U.S. Offshore Wind Supply Chain Optimization and Bottleneck Analysis
U.S. Offshore Wind Supply Chain Optimization and Bottleneck Analysis
The offshore wind industry is growing globally; yet in the United States, offshore wind developments have lagged behind the rest of the world. One of the key factors impeding the growth of offshore wind in the United States is the supply chain, or the development, procurement, transportation, and installation or decommissioning of offshore wind facility components throughout the lifecycle of the wind farm.
Optimization of the supply chain for offshore wind is necessary in order to minimize costs associated with developing offshore wind farms and reduce the reliance on controversial subsidies faced by wind developers. The offshore wind market in the United States currently faces limited investment, and the length of applicability of subsidies is too short for project developers to appropriately budget a long-term capital investment (Poulsen & Lema, 2017, p. 759). The purpose of debottlenecking the supply chain is to pinpoint barriers in the expansion of the offshore wind industry in the United States and to identify cost reduction points in order to reduce reliance on subsidies for profitable investments.
This report will focus on supply chain optimization and bottleneck identification. First, an overview of the supply chain will be provided with a review of wind supply chain literature; then, an explanation of key bottlenecks will be covered, with an emphasis on problems surrounding the Jones Act and U.S. manufacturing capabilities. The remainder of the report will focus on potential solutions to these bottlenecks, including the long-term subsidization of offshore wind, including installation vessel development and turbine component manufacture. A deep dive into the supply chain bottlenecks and associated costs will follow, and future predictions will conclude the report.
Literature Review
Supply chain optimization has been a topic of a multitude of researchers and consultants in the past, especially surrounding the wind industry, and this report focuses on a few particular studies. Aalborg University, the U.S. Department of Energy, and Navigant Consulting have prepared three separate reports that provide a detailed analysis of the supply chain and associated logistics. Additionally, New York State Energy Research and Development Authority has prepared a study describing bottlenecks involving installation vessels. These four reports provide a variety of inputs for this analysis of the potential opportunities for optimization and debottlenecking in the offshore wind supply chain.
The offshore wind supply chain focuses on the entire lifecycle of the wind farm, including component manufacture, transportation, installation and commissioning, operations and management, and decommissioning (Poulsen & Lema, 2017, p. 762). The major components of an offshore wind farm include the wind turbine blades, towers, generators, and other associated mechanical components, along with offshore substations, array and export cables, onshore substations, and operations and maintenance centers (Hamilton, 2013, p. xvi).
An often-overlooked component of the supply chain is the transportation and installation costs associated with the initial capital investment. In the offshore wind industry, many difficulties are faced when transporting wind turbine components due to their large dimensions, as shown in figure 1 below (Holody, 2014, p. 77).
Figure 1. Truck transporting segment of wind tower (Holody, 2014, p. 77).
Wind turbine blades and towers are inherently oversized loads, often stretching over 200 feet. The cost to transport these materials varies by the mode of transportation. Wind turbine tower transportation by rail costs approximately $1.00-$2.00 per mile per section, on top of short haul costs associated with truck transportation to the railway (Holody, 2014, p. 77). The costs for transportation by truck are upwards of $4.00 per mile per section, without the loading and unloading costs. The overall cost for long distance travel from Michigan to Massachusetts has been estimated to be between $50,000 and $70,000 per tower section, plus costs associated with preparing a transportation route with such large components at typical price tags ranging from $100,000 to $200,000. Long distance transport for towers of turbines larger than 3 MW can pose an even greater challenge, as the diameter and length of these components scales up with the capacity (Holody, 2014, p. 77). Offshore turbines are often rated at around 8 MW per tower, with plans to grow larger in time (Runyon, 2017). Tower diameters are between 5 and 6.5 meters for 5 MW turbines, and challenges associated with underpasses, road width, and safety have increased the cost of route preparation drastically for large turbines.
