The Cost of California's Offshore Wind

Introduction

Fig. 1: Map showing the two sea spaces California has leased for offshore wind (colored areas) along with relevant port cities. [5] (Courtesy of BOEM)

California has set an ambitious goal of reaching 100% renewable energy generation by 2045. [1] To ensure renewable power is supplied from sunset to sunrise, the California Energy Commission (CEC) models 50 GW of increased battery capacity, 6.6 GW of additional onshore wind generation, and 10 GW of new offshore wind generation by 2045. [1] This report examines California's plan for harnessing offshore wind as a renewable energy source and compares the cost of new offshore wind to the cost of new onshore wind.

California's Offshore Wind Plan

California has up to 200 GW of potential wind energy generation capacity off of its 840-mile shoreline. [2] In December 2022, the CEC and the U.S. Bureau of Ocean Management (BOEM) leased the first two offshore wind areas for the development of 4.5 GW of offshore wind. [3] The first area is 21 miles off the coast of Humbolt Bay in Northern California and the second is 19 miles off the coast of Morro Bay in Central California (see Fig. 1, Table 1). The wind farm spaces are far enough away from the coast to maximize sea wind speeds while staying close enough to nearby ports.

The steep drop off of the Pacific Outer Continental Shelf requires floating wind turbines, which consist of a wind turbine placed on a floating platform that is tethered to the sea floor. [3] Floating offshore wind energy is quite new. As of 2022, there is only 121 MW of floating wind energy capacity globally. [4]

Each offshore farm must be connected through miles of undersea cables to its nearby coastal city. [3] From there, transmission infrastructure must be built to connect connect to the central grid. In 2020, the CEC predicted the costs of new transmission infrastructure needed for both Morro and Humbolt Bay. [3] Since Morro Bay is close to the soon-to-be-decommissioned 2 GW Diablo Canyon Power Plant, existing infrastructure can be repurposed to serve 2.9 GW of new wind capacity, putting costs at only $110 million. On the other hand, Humbolt Bay only has low-capacity transmission lines connecting it to the rest of California. The many miles of new high-voltage lines needed to transmit 1.6 GW of wind capacity to the central grid puts projected transmission costs at $6-8 billion. [3]

Constructing and maintaining floating wind farms will require large investments in new port infrastructure, which Trowbridge et al. have analyzed. [5] They identify the best ports that should be used for (1) manufacturing floating wind turbine components, (2) storing, assembling, testing, shipping, and repairing the turbines, and (3) operating and managing the wind farms. Combining subsequent BOEM cost estimates in Lim and Trowbridge, a minimum of $3 billion of port infrastructure must be developed to create and maintain each wind farm. [6] More specific ranges pulled from Lim and Trowbridge are levelized and placed in Table 2. [6]

Levelized Costs

To quantify the cost of these two new offshore wind projects and compare them to other renewable sources, one calculates the levelized cost of energy (LCOE) in $ per MWh. The LCOE is the minimum price energy must be sold at in order to offset production costs. It is derived from capital expenses (CapEx)[$/kW], operational expenses (OpEx)[$/kW/yr], annual energy production (AEP) [MWh/kW/yr], and a fixed-charge rate (FCR)[/yr] according to [7]

Let us now calculate a revised LCOE_project that also factors in how new transmission and port infrastructure impacts the value of the new offshore farms. We shall use data from a 2020 LCOE analysis performed by the National Renewable Energy Laboratory (NREL) for the CEC. [7] NREL uses an "industry standard" FCR of 7.2% and predicts the CapEx and OpEx of each farm. It then models each wind farm with 15 MW turbines using annual wind data from Optis et al. and consider many potential losses to derive the net capacity factor (NCF) for each farm. [2,7] A farm's AEP is equivalent to running at full capacity for NCF of the year:

We use the data from Beiter et al. and incorporate the cost of new transmission (T) and port (P) infrastructure to calculate the 2023 LCOE_project for each farm (see Table 2). [7] We adjust the 2020 values of CapEx and OpEx to 2023 using an inflation rate of 20%. We then convert T and P to CapEx by dividing them by generation capacity. We also assume that each wind farm will be made with 100% domestically manufactured materials, which means capital expenses are eligible for a 40% tax credit from the 2022 Inflation Reduction Act. [8] As T and P will be subsidized by sources of federal and/or state funding, we will assume this tax credit also applies to them. We calculate the LCOEs for each project in 2023, both with (1) and without (2) factoring in the cost of new infrastructure:

Factoring in the costs of new infrastructure required to build each wind farm, energy from Humbolt Bay will be about 50% more expensive to produce and transmit than the energy from Morro Bay.

