Rhode Island “Energy 2035”: Economic Outcomes of an Increased Offshore Wind Energy Target

Abstract

This thesis explores changes to current Rhode Island energy policy that may increase the profitability of Deepwater Wind’s Block Island Wind Farm (BIWF) offshore wind farm. The BIWF project has gained only modest investment, despite winning leasing rights to a high-velocity wind area capable of supporting a much larger offshore wind operation. In 2015, the Rhode Island Division of Planning (RIDOP) promulgated a proposal entitled “Energy 2035” that put forth a suggested Renewable Energy Standard (RES) for offshore wind of 180 megawatts (MW). The research conducted throughout this thesis aimed to understand the impact of Rhode Island’s RES on the profitability of the BIWF. I assumed that through improved markets for energy generated from offshore wind markets, the BIWF project will better attract investment for a larger project as a larger project will make more efficient use of fixed costs. Furthermore, this research endeavored to understand the potential for an increased role of offshore wind in the RES targets to provide an economical alternative to Rhode Island’s energy consumers while also improving benefits to the local economy. Specifically, the profitability of the BIWF was analyzed within the context of three hypothetical scenarios of an increased RES (10%, 20%, 30%, compared to current goals). Each scenario examined a proposed expansion of the BIWF project equal to that of the target increase. The goal of this research was to discover whether within at least one of these three scenarios consumer prices can be reduced by up to 10% and net present value (NPV) can improve by as much as 20%. Additionally, the results of this research were intended to indicate whether energy produced by the BIWF could at least break even under the average price of electricity in Rhode Island, while also tripling the amount of long-term annual jobs generated by the BIWF, currently predicted to be 17. Within each scenario, the change in breakeven prices, internal rate of return, net present value, and benefits to the local economy were predicted. Data on pricing, investment, and energy generation was gathered from Deepwater Wind filings prior to construction, the U.S. Energy Information Administration, and from outputs generated by the National Renewable Energy Laboratory’s (NREL) Jobs and Economic Development Index (JEDI) model. The cost of energy generation from the BIWF was calculated using levelized cost of energy (LCOE) calculations and compared with natural gas using levelized avoided cost of energy (LACE). The case for investors under each of the augmented scenarios included calculations of net present value (NPV), internal rate of return (IRR), and cash flow analyses. Net benefits to the local economy made use of the JEDI model. Additionally, the amount of carbon dioxide equivalent (CO2e) displaced by offshore wind was quantified, as will the associated cost of mitigation. Economic results produced by the JEDI model indicated that impacts in job creation and local economic output can be increased by as much as 30% when the BIWF is expanded to 234 MW (30% higher than the 180 MW target in Energy 2035). Moreover, annual job creation and economic output increase by factors of 7.3 and 7.2 respectively under the 234 MW scenario versus the current 30 MW wind farm. Breakeven prices of electricity predicted from a expanded BIWF were less than half of the PPA price currently in place for the BIWF, indicating potential for lower end prices for consumers. Financial models run on data extrapolated from the current Deepwater Wind cash flows and the U.S. Energy Information Administration (EIA) indicate a significant risk of negative NPV and a partial risk of below-average IRR. The JEDI model results, however, predicted considerably higher IRR and NPV, which would indeed be attractive to potential investors. A key distinction between the JEDI model results and results from other models is that capital expenditures (CAPEX) were predicted to be much lower in the JEDI models, indicating a critical importance of CAPEX reduction for improved offshore wind investment theses. The significance of this research is understanding the precedent that the BIWF’s success or failure will establish for planned and future offshore wind projects in the U.S.; investors will likely look to this case as a template for cost-to-benefit assumptions. Exploring the potential changes in project costs across various project sizes allows stakeholders to weigh the offshore wind status quo against policy intervention options.