Guest blog by S. A. Shelley
Californians do not need big and very expensive offshore floating wind farms. In fact, nobody needs big and very expensive offshore floating wind farms. Fixed offshore wind farms started out very expensive, requiring significant government subsidies, but small. They have since matured to allow for big inexpensive offshore wind farms with no government subsidies of any kind. The latest fixed offshore wind farms are producing and supplying electricity to their grids at a cost competitive rate compared to the current supply, and this is a result of technological evolution, improved execution strategies and increasing turbine size (power output). However, floating offshore wind technology is still in the nascent, small and heavily subsidized phase of the technology lifecycle. Yet, for some reason, various consortia are pitching huge floating wind farms right off the bat to California. That’s a big problem and folks in California need to watch that they do not get forced to subsidize those projects.
Let’s take a look at two proposals for floating offshore wind farms currently in vogue in California, Morro Bay and Humboldt Bay. Morro Bay has been in the sights of offshore wind developers for many years, and in 2015 Trident Winds even presented at a public information workshop for the city of Morro Bay. Originally the project was supposed to be 1GW of floating wind, but in 2016 it was scaled back to around 765 MW but now it’s back up to 1 GW and back in the news. But for the purposes of this evaluation, let’s examine the economics of the Morro Bay farm of around 765 GW using the OWOE online sizing tool. For turbine size, I’ll assume 8 MW (which works out to be 96 turbines). Input the distance offshore of 33 miles, water depth, net capacity factors, etc, and the free OWOE online tool yields a total project cost of around $8,140,000,000 (Figure 1) – that’s not a typo, but 8 billion dollars.
But what does that mean, financially? One can then take the capex output from the OWOE tool and input it into other financial tools to calculate NPV (Net Present Value), IRR (Internal Rate of Return) and LCoE (Levelized Cost of Electricity). NREL has an online LCoE calculator that also defines LCoE and various factors used to calculate it. Or, one can continue with the subscription OWOE tool to get some additional financial output (Figure 2). Financial analysis suggests that the Morro Bay project will lose around $4 billion, yielding a negative return of close to 14%. This means that for Morro Bay to work, someone will need to throw money into the project such as in the form of massive subsidies or outright grants. Hopefully, it will not be the residents of California who already suffer from some of the highest electricity rates in the country.
Now let’s consider the Humboldt Bay project a bit further north along the coast. This project is a bit smaller in scope, consisting of around 120 MW of 8 MW turbines. Again, using the free OWOE online sizing tool, we arrive at a total project cost of around $1.37 billion (Figure 3). Looking a bit further at the finances (Figure 4) suggests that Humboldt Bay will lose around $740 million, yielding a negative return of close to 15%. Again, someone will need to throw additional money into the project. Who will that be?
Can the costs from the OWOE online tool be trusted? Absolutely. If the reader is so inclined, the reader is welcome to verify the OWOE online tool against a couple of other floating wind projects, one operational, HyWind Scotland ($285M quoted cost vs. $280M OWOE excluding $22M finance costs), one being developed, Kincardine ($450M quoted cost vs $450M OWOE), and one cancelled for being too expensive, WindFloat Pacific ($210-250M quoted cost vs $240M OWOE excluding $47M DOE grant).
So why do consortia keep pitching big floating offshore wind farms? Because they can still make a lot of money from subsidies and selling green energy credits in the secondary markets, regardless of how commercially challenged their technology is and because they are trying to achieve large enough economies of scale to hopefully force their technology to be commercially viable.