Comparison to Onshore Wind

Let's compare the cost of energy generated by these new offshore wind projects to the cost of energy of a new onshore wind project. According to a 2022 report by the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy, in 2021 the grid-system value of California's onshore wind was $48/MWh. [9] Using a 13% inflation rate, this means that the 2023 LCOE of onshore wind is $54/MWh, making offshore wind about 1.7 times more expensive than onshore wind without factoring in new infrastructure costs.

Since onshore wind farms have been commercialized in California for years, new onshore wind farms can rely on existing production infrastructure, but new onshore wind also needs significant transmission investment. [9] In 2019, Gorman et al. found that U.S. onshore wind projects from 2007 to 2018 with LCOEs of $29-56/MWh had added levelized transmission costs of $1-10/MWh. [10] As our onshore wind LCOE is $54/MWh, let's assume that new transmission costs would be $10/MWh, making the LCOE_project of a new California onshore wind project $64/MWh. This means that the LCOE_project of new offshore wind energy from Humbolt Bay is 2.4 to 2.8 times more expensive and the LCOE_project of new offshore wind energy from Morro Bay is 1.6 to 1.9 times more expensive.

Conclusion

California has begun a long journey into utilizing large offshore wind farms for renewable energy generation. While offshore wind farms have high capital costs and are more challenging to service than onshore wind, they tap into virtually unlimited ocean space and have more reliable hourly power output than onshore wind. [2] Of the two offshore wind sites California is developing first, Morro Bay has a better value for its energy than Humbolt Bay (Table 2). Energy from onshore wind is significantly cheaper than energy from offshore wind, but California is clearly set on developing offshore wind regardless.

© Ben Kroul. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.

References

[1] L. Gill, A. Gutierrez, and T. Weeks, "2021 SB 100 Joint Agency Report," California Energy Commission, CEC-200-2021-001, March 2021.

[2] M. Optis et al., "2020 Offshore Wind Resource Assessment for the California Pacific Outer Continental Shelf," U.S. National Renewable Energy Laboratory, NREL/TP-5000-77642, October 2020.

[3] F. Scott et al., "Offshore Wind Development off the California Coast: Maximum Feasible Capacity and Megawatt Planning Goals for 2030 and 2045," California Energy Commission, CEC-800-2022-001-REV, August 2022.

[4] E. Edwards et al., "Evolution of Floating Offshore Wind Platforms: A Review of At-Sea Devices," Renew. Sustain. Energy Rev. 183, 113416 (2023).

[5] M. Trowbridge et al., "California Floating Offshore Wind Regional Ports Assessment," U.S. Bureau of Ocean Energy Management, BOEM 2023-010, January 2023.

[6] J. Lim and M. Trowbridge, "California Floating Offshore Wind Regional Ports Feasibility Analysis," U.S. Bureau of Ocean Energy Management, BOEM 2023-038, June 2023.

[7] P. Beiter et al., "The Cost of Floating Offshore Wind Energy in California Between 2019 and 2032," U.S. National Renewable Energy Laboratory, NREL/TP-5000-77384, November 2020.

[8] "Inflation Reduction Act of 2022," Pub. L. 117-169, August 16, 2022, 136 Stat. 1818 (2022).

[9] R. Wiser and M. Bolinger, "Land-Based Wind Market Report: 2022 Edition", U.S. Office of Energy Efficiency and Renewable Energy, DOE/GO-102022-5763, August 2022.

[10] W. Gorman, A. Mills, and R. Wiser, "Improving Estimates of Transmission Capital Costs For Utility-Scale Wind and Solar Projects to Inform Renewable Energy Policy", Energy Policy 135, 110994 (2019).