Opportunities and challenges for a floating offshore wind market in California PIETER-JAN VANDENBRANDE Master of Science Thesis Stockholm, Sweden 2017 Opportunities and challenges for a floating offshore wind market in California Pieter-Jan Vandenbrande Master of Science Thesis INDEK 2017:71 KTH Industrial Engineering and Management Industrial Management SE-100 44 STOCKHOLM Master of Science Thesis INDEK 2017:71 Opportunities and challenges for a floating offshore wind market in California Pieter-Jan Vandenbrande Approved Examiner Supervisor 2017-05-30 Terrence Brown Serdar Temiz Commissioner Contact person n.a. n.a. Abstract The offshore wind energy industry is a rapidly growing industry as solutions are becoming cost-competitive and there is an increasing need to limit greenhouse gas emissions. New floating offshore wind turbine designs now enable the access to previously inaccessible offshore wind resources. In this research, a comprehensive analysis is made of the different factors influencing the macro environment for a potential floating offshore wind energy market in California. The analysis assesses the relevant political, economic, social, technological, environmental, and legal aspects in California. The outcome of this research shows the opportunities and challenges for a floating wind turbine market in California. It is found that there are many opportunities present due to California's political and economic climate. There is considerable support for offshore wind projects on the state level, demonstrated by the active engagement of the governor and the creation of the California Task Force. The large economy and high electricity prices are promising for future projects. Furthermore, wind resources are vast and the technical infrastructure is present, especially Southern California is well suited. There are technological threats present, but these are common for all renewable energy sources and seem unavoidable with the Renewable Portfolio Standards California has set. The main threats are posed by the complex regulatory environment and the financial uncertainty as a result of the lack of federal support. The Jones Act, for example, can be troublesome as it will likely increase costs and delay projects. Furthermore, the social environment and local willingness for such projects was shown to be very important for their success. The state of California has already been working pro-actively on involving the local members of the public in potential upcoming offshore wind energy projects. The research concludes that California offers many opportunities with surmountable threats. Key-words Floating wind turbines; California; PESTEL analysis; market challenges and opportunities Acknowledgements First of all, I would like to thank my thesis supervisor Serdar Temiz, who was inter- ested by my topic and gave me academical direction. Secondly, thanks to Hexicon AB for providing me with the great opportunity to learn about the promising fu- ture of floating wind turbines. Special thanks go to Eduard Dyachuk and Maurice Jenkens for their willingness to answer my questions and helped me find this in- teresting research topic. Thanks also to Edmundo Lazo and Oxana Casu for helping me by providing valuable feedback on the research proposal and final thesis. Finally, my eternal gratitude to my girlfriend Mathilde for supporting me at all times. Contents 1 Introduction1 1.1 Background..................................1 1.2 Purpose and Research Question.......................2 1.3 Delimitations.................................3 1.4 Limitations...................................3 1.5 Research Structure..............................3 2 Literature Review4 2.1 Offshore wind energy overview.......................4 2.1.1 History and current situation....................4 2.1.2 Overview of technological, economic and political aspects...6 2.2 Developments in offshore wind....................... 10 2.2.1 Floating wind turbines........................ 10 2.3 Offshore wind in the United States..................... 12 2.4 Energy Market California.......................... 14 3 Theoretical Framework 16 3.1 Introduction.................................. 16 3.2 External Business Environment....................... 16 3.2.1 PESTEL Analysis........................... 16 3.2.2 Porter’s Five Forces.......................... 18 3.3 Internal Business Environment....................... 19 3.3.1 SWOT Analysis............................ 19 4 Methodology 20 4.1 Research Paradigm.............................. 20 4.2 Research Method............................... 