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Emboldened by Vineyard Wind progress, Avangrid sees more offshore opportunities

As the Vineyard Offshore Wind Project sails toward a commercial operations date in either 2021 or 2022, Avangrid Renewables LLC's top executives are surveying the burgeoning U.S. offshore space beyond their maiden project, with high demand from project finance lenders powering their optimism.

Project company Vineyard Wind LLC, in which Avangrid Inc. and Copenhagen Infrastructure Partners K/S each have a 50% stake, in December 2018 hired Santander Bank NA to advise on a debt raise and CCA Group LLC to advise on tax equity financing.

"The initial interest has been very strong, so [any] fears that we wouldn't have people willing to dive into this have not materialized," Avangrid Renewables President and CEO Laura Beane said at a press briefing following the company's first Offshore Wind Day at the New York Stock Exchange on June 4.

"Where I had heard the most concern with regard to capacity, if this did take off, was on the tax equity pieces. However, with the [investment tax credit] phasing out, unless something is renewed, that will not be a component of the financing in the future," Beane said.

About 56% of the 800-MW project's construction will be financed with construction debt, with sponsor equity representing about 16% of the capital structure, according to an investor presentation by Avangrid. Turbine supply finance, which will be guaranteed by the sponsors, accounts for the remaining 28%.

SNL Image

The 30-MW Block Island offshore wind project off the coast of Rhode Island, which went online in 2016, was the first offshore wind project in the U.S. Three years later, offshore wind projects command a much larger share of the renewable sector's attention. Among these is Vineyard Wind, which is co-owned by Avangrid and Copenhagen Infrastructure Partners.
Source: Deepwater Wind LLC

Good soil conditions and water depths make the Northeast the most attractive region to build offshore wind, said Alejandro de Hoz, head of U.S. offshore wind at Avangrid Renewables, though he noted that Northern California will be an attractive future development site.

"This will require a floating technology, and therefore we will still have to wait a few years before this becomes a reality," de Hoz said.

The Gulf of Mexico off the Texas coast and the Great Lakes also show some promise, de Hoz and Beane said, adding that the company is surveying all opportunities.

Expanding south

Unlike the more uncertain prospects for future development off the Gulf and Pacific coasts, plans for additional projects on the East Coast are quickly materializing, according to Beane.

"In addition to the immediate priorities of getting the Vineyard Wind project consented and then under construction, we also have a team of folks that are working on longer-term opportunities," Beane said.

The Kitty Hawk offshore wind project, situated on a lease area 25 miles off the coast of North Carolina, is in early stages of development, with surveying already started and a site assessment plan expected to be submitted by the end of 2019. A construction and operations plan should be submitted by 2021.

While North Carolina is not as ideal an environment for offshore wind as New England, it still represents attractive real estate, Beane said.

"It has lower wind resource than what you see in New England but with the advances that we will see in technology, we are confident that it will be able to support competitive projects, up to 2.5 GW," the CEO said.

The biggest hurdle for Kitty Hawk in terms of timing will be the development of the market. "We are confident that the market will develop but we are estimating that it will support an online date of somewhere between 2025 and 2029, so a much, much longer wait time than some of our other projects," Beane said.

Meanwhile, Vineyard Wind's project company obtained a second lease near its project site offshore Massachusetts in the U.S. Bureau of Ocean Energy Management's competitive December 2018 auction.

"We felt really strongly that this would be a competitive advantage for us," Beane said of the purchase, noting that the lease area has already been used to bid into a New York solicitation for proposals in February. The project company submitted three different bids up to 1,200 MW, according to Beane.

Continental challenges

Third-party analyses have projected that by 2040, U.S. offshore wind capacity will grow to about 35 GW to 36 GW, said de Hoz. The U.S. Department of Energy has set a target for 86 GW of offshore wind generation by 2050.

"It is perfectly feasible" that the offshore wind industry could meet that figure if it replicated the pace of the onshore wind industry, de Hoz said, noting that in the past five to seven years, the onshore wind industry has averaged more than 7 GW of installed capacity annually.

While some wind developers that are used to the European landscape will need to adapt to a different business and regulatory environment in the U.S., de Hoz said the magnitude of that potential obstacle may be overblown.

"Obviously permitting is going to be different in the U.S. than in other countries, the financial incentives are also different, supply chain might have some specificities that make it different as well," he said. But whether those differences represent pitfalls, de Hoz said Avangrid's view remains, "We don't think so."