U.S./European Cost Comparison Study Preliminary Results Walt Musial Principal Engineer Manager of Offshore Wind National Renewable Energy Laboratory March 6, 2018 Offshore Wind Industry Update Briefing

U.S. Wind Vision Study - 35% of Electricity From Wind by 2050 Today Offshore 35% US Wind Electricity Offshore – 86 GW Land-based – 318 GW Land-based Land-based Wind Cost Offshore Wind Cost Declining Offshore Wind is 20% of Total U.S. Wind Energy by 2050 U.S. Wind Vision Study Scenario Estimates 86 GW from Offshore DOE. 2015a. Wind Vision: A New Era for Wind Power in the United States. U.S. Department of Energy Office of Energy Efficiency and Renewable Energy. DOE/GO-102015-4557. Washington, D.C. Accessed May 2015. http://www.energy.gov/sites/prod/files/WindVision_Report_final.pdf

U.S. Offshore Wind Market Overview – North Atlantic 30 MW Block Island Wind Farm 2400 MW 1600 MW 3500 MW 350 MW Market Evidence 13 offshore lease areas with exclusive site control 13.3 GW of capacity potential in leased areas 4 states with specific offshore wind “above market” off- take policies (Massachusetts, New York, New Jersey, and Maryland) 4 new lease areas requested – new areas may be deeper Data Source: Musial, W. et al (2017) “2016 Offshore Wind Technologies Market Report” U.S. Department of Energy Report, August 2017. https://energy.gov/sites/prod/files/2017/08/f35/2016%2 0Offshore%20Wind%20Technologies%20Market%20R eport.pdf Estimated Market – 5.45 GW (MA, NY, and MD have all proposed further increases)

Adjusted European Strike Prices Show 65% Reduction Why are costs coming down? Technology improvements Lower risk Maturing supply chains Increased competition

Preliminary Results From: Key Questions Where will offshore wind prices end up? What are the risks that may prevent these prices from being economically viable? How will these prices/costs translate to initial projects in the United States? (see pending publication) Can the United States eventually achieve the same price point as Europe (or better)? What new technology, infrastructure, or domestic policies are needed to gain parity? Preliminary Results From: P. Beiter, P. Spitsen, W. Musial, E. Lantz, Assessing Initial U.S. Offshore Wind Project Costs, National Renewable Energy Laboratory, Publication Pending

Long Island Power Authority Initial U.S. Offshore Wind Price Points Projects with Offtake Agreements All prices are estimated by NREL and may not reflect the actual price negotiated   Block Island Wind Farm South Fork US Wind Skipjack Developer Deepwater Wind Project Location Rhode Island New York Maryland Delaware Size 30 MW 90 MW 248 MW 120 MW Nominal Price (Year $) $244/MWh (2013) $160/MWh (2017) $131.93/MWh (2012) Real Price (2016$) $251.38/MWh $155.68/MWh $137.91/MWh Year Signed 2010 2017 Project COD 2016 2022 2023 Contract Length 20 years Type PPA OREC Counterparty National Grid Long Island Power Authority Maryland Utilities [1] The exact details of the power purchase agreement between Deepwater Wind and LIPA have not been made public. The estimate price included in this analysis come from Cardwell (2017).

US Offshore Wind Price Point Takeaways Number of projects too small for meaningful estimate Average project size below commercial optimum, prices may be high All prices are preliminary: NREL estimates may not reflect the actual price $137.9 MWh may be the price point to beat set by Maryland ORECs Next price point likely to come from Massachusetts

Estimating LCOE for Initial U.S. Projects NREL approach for market-based derivation of LCOE for early, commercial-scale offshore wind projects in the U.S. with a hypothetical commercial operation date in 2025 Select reference sites to compare U.S. and German projects Estimate German reference LCOE from price data Assess key similarities and differences between U.S. and German reference projects Develop driving assumptions and estimate cost differences for each cost category Estimate LCOE for Initial US Projects

Key Assumptions for Cost Comparison Same Turbine rating: 10 MW for both German and U.S. projects – no adjustment Jackets substructures fabricated domestically – no adjustment Nacelle imported from Europe for U.S. project - Added mobilization costs Tower imported from Europe for U.S. project - Added mobilization costs Blades imported from Europe for U.S. project - Added mobilization costs U.S. developer is fully burdened with grid connection costs Higher contingency and procurement prices for U.S. project due to higher risk Less favorable financing conditions for U.S. project due to higher risk Lower capacity factor for U.S. project (based on actual wind speeds) Note: U.S. capacity factor based on the average BOEM lease areas in the Northeast. The German project was based on the average capacity factor of the four German projects from first offshore wind auction.

Key Finance Parameters for German and U.S. Reference Sites German reference site U.S. reference site Inflation rate (%) 2.5 Interest rate (nominal) (%) 4.4 Project useful life (years) 30 Interest during Construction (%) 8.0 12.0 Construction Finance Factor (%) 107.5 109.8 Share of debt (%) 75.0 70.0 Target after-tax IRR (nominal) (%) 6.0 Effective income tax rate (%) 40.2 Source: Green Giraffe (2016) and NREL research

Cost Differences Between the U.S. and German Reference Sites

Key Opportunities for US Offshore Wind Cost Reduction Grid infrastructure – Grid aggregation accounts for 20% of the cost premium at US site. Marine Operations – Immature/insufficient access to vessels, ports, and construction support capabilities account for 15% of cost premium Risk and Financing – Actual and perceived risk for offshore may be contributing 33% additional cost over European projects Site Selection – Higher wind speed at selected European sites account for 32% of the additional cost to US projects US Offshore Wind Industry has the potential to mitigate most of the observed cost differential between current European bids and future US Projects placed in BOEM lease areas

Thank you for your attention! Walt Musial Offshore Wind Manager National Renewable Energy Laboratory walter.musial@nrel.gov Photo Credit : Dennis Schroeder-NREL