Citing an immature market and a difficult regulatory and political environment, Gamesa and its collaboration partner Newport News Shipbuilding have suspended the development of Gamesa's G11X-5.0 MW offshore wind prototype – a decision that is highly reflective of the uncertainties and challenges currently plaguing the U.S. offshore wind energy market.
In March, the Virginia Marine Resources Commission approved Gamesa's plans to deploy the 5 MW offshore wind prototype in the Chesapeake Bay – an installation the company planned to complete in 2013.
When the companies launched the offshore wind initiative back in 2010, they expected the U.S. offshore wind power market to quickly flourish. The reality, however, is that regulatory red tape, logistical barriers and policy uncertainty have stalled U.S. offshore wind development.
"Without a mature offshore wind market in the United States, it is extremely difficult to justify the enormous expenditure of capital and utilization of engineering and technical resources that would be needed to build and install a prototype in the U.S.," Gamesa said in a statement announcing its decision.
"While there have been improvements to siting in federal waters, regulatory issues still affect the level and speed at which projects can be approved," the company added. "The pace of growth is further delayed by the lack of an offshore grid."
Another reason why Gamesa put the brakes on the project is that the company likely would be unable to find financing for U.S. offshore wind projects if the production tax credit for wind power is not extended beyond its year-end expiration.
Gamesa and Newport News Shipbuilding are now finishing up what they call a "critical design review" (CDR) of the offshore prototype project, which has focused on improving turbine reliability, servicing requirements, civil engineering efficiencies in infrastructure development, and the cost of offshore wind energy.
When the CDR is complete, Gamesa will also shut down its Offshore Wind Technology Center, which opened in February 2011 in Chesapeake, Va.
Instead, Gamesa is turning to other markets with more favorable offshore wind environments, such as its native Spain. On the same day the company announced its decision to suspend the development of its G11X-5.0 MW prototype in the U.S., it said it was launching the permitting process for the installation of a 50 Hz 5 MW offshore prototype – the G128-5.0 MW – in Spain's Canary Islands.
The plan is to have that prototype installed in the second quarter of 2013 and an offshore wind farm permitted for the site by late 2013 or early 2014.
According to Gamesa's CEO and chairman, Jorge Calvet, the company's decision to focus on European offshore wind markets was a direct result of the favorable policy schemes already in place there.
"The authorities are firmly committed to the development of offshore wind power in major markets such as the U.K., Germany, France and China," Calvet said in a statement. "Based upon the current situation, the U.S. market appears to be set to develop later than others. Regional and country-specific market conditions warrant an even more rational decision-making process than ever, from both the technology and financial standpoints."
Gamesa notes that it will continue its work in the U.S. onshore wind market, as well as resume development of a 60 Hz version of the G11X-5.0 MW platform if the U.S. market develops. The company says it will closely monitor the U.S. market to "act quickly on future opportunities."
Gamesa is not alone in its decision to tread cautiously into U.S. offshore waters. Last December, NRG Bluewater Wind announced it was halting active development of offshore wind projects, including the Mid-Atlantic Wind Park, which had been planned off the coast of Delaware.
The company had secured a 200 MW power purchase agreement (PPA) with Delmarva Power and Light – the first offshore wind PPA in North America – but terminated the agreement after it was unable to find a buyer for the rest of the project's output. NRG is continuing to pursue a lease for the Delaware Mid-Atlantic Wind Park and expects to have one by mid-year.
In the absence of an already established market, investors have been hesitant to take on what they consider high-risk offshore wind projects. As a result, developers have been unable to find the financing they need to complete these high-cost projects.
‘Projects need to make economic sense to be successful,’ Brian Redmond, managing director at Boston-based CP Energy, told NAW last December. ‘Offshore wind will be competitive at the right scale and with the right technology. That process is under way, but it will take time to put these capabilities and resources in place.’