Google Investment Empowers Offshore Wind Industry

Offshore renewable energy could kick off the next billion-dollar “gold rush” in the continent’s coastal waters, and that could be good news for the nation’s ailing manufacturing sector in the coming years.

“Is there an opportunity for it to be a big business? You bet,” says Steve Lockard, CEO of TPI Composites, an Arizona-based maker of wind turbine blades.

His firm recently set up a facility in Fall River, Massachusetts, to test designs for offshore wind turbines, anticipating potential growth in offshore wind power in the northeast, estimated to have a potential 60,000MW generation capacity—about 6 percent of the nation’s overall electricity capacity.

Offshore wind proponents got a big boost recently when Google 

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[GOOG  Loading...      ()   ]announced it would invest in key transmission infrastructure off the US Mid-Atlantic coast, as part of the firm’s on-going, clean-energy investments.

The Internet giant is taking a 37.5-percent stake in this early stage of the investment, “less than $100 million” according to Google spokesman Jamie Yood, but will evaluate additional investment in the project, estimated to cost $5 billion overall, as it progresses.

“We’ve got two goals, one is to push renewable energy forward and the other is make a good return on our investment” says Rick Needham, Google’s director of green business operations, who adds that future investments are also being considered.

“We plan on keeping our options open,” he says.

Google’s investment will allow electricity infrastructure firm Trans-Elect Development to build the “Atlantic Wind Connection backbone,” which could eventually bring 6,000MW of offshore wind power to the energy-hungry markets of the Northeast, where most states also have government mandates to use renewable energy sources.

“With few other renewable energy options ideally suited for the Atlantic coast, [this] project helps states meet their renewable energy goals by taking advantage of their best local resource—abundant offshore wind,” says Needham.

In northeastern North America, a large consumer base nearby onshore and shallow coastal waters should make offshore wind turbine construction easier and more economically feasible.

Needham says construction should begin by 2013, with 350 miles of underwater transmission lines being laid by 2030.

The US Department of Energy set a national goal in 2008 of generating 20 percent of the nation's electricity from wind energy by 2030; the DoE’s called National Renewable Energy Laboratory for offshore wind farms to provide 54,000MW of the roughly 200,000MW of wind power needed to reach that goal. The first offshore wind project in the US was approved earlier this year.

The 454MW Cape Wind project is set to be built five miles off Cape Cod, after years of public controversy, at an estimated cost of $2.5 billion.

But like other forms of renewable energy, wind power is most often more expensive than coal-fired energy, the dominant fuel used for electricity in the US.

Onshore wind power generation costs $60-110 per megawatt and offshore wind power is projected to cost $145-225 per megawatt, according to research firm IHS Emerging Energy Research.

That still puts some wind energy inside IHS’ estimate of $55-65 per megawatt cost of coal-fired energy, and scaling up production of wind energy components, along with some economic growth driving up energy prices, should continue to bring down the price of wind power.

Both the scale of these wind farms—Cape Wind will cover 24 square miles when complete—and the logistics of manufacturing and shipping offshore wind energy components also means it’s tough to outsource.

Because wind-turbine components are so large, transporting them over long distances—over land or sea—usually proves too expensive, says TPI’s Lockard.

He estimates transportation costs at about $14 per mile, once the required longer trailers, escorts and special permits are factored in.

That makes the ideal location for a blade factory about 500-to-800 miles from significant wind farm development, he says, and that’s welcome news for the manufacturing sectors in the coastal Northeast, which have been hammered by the recession.

“States in Northeast are working very hard so they can compete for the main prize, which is the manufacturing and supply-chain jobs” says Rob Gramlich, senior vice president of public with the American Wind Energy Association , AWEA, the wind sector’s main trade group.

Some jurisdictions, like Nova Scotia on Canada’s east coast, are already looking to renewable energy to replace tax revenue from a slowing offshore oil and gas sector.

The province began natural gas production in 1999, but competition with cheaper shale gas and lackluster economic growth in its key US markets have shrunk Nova Scotia’s fossil fuel industry, which has brought $1.5 billion to provincial government coffers to date.

But some analysts see parallels between the early days of fossil fuel exploration and renewable energy development.

“While the value of the renewable energy industry (In Nova Scotia) has yet to rival that of oil and gas by a large margin, you can already see that its job creation will soon match it and likely surpass it,” agrees Fred Bergman, a senior policy analyst with the Atlantic Provinces Economic Council, APEC, a regional think-tank.

He points out that renewable energy has received significantly less government funding to date than the province’s oil and gas sector has since oil & gas resources were discovered offshore in 1979.

“When you add up the investment value of all the renewable energy projects to date, they likely do not match oil and gas investment to date,” he says, adding that it’s still early days in renewable energy development. “But they are rising over time.”

The wind sector could use a few good gusts in its sails.

Between reduced electricity demand in a bad economy, election-time halting of energy policy discussions and a tough lending environment, the sector saw installed megawatts drop 71% in 2Q10 from the same period in 2009, according to AWEA.

While government subsidies and national renewable energy mandates would certainly help, AWEA’s Gramlich says even some attention to logistics, like permitting processes, could also cut development timelines by years.

“Most (offshore wind) regulations were taken from oil and gas and applied to wind,” he says, adding that permitting can take up to eight years. “It’s a very different technology with very different environmental assessments to be done.”

Even with the best alignment of public sector policies and private sector investment, the offshore wind energy sector needs to take a long-term view.

“The future looks pretty good at present,” says APEC’s Bergman, adding that with the onshore renewable energy development to date in Nova Scotia, the clean energy sector could rival oil & gas in tax revenues and employment within a generation.

“Such a scenario could play out over the next 20 to 30 years,” he says. “Like the oil and gas sector, it will not happen overnight.”

TPI’s Lockard agrees, saying that despite now employing 2,500 in three plants since entering the wind energy business in 2002, a long time horizon is crucial.

“No one project is going to justify a plant,” he says, referring to the Cape Wind development. “It’s an exciting time, but it will take a while.”