Some readers may argue that the total social benefits of having clean power are worth dumping $billions in subsidies into massive floating offshore wind projects. I’d argue that those same readers should wait a couple of years until the next generation floating wind farm technology arrives, technology that has been designed from the outset to be commercially effective without any government subsidies. Or better yet, California should work first to utilize all available onshore green power, especially solar, with energy storage before venturing offshore for wind power. When California does venture offshore, it should start small and use next generation commercially viable floating wind technology. California does not need big, very expensive wind farms now. Nobody does.Published by Our World of Energy
It seems that bashing Tesla is the favorite topic for the financial news media. Whether it’s a story about Tesla’s profitability, production woes, product quality, lack of a real market, impending competition from “real” automakers like Volkswagen, or the behavior of Elon Musk, the message is clear – Tesla is all hype with no substance and destined to fail. Apparently, the only question is when. In the present world of “fake news”, social media “bots”, and a news climate that only values the bad, how does a normal person wade through all the BS and make a good decision on what car to buy? Well, I have the answer…just go drive a Tesla Model 3. Until you have the experience of driving a Tesla, you won’t truly understand how it has changed the concept of an automobile. (more…)Published by Our World of Energy
Note from your editor – over two years ago OWOE printed a similarly titled blog The Human Side of the Oil Price Collapse, and shared a story from an expatriate couple living in Angola about the impact on the people of a country where everything is directly or indirectly dependent on oil. This blog by an engineer in Houston brings the situation closer to home and shares how she and her family have coped and even prospered.
Guest blog by Ms. Kelley Ellis
My husband and I are native Houstonians. We were kids in the 80’s when the oil market crashed, and although neither one of us had parents in the oil business to be impacted directly, like all families in Houston, the economic downturn trickled into our families’ realities. So when we got married soon after I graduated from Texas A&M at Galveston in 2000 with a degree in Maritime Systems Engineering as oil prices climbed back up from a 1998 low, we knew that my job would never offer the stability that his job as a firefighter offered. (more…)Published by Our World of Energy
By W. H. Luyties, editor OWOE. Recently, OWOE initiated a series of blogs to take a closer look into the key US government actions to promote fossil fuels. Since the 2016 election, one lightening rod topic has been the push to increase coal and oil production in the US. This has energized both proponents of fossil fuels, who see an opportunity to possibly save their industries (coal) or increase production (petroleum), and opponents, who fear the environmental consequences of such a change. But is this a real threat to the global move away from fossil fuels, or is it simply rhetoric to energize a political base? (more…)Published by Our World of Energy
Guest blog by S. A. Shelley
Are we on the cusp of mass adaptation of Electric Vehicles (EVs) for transportation? Probably not for at least a while longer. When doing the financial analysis comparing EVs to Internal Combustion (IC) Vehicles at the personal or family level, the comparison usually yields these results: (more…)Published by Our World of Energy
Guest blog by S. A. Shelley
I love the guys and gals over at Lawrence Livermore National Laboratory (LLNL). They tend to produce some of the coolest energy studies with nifty graphics (all the while hiding the space aliens from us). Earlier this year, as it does every year, LLNL published the U.S. energy flow chart which illustrates total US energy production by source and how it is consumed. (more…)Published by Our World of Energy
By W. H. Luyties, editor OWOE. With the election of Donald Trump as president of the US and control of all 3 branches of the government in the hands of Republicans, who have historically been strong supporters of fossil fuel interests, one lightning rod topic has been the push to increase coal and oil production in the US. This has energized both proponents of fossil fuels, who see an opportunity to possibly save their industries (coal) or increase production (petroleum), and opponents, who fear the environmental consequences of such a change. But is this a real threat to the global move away from fossil fuels, or is it simply rhetoric to energize a political base? (more…)Published by Our World of Energy
There is no doubt that the practice of net metering for residential solar photovoltaic systems has been a key enabler of the rapid growth of rooftop solar generation in the United States (see OWOE: How does net metering encourage private investment in home solar systems?). But has it outlived it usefulness? Or, has it even become a barrier to greater renewable penetration into the marketplace?
Guest blog by S. A. Shelley
Revenue Trap: ” A focus on revenue at the expense of weakened strategy and reduced profits.”
Oil prices seeming to whipsaw back and forth, weekly, daily, even hourly is the result of many oil and options traders clearing trades at whatever slim profit they can eke out. Of course, multiply that slim profit by the huge volumes traded and well, Wall Street still makes a hefty profit whether oil is up or down.
Other folks are starting to talk about oil supply and demand hitting a new equilibrium, or that shale production has peaked. Fair enough. In fact, I agree that efforts to constrict oil supply are starting to have some effect. I doubt however that restricting oil supplies will be effective in the long run. OPEC claims that compliance with the production quotas is strong, but on the other hand, some OPEC members have recently vowed to opt out of the quotas and to even increase production. Don’t forget about some of the African members of OPEC who were free to pump and sell as much oil as they could. (more…)Published by Our World of Energy