It’s no wonder that Connecticut has a case of the flutters — with so much unknown to the public, and the Connecticut Port Authority and port operator Gateway New London LLC on the verge of signing a long-term lease and partnership agreement with Eversource and Ørsted that could reshape the economic future of New London, as well as energy production and prices for Connecticut.
As Matthew Morrissey, Vice President and Head of New England Markets for Ørsted explained it, more than once, “it’s really not a zero-sum game.” At least as we understood his thinking, that was a way of saying that the scale of the deal and the potential benefits remain uncertain. Or to use a common analogy, the pie isn’t baked, so the agreement is more than simply a matter of divvying the slices.
We sat down in New London on Tuesday with Morrissey, and Michael Ausere, Vice President of Business Development at Eversource, for a forty-five minute interview which ran long to an hour and a half.
Eversource is New England’s largest energy provider and Denmark-based Ørsted, a global leader in offshore wind energy development. Together they share half stakes in a partnership announced on February 9, which includes Ørsted’s Revolution Wind and South Fork Wind Farm projects located between Block Island and Martha’s Vineyard, as well as a 257-square-mile tract off the coasts of Massachusetts and Rhode Island, according to a joint press release by the companies.
Eversource paid approximately $225 million for its 50 percent stake in the projects.
A growing pie
A non-zero-sum game does not guarantee that everyone wins, or even if everyone wins, that the proceeds are divided fairly — but it asks participants to consider possibilities and mutual benefits of a growing pie.
In this case, the size of the potential pie is determined in part by existing energy procurement goals over the next decade for northeast states, Maryland included, which total 20 gigawatts — that’s 20 billion watts of electric power — Ausere explained. As a point of comparison the Millstone Nuclear power plant in Waterford produces significantly less than 2 gigawatts or 43 percent of Connecticut’s energy needs in 2018 according to the U.S. Energy Information Administration.
That 20 GW ‘pie’ is worth $70 billion, according to a March report by the University of Delaware’s Special Initiative on Offshore Wind. Long-term for offshore wind energy, according to the analysis, “considering shipping lanes, bird flyways, and other sensitive ocean areas, there are 330 gigawatts of ‘developable’ resource – more than enough to supply all the electricity needs of the East Coast.”
Given that size pie, the question is how much a 10-year exclusive lease of the State Pier in New London is worth, and how well has the Connecticut Port Authority negotiated for the people of Connecticut?
“Allowing one client to completely occupy a harbor requires more study, more public input and, certainly, more confidence in the officials tasked with finalizing the details before this long-term commitment is sealed” – State Sen. Heather Somers (R-Groton)
In an August 22 guest opinion piece published in The Day, State Sen. Heather Somers (R-Groton) — a measured critic of the negotiations — questioned the potential benefits compared to the long-term commitments required in the deal. “There is a $93 million un-executed contract in the balance between a wind energy company and the authority over the use of harbor facilities as a staging area for the development of a significant wind farm project at sea,” said Somers. “Allowing one client to completely occupy a harbor requires more study, more public input and, certainly, more confidence in the officials tasked with finalizing the details before this long-term commitment is sealed.”
But with a nonbinding memorandum of understanding signed and celebrated on May 2, ambitious 10-year goals up and down the coast, tax credits expiring on the federal level, and Ørsted already projecting construction to begin in 2021, how much is the wind partnership willing to give, and how long are they willing to wait?
Morrissey said he anticipated a finalized agreement within about two months.
New London’s value
“There are many others, but New London sets up as a very strong — not perfect by any means because there is no perfect — but as a very strong port for the purposes of offshore wind deployment,” explained Morrissey.
According to Morrissey, the State Pier location offers the key advantage — what he described as “probably the most important” advantage — of “air clearance.” That is, the ability to move extraordinarily large components from the port to the site of construction without intervening bridges.
“Even before we won any awards in the Northeast,” said Ausere, “Ørsted was already looking at port facilities because that’s one of the most critical constraints especially here on the east coast, there’s not a lot of open real estate right by the water’s edge.”
Much as with the out-of-scale of financial opportunities of wind energy, the turbines required are so extraordinarily large, it’s hard for the average person to understand the impediments and requirements of assembling and moving them from the port.