The lack of appropriate transportation methods has been identified as a bottleneck in the offshore wind supply chain. According to the offshore wind supply chain report performed by Aalborg University, bottlenecks are defined as “Imbalances in the supply chain where the supply chain capacity is smaller than the demand” (Poulsen & Lema, 2017, p. 759). In general, the term “bottleneck” has been commonly used to describe any constriction in the supply chain. In addition to the example of a bottleneck previously identified, other examples include the lack of American-made jack-up installation vessels, and the lack of manufactures located near high wind potential zones, as evident from the National Renewable Energy Lab (NREL) wind capacity map in figure 2.
Figure 2. Wind Capacity of Atlantic Coast (Musial et. Al., 2016, p. 25).
The map from the NREL in figure 2 can be juxtaposed against the maps depicting the locations of wind turbine component manufacturers in the United States, such as the map in figure 3, where red dots depict dedicated turbine manufacture sites and blue dots depict manufacturing sites currently lacking capacity, but with the potential to expand (Holody, 2014, p. xxvii).
Figure 3: Tower manufacturer locations in the United States (Holody, 2014, p. xxvii).
As evident when comparing these two figures, along with maps depicting blade manufacturing sites in the United States, there is a lack of U.S. manufacturing capabilities for large turbines near coastal ports.
The third major bottleneck stems from the lack of installation jack-up vessels that are compliant with the Jones Act. The Jones Act is the common name for the Merchant Marine Act of 1920. The Jones Act limits cargo shipped between U.S. ports to only U.S.-manned and U.S.-built vessels. Unfortunately, the definition of a “port” also includes offshore facilities in American waters (Hamilton, 2013, p. 76). Additionally, the Jones Act requires any American-made subsea cables to be installed by a U.S.-manned and U.S.-built ship, further limiting the vessel options for investors (Hamilton, 2013, p. 72–73). In the United States, there are currently no Jones Act-compliant installation jack-up vessels, and current investors rely on foreign installation vessel companies, such as Europe’s Fred. Olsen Windcarrier and Van Oord (“Lifting,” 2018).
Similar vessels do not currently exist in the United States, but Renewable Energy World has reported the investment by Zentech to develop an offshore wind installation jack-up vessel by the end of 2018 (Runyon, 2017). An offshore wind consulting company, BVG Associates, has also prepared a report predicting the growth in offshore wind in the United States, and has marked the lack of jack-up vessels as a large barrier to growth (“US Job,” 2017, p. 5).
Proposal
After identifying the gaps in the supply chain, multiple solutions can be proposed in the industry in terms of both manufacturing and policy.
The first proposal is to build offshore wind turbine manufacturing facilities capable of manufacturing turbine towers and blades upwards of 12 MW near east coast ports. Current U.S. manufacturing capacities are limited, with facilities near the east coast unable to develop wind turbine blade and tower components for turbines above 5 MW (Holody, 2014, p. xxvii). The trend in the offshore wind industry is towards larger blades and taller towers for higher capacity. With offshore wind turbine components getting larger, transporting these components over land will prove difficult, if possible at all. A policy proposal would be to subsidize the capital investment in turbine component manufacturing facilities for a duration of five years in order to allow manufacturers to procure land and develop a business model within a reasonable timeframe.
The second proposal would be to build American installation jack-up vessels capable of installing 12 MW turbines. These vessels would comply with the requirements of the Jones Act, and would decrease the costs of shipping turbine components and moving jack-up vessels long distances overseas from Europe, similar to the Van Oord vessel shown in figure 4.
Figure 4. Van Oord Jack Up Installation Vessel (“Offshore,” 2018).
A policy proposal would parallel the previous proposal by subsidizing the capital investment in high capacity jack-up installation vessels for five years to allow for flexibility in project timelines. However, as wind developers seek solutions in differing timelines, it is important to look at the immediate, short-term, and long-term possibilities. An immediate solution would be to use foreign ships and a U.S.-built cargo feeder barge system to avoid docking in ports (Cheater, 2017, p. ES-1). This solution has been used with the Block Island project in the past, and is also commonly used in the oil and gas industry for similar processes.
