)

To facilitate issuing a well-written RFP, the BBA released the following templates:

Navigant will be soliciting feedback over the course of the next 6 months from solar PV developers and BBA members for this suite of resources. If you have comments regarding how the resources can be expanded or improved upon, please email andrea.romano@navigant.com.

 

A Small Change with a Big Impact for U.S. Wind Incentives

— May 19, 2016

Der Rotor wird angesetztAn easily overlooked change in guidance from the Internal Revenue Service (IRS) last week may seem like arcane minutia, but it will have a profound impact on the U.S. wind market, measured in billions of dollars and gigawatts installed through 2023.

First some background. In late 2015, the U.S. wind industry and its stakeholders succeeded in securing from congress an elusive policy goal: long-term market certainty. Federal tax credits, predominantly in the form of the Production Tax Credit (PTC), have typically been provided to the wind industry in 1- and 2-year increments. The PTC pays $0.023 per kWh of energy produced for 10 years of operation of a wind plant, which amounts to roughly 30% of the total installed cost of a wind plant. Or it can be taken as a one-time Investment Tax Credit (ITC) worth approximately the same amount.

The 2015 legislation was a significant twist on wind policy. It was a deal between industry and government for the wind industry to eventually give up its tax credits in exchange for a 4-year gradual phaseout of the credits. It was structured so that wind plants that began construction by the end of 2016 would receive 100% PTC value, projects starting construction in 2017 would receive 80% of the PTC value, 60% in 2018, 40% in 2019, and zero in 2020. Start construction is defined as significant site work or 5% of project cost incurred.

The minutia that matters is the start construction guidelines and how long a wind plant is given to come online. In recent years, the IRS guidance of the PTC was to allow wind plants 2 years to complete construction in order to avoid a requirement to show continuous construction progress. That would result in 2018 being the peak capacity installation year, as wind plants starting construction in 2016 would come online by 2018 in order to secure 100% PTC value.

A Pathway to Offshore Wind

The guidance provided by the IRS last week changed the construction window from 2 years to 4 years. It also removes a previous guideline that stipulated construction must be continuous in nature. Combined, this will take a lot of pressure off the wind industry so it doesn’t have to rapidly build as fast as possible to meet a 2-year window. Wind plants seeking 100% PTC value and starting construction in 2016 will have until 2020 to be built. Applying the 4-year guidance, projects starting in 2017 will receive 80% value if completed by 2021, 60% value by starting in 2018 and completed by 2022, and 40% if starting in 2019 and completed by 2023.

The new 4-year window means that capacity additions will see less of a short-term spike and more of a smoothed out deployment cycle. Most wind plants don’t need 4 years for construction, so many will stick to shorter planned schedules. However, large offshore wind projects require longer construction timelines, and this new 4-year window could mean the difference between one or more large offshore projects proceeding that may not have before. For onshore wind, many developers will optimize their development cycles, turbine supply agreements, component transportation, and construction logistics to enable the most cost-effective and largest build cycle possible under these more flexible guidelines. For example, some developers may have a few foundations poured during the first year of construction at a site and turbines not installed until the fourthyear while development is prioritized elsewhere.

 

Solar Tax Credit Extension Enables Growth in Commercial Sector

— January 12, 2016

clean energy backgroundDexter Gauntlett also contributed to this post.

The 30% solar Investment Tax Credit (ITC) has officially been extended through 2021. The solar industry is now expected to continue its steady growth over the next 6 years and avoid the worst of the so-called 2017 cliff. Before the extension, the commercial ITC was scheduled to drop to 10% after December 31, 2016 and result in a sharp decrease in installed solar capacity in 2017 (shown in the chart at left below).

Under the recent extension, projects that start construction by 2019 will receive the current 30% ITC, while projects that begin construction in 2020 and 2021 will receive 26% and 22%, respectively. All projects must be completed by 2024 to obtain these elevated ITC rates. Navigant Research recently revised our solar capacity forecast to reflect the ITC extension, reducing the 2017 cliff by increasing the installed solar capacity from 2017 to 2022.

Expected Capacity Before ITC Extension

Andrea - Before ITC Chart

(Source: Navigant)

Expected Capacity After ITC Extension

Andrea - After ITC Chart

(Source: Navigant)
Note: Capacity is forecast in MW DC for these charts.

The extension of the commercial ITC has opened a new window of opportunity for commercial building owners over the next 6 years. Because of this, it is especially important to provide resources for the commercial sector to facilitate the decision to go solar. Navigant Consulting has been working with the U.S. Department of Energy (DOE) Better Buildings Alliance (BBA) for 2 years to promote solar PV for commercial buildings.

In 2015, Navigant focused on two commercial sectors identified as having untapped potential for commercial solar development: healthcare and hospitality. We also focused on leased buildings across all commercial sectors, which face particular barriers to installing solar PV.

Navigant interviewed solar developers, trade organizations, hotel groups, hospitals, building owners, and building tenants to better understand the benefits and barriers, technical and financial considerations, and strategies for installing solar PV systems in these sectors. We discussed some of our findings last year, and the following guides were recently published by the BBA:

In addition to these guides, the BBA published 10 case studies highlighting successful solar PV projects completed for healthcare facilities, hospitality businesses, and building owners that lease their buildings. The case studies include roof, carport, and ground-mounted systems ranging in size from 30 kW to a 5.5 MW portfolio of projects across multiple states. These case studies are all available on the Renewables Integration page of the BBA website. Stay tuned for additional BBA solar PV resources in 2016.

 

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