20 4.3 Data Collection................................ 21 4.4 Ethical and Sustainability Issues...................... 21 5 Analysis California 23 5.1 Political..................................... 23 5.2 Economic.................................... 26 5.3 Social...................................... 32 5.4 Technological................................. 34 5.5 Environmental................................. 37 5.6 Legal...................................... 41 6 Discussion 44 6.1 Opportunities and Threats.......................... 44 7 Conclusion 47 A PESTEL Analysis Summary 49 B Opportunities and Threats Summary 56 Bibliography 58 List of Figures 2.1 Installed offshore wind capacity per country...............5 2.2 Cumulative and annual installed offshore wind capacity in Europe..5 2.3 Evolution of European wind turbines over time.............7 2.4 Life cycle of offshore wind farms in Europe................8 2.5 Levelised Cost of Electricty (LCOE) of power generation technologies in Europe....................................9 2.6 Technologies for floating offshore wind.................. 11 2.7 Offshore wind projects development in the US as of June 2016..... 12 2.8 Total electricity generation from renewable sources in California.... 15 2.9 Total installed capacity of renewable sources (2016)........... 15 5.1 Impact of PTC on annual installed wind energy capacity in the US... 27 5.2 Visualization of California’s industry.................... 28 5.3 Average electricity prices in the US in 2014................ 30 5.4 California Cap-and-Trade market visualization.............. 30 5.5 Employment rate in California and the US................. 31 5.6 Question to locals in California: Would you support or oppose off- shore wind energy in Santa Barbara County................ 33 5.7 Map of offshore wind farm sites selected by NREL with the ports and transmission lines............................... 35 5.8 Power characteristic for an average 2016 March day in California... 36 5.9 Offshore wind resources at 90m in the United States........... 39 5.10 Water depths in the US............................ 39 5.11 Technological potential of offshore wind in the United States...... 40 List of Abbreviations BOEM Bureau of Ocean Energy Management CAA Clean Air Act CAISO California Independent System Operator CEC California Energy Commission CEQA California Environmental Quality Act CMSP Coastal and Marine Spatial Planning CPP Clean Power Plan CPUC California Public Utilities Commission CWA Clean Water Act CZMA Coastal Zone Management Act DOI Department of the Interior EPA Environmental Protection Agency EU-ETS European Union Emissions Trading System GDP Gross Domestic Product GDP Gross Domestic Product GE General Electric GW Gigawatt IOU Investor Owned Utility ITC Investment Tax Credit kW Kilowatt kWh Kilowatt-hour LCOE Levelised Cost Of Electricity MW Megawatt NEPA National Environmental Policy Act NIMBY Not In My Backyard NREL National Renewable Energy Laboratory NREL National Renewable Energy Laboratory O&M Operations and Maintenance PCPI Per Capita Personal Income PG&E Pacific Gas and Electric PPA Power Purchase Agreement PTC Production Tax Credit PTC Production Tax Credit R&D Research and Development REC Renewable Energy Credit RPS Renewable Portfolio Standard SCE Southern California Edison SCOE Society’s Cost Of Electricity SDG&E San Diego Gas and Electric TW Terrawatt US United States USDOE United States Department Of Energy 1 1 Introduction 1.1 Background The topic of energy is becoming more important than ever, and rapid economic and technological developments cause an ever increasing energy demand. According to a report from the Energy Information Administration, the world energy consump- tion is projected to increase by 48% between 2012 and 2048 (Doman, 2016). However, energy production comes at a cost. Fossil fuels are still one of the primary ways of generating energy. The consequences of this excessive use of fossil fuels are now be- coming more apparent as the climate of our planet is changing. As the environmen- tal state deteriorates, and energy crisis becomes more pressing, people, companies and governments are searching for ways to alleviate this pressure and protect the planet from further harm. The United States is the biggest consumer of energy per capita in the world. The total electricity consumption in 2015 was over 3.9 TWh (U.S. Energy Information Administration, 2017). The electricity sources are coal (33%), natural gas (33%), nu- clear (20%) and renewables (13%) (US Energy Information Administration, 2016). Wind power makes up 35