“The diameter of the windswept area of the turbines we’re going to be using is two football fields,” said Ausere. In Ørsted’s own literature the preferred unit appears to be multiples of Boeing 747. Their Burbo Bank wind project completed in 2017 in the Irish sea used blades spanning 538 feet — just over two 747s end to end — and each wind turbine stands 639 feet in the air — about twice as high as the Statue of Liberty.
Given that size — and what Morrissey and Ausere described as extraordinarily intensive operations with these oversized components over four and five month periods — it is perhaps no surprise, when asked, that they offer what appears to be very little room for compromise in terms of priority, if not exclusive use, of the State Pier.
“When we’re in an active construction campaign, we will need every bit of space out there for the wind turbine components, we will need exclusive use when there’s an active construction campaign — if there isn’t an active construction campaign and there’s some downtime and there are some other uses, then that is actually part of our agreement with the port authority that other users can be brought in, but when there’s active construction going on there, there just won’t be space,” Morrissey explained.
Anchoring the Northeast
In turn, that commitment and exclusivity — Morrissey described it in terms of a marriage — could potentially provide numerous and significant benefits for New London and the region.
“The way that offshore wind develops as an industry — there are many models around Europe and the U.K. to confirm this — when you have an anchor, like a port facility, it’s really around that anchor that other subsidiary investments end up getting made. Because you need that fundamental piece of equipment or that facility in order to justify other types of downstream supply chain opportunities,” said Morrissey.
“This facility will be the location for a central part of all of our Northeast campaigns and so there is tremendous investment, tremendous job opportunities that come with that” – Matthew Morrissey, Vice President and Head of New England Markets for Ørsted
Neither Morrissey nor Ausere went so far as to promise or even suggest a local manufacturing of the components, or a specific use for the Central New England rail line that runs from New London through Montville, Norwich, and Willimantic to the Massachusetts border. That line was recently upgraded with an $8 million federal TIGER grant, and an additional $4.8 million of private investment.
But Morrissey did describe New London as an “anchor” and a “central part” of their investments in the Northeast.
Said Morrissey, “This facility will be the location for a central part of all of our Northeast campaigns and so there is tremendous investment, tremendous job opportunities that come with that.”
If Connecticut is taking a risk, in balance he said, “we and Eversource are taking the risk of investing in a facility here to bring in millions of dollars of product to be touched in various ways, in post-fabrication, in assembly.”
The port city’s uncommonly skilled workforce was a strong factor in choosing the location, explained Morrissey.
“This area has a very sophisticated maritime economy — the sub base and General Dynamics — here we have a very, very strong ecosystem already,” he said.
Morrissey described walking into a small welding shop and witnessing “a number of complex welds that you usually don’t see.”
“It turned out that they were under contract with Electric Boat and if a company can get a contract with Electric Boat, they can be under contract with us. That’s a level of sophistication that’s required that most industrial port communities really don’t have,” he said. “If there are companies in an ecosystem here — by virtue of Electric Boat being a major driver — they can compete successfully for pieces of our business.”
Where and when the winds blow
A proximity to customers in the cities and the developed Northeast “as well as some of the best wind speeds in all of America, offshore of Connecticut and Massachusetts,” rate the area as an ideal location for offshore wind power, said Ausere.
“You have relatively shallow waters and you are very close to major load centers or population centers, just like what Ørsted had seen in northern Europe, so this sets up really well as a large-scale source-renewable power for New England,” he said.
Less intuitively, the peculiarities of the New England winds and they way they match with the regional heating season are also a benefit, he explained.
“The other thing we saw about offshore wind that fits uniquely with New England is when you look at the wind speed patterns and the output from wind farms — they actually peak in the wintertime. Even better, they peak at 5 to 6 p.m. at night during the winter when you see a lot of price volatility that drives the high cost of power in New England,” Ausere said.
As a mature technology with lower costs,“you combine that with when New England needs power the most and the gas pipeline issues not [being resolved], nothing’s going to happen there — we saw this as a very good fit for New England,” he said.
Growing scale, lowering cost
Eversource’s growing interest in renewable energy — and states setting carbon reduction goals — set the stage for the partnership with Ørsted, said Ausere
“Eversource started to grow interested in offshore wind and we started looking it really hard in 2015, when we saw the states for very good reasons — especially in New England — lead with very ambitious energy goals,” he said. “It seemed far away, like some goals — Connecticut in 2040 having a 100 percent energy reduction from generation, and Massachusetts is 80 percent reduction of all greenhouse gas emissions by 2050 — very ambitious. But in terms of specific tangible activities that were taking place, there were a lot of good activities, but on a relatively small scale.”
“That number is a shocking number to everyone including all of us in the industry, because when Massachusetts passed the law in 2016, it was this notion — and this was a very well thought through concept — that the strike price for the bids would not be sub-10, but in the 18-17-16 range. And the governor, Charlie Baker, a conservative, still went along and signed the law” – Matthew Morrissey, Vice President and Head of New England Markets for Ørsted
Ausere said Eversource began to look at various technologies, including Cape Wind, a $2.6 billion, 1.5 GW 130-turbine project begun in 2001 that failed after 16 years of legal battles, and the $290 million, 30 MW five-turbine Block Island project that went live in December 2016.
These were two relatively small-scale projects in U.S. waters, while Europe was spinning far ahead in its development of technology, advances that were also significantly lowering costs.
“What we hadn’t fully appreciated until we started to do our due diligence was how far Europe had taken offshore wind, the technology improvements that Matt described — larger machines, further from shore — all those the major manufacturers getting into the supply chain,” he said.
Morrissey said that while earlier smaller higher-risk projects delivered energy at a relatively high cost — roughly 35 cents/kWh in the case of the Block Island project — and promised 24 cents for the larger-scale Cape Wind — the proposed Ørsted-Eversource joint venture is expected to have an “all in” cost more comparable to 9.8 cents/kWh contracted for Rhode Island.
“That number is a shocking number to everyone including all of us in the industry, because when Massachusetts passed the law in 2016, it was this notion — and this was a very well thought through concept — that the strike price for the bids would not be sub-10, but in the 18-17-16 range. And the governor, Charlie Baker, a conservative, still went along and signed the law,” explained Morrissey.
“The fact that the market in the United States has leapfrogged down to the place where we are now — and that’s with the tax credit benefit — that notion is shocking,” he said.
Tax credits, expiring, renewing?
Among the moving pieces that finance the offshore wind industry are federal tax incentives, expiring at the end of 2019. The tax credits were established to foster the development of both onshore and offshore wind power, said Morrissey.
“One could argue that the basis of the tax credit itself was to stand up the [onshore] industry and it worked and there are hundreds of thousands of people today who are working in that industry and the cost of power has plummeted and it’s the least expensive in various markets,” he said.
The Production Tax Credit, which had a parallel component known as the Investment Tax Credit, provided a maximum tax credit for wind generation of 2.3 cents/kWh for the first 10 years of production. Under the PTC phaseout, the amount of the tax credit decreases by 20 percentage points per year from 2017 through 2019,” according to the U.S. Energy Information Administration.
The success of tax credits used for onshore projects could be replicated for the offshore wind industry, Morrissey said, it makes “a very strong case for why it needs to be extended — and the reality is, you can see it in these bids, there is a direct benefit to the ratepayer.”
“The [tax credits] going away after 2019 will challenge the ability of the U.S. to continue to drive lower costs … but at the same time you’re getting an industry that’s setting up here in the U.S., said Ausere. “I’m not going to say it’s a one-for-one wash [with] the fact that we’re losing tax credits, [but] hopefully we’ll see some level of offset by the industry setting up here in the U.S.”
Capturing more wind
Back in 1991, when Ørsted began with a small project off Copenhagen, “the state of play,” Morrissey said, was to throw a couple of land-based turbines out in the ocean and see how they do.
“Not much more complicated than that, and no competitors, no standardization, no health and safety… just nothing,” he said.
From there, the growth of global competition seeded the demand for offshore power. Standardization drove down costs, and the increasing size of the turbines provided opportunities to lower costs.
The U.S. market was long seeking offshore wind as part of the overall energy mix, going back to the Cape Wind days, he said.
“The reality is Cape Wind as a project, back in the early 2000s, was really state of the art anywhere in the world,” he said. “At that time globally these projects were five to seven miles offshore, that’s what we were capable of doing at that time. Today, we’re 20 miles offshore.”