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With Mass. auction, NJ lease purchase, Shell pushes on US offshore wind future

Royal Dutch Shell PLC sees the oil company's renewable energy segment becoming a key player in the United States' growing offshore wind sector, starting with its $135 million winning bid for a lease off the coast of Massachusetts and the purchase of another lease off of New Jersey.

Shell New Energies US LLC's primary focus within the U.S. offshore wind sector will be on northeastern states that have established aggressive renewable portfolio standards, John Hartnett, business opportunity manager for Shell's U.S. wind operations, said in an interview with S&P Global Market Intelligence. In the long run, the company is also keeping an eye on mid-Atlantic states, such as Virginia, as well as the West Coast, where federal regulators are piquing the industry's interest in development.

State procurement goals are "a very needed component because you have a nascent industry in the U.S.," Hartnett said. "But it is an industry that has taken off in Europe and we're looking to take the experience and success in Europe, combining that with offshore energy industry in the U.S. to help these states meet ambitious targets."

Building on experiences in Europe, Shell's U.S. ventures are being done with joint venture partners. Mayflower Wind Energy LLC, a venture with Portugal-headquartered EDP - Energias de Portugal SA subsidiary EDP Renewables North America, was one of the three developers to on Dec. 14 win a lease in the U.S. Bureau of Ocean Energy Management's two-day wind energy lease auction for territory off of Massachusetts. Mayflower's 127,388-acre lease could be developed to support up to 1,600 MW.

Shell has also formed another offshore wind joint venture, Atlantic Shores Offshore Wind LLC, with EDF Renewable Energy Inc., a branch of France-headquartered Electricité de France SA, to purchase a 183,353-acre lease from US Wind Inc. for $215 million off the coast of Atlantic City, N.J., a deal announced Dec. 20. If fully developed, the lease could support about 2,500 MW of offshore wind capacity.

For Shell, the lease purchases represent a broader strategy to tap into the offshore wind market in the U.S. and worldwide. Shell has one operating project in Europe and is part of a consortium to build two additional projects in the continent, but the company is looking at more opportunities outside of Europe's well-established offshore wind market. In October, the energy giant joined the Global Wind Energy Council as a board member and will participate in the trade group's global offshore wind task force, which is focused on accelerating offshore wind development in non-European markets such as United States. Shell is also a board member of the U.S. Department of Energy-funded offshore wind research and development consortium, which is focused on addressing the country's specific offshore wind technology issues.

"Participating and joining the Global Wind Energy Council is really pretty important part of growing our portfolio," Hartnett said, adding that it positions Shell to have a bigger role in emerging offshore wind markets' acceleration. "Working with both [groups], we can play a key part in the development of this industry."

State of the market

Much of the interest in U.S. offshore wind can be attributed to states' strong renewable energy programs, Hartnett said. Local governments have been able to look at European country models to develop solicitation practices that will suit each state's individual needs and move the industry forward.

With that said, there is still work to be done with the young sector's supply chain, he added. Europe has been able to build out its supply chain, with major turbine manufacturers, foundation makers and vessel builders strategically located for project installations.

"These are massive projects with very large wind turbines that are now approaching 10 MW," Hartnett said. "That supply chain for this specific industry unfortunately doesn't exist in the U.S."

Project developers, engineers, politicians and other industry players have been working together to create a more robust supply chain in the U.S. States from Virginia to Massachusetts want to be the East Coast's supply chain hub to have a first-mover advantage, but "first-tier" suppliers such as turbine manufacturers have yet to set up shop like project developers have.

"In the U.S., we certainly have the capabilities. And we can take where they brought the costs down to a point," Hartnett said. "I think the U.S. engineering sector and the U.S. manufacturing sector will be able to go from there and help build a very efficient model here."