For projects with an installation timeline after 2018, a potential solution could be found through using oil & gas barges and retrofitting them with jack-up components (Runyon, 2017). This solution is being performed by Zentech, and the completed jack-up vessel will be the first Jones Act-compliant installation vessel in the United States. However, this vessel will have a capacity limited at around 9 MW, which could pose limits on projects with larger turbines in scope. For projects with higher capacity needs, the best solution is to “wait it out” until a large capacity jack-up installation vessel is built in the United States (Hamilton, 2013, p. 76).
Analysis
. Locating manufacturing sites at ports on the East coast would eliminate land transportation costs upwards of $300,000-$500,000 per tower, assuming three tower sections per tower (Holody, 2014, p. 77). Barge transportation has been estimated at an order of magnitude lower than land transportation for similar distances, with a cost near $40,000 per tower to get from Michigan to Massachusetts. Factoring in shorter distances to installation sites, yet larger towers, a conservative transportation cost assumption would parallel this value per tower, equating to around $260,000 saved per tower at a minimum.
Major gaps also exist in generator manufacturing capacity. Few U.S. producers are capable of producing generators larger than 3 MW without significant site advancements. Additionally, the generator dimensions pose a transportation challenge. Castings and forgings are also highly expensive, as current U.S. capabilities are limited to 2.5 MW turbines, and all castings and forgings currently supplied are shipped from foreign manufacturers in China (Holody, 2014, p. xxxi).
Figure 5. U.S. Industry Scorecard for Castings and Forgings (Holody, 2014, p. xxxi).
In fact, castings and forgings account for up to 23% of total turbine cost (Holody, 2014, p. xxxi). Locating manufacturing sites in the United States would require a large capital investment, but the costs for wind farm developers would be lowered drastically when cutting out shipping costs from China.
The development of U.S.-made jack-up vessels would also decrease costs for wind farm developers by removing the necessity of feeder barges during installation and by decreasing the miles traveled by the jack-up vessel. As jack-up vessels currently navigate from Europe across the Atlantic ocean carrying upwards of five turbine towers, costs for transporting towers via jack-up vessels would be cut by approximately $100,000 per tower, based on current barge transportation cost estimates (Holody, 2017, p. 77). Overall, for a project installing five 12 MW towers, the combination of port-side manufacturing and American-made jack-up vessels would save a wind farm investor at least $350,000 per tower, or $1,750,000 for the overall project, on top of additional savings from local forgings and castings.
Discussion
In 2017, two demand scenarios for 2030 were performed, assuming U.S. installed capacity reaches at least 4 GW by 2030 (green) and at most 8 GW by 2030 (blue).
Figure 6. 2030 estimated Offshore Wind Farm Installations (“U.S. Job,” 2017, p. 3).
The report noted that, in the lower than the low scenario, it was unlikely that a high capacity installation jack-up vessel would be developed. The estimated demand required to profit on an installation jack-up vessel over the mapped timeline was 3.5–4 GW of installed capacity (“U.S. Job,” 2017, p. 18).
Since then, recent news has developed that the state of New Jersey has committed to installing 3.5 GW of offshore wind by 2030, fulfilling the required demand to necessitate development of an American-made installation jack-up vessel with one state alone (Hill, 2018). Additionally, the Danish wind manufacturer Ørsted has pledged to build an office in Atlantic City. Ørsted has also created a joint-venture with transmission builder Evansource, called Bay State Wind, which has pledged to develop a manufacturing site for wind turbine components in Massachusetts.
Until these developments are made, the best course of action for wind farm investors centers around employing the feeder barge technique, advocating for the removal of the Jones Act, or applying for a temporary exception to its requirements. However, these agreements would alleviate many of the key supply chain barriers, and could trigger a chain reaction in the east coast states. If other states follow suit, the demand for an American-made jack-up vessel could be predicted to rise enough to necessitate more than the Zentech vessel, and at which point, offshore wind development in the United States would be cost-competitive with counterparts in Europe. The future of offshore wind in the United States appears laden with growth that could outperform previous predictions, leading to a more profitable industry and a larger renewable energy portfolio in the United States.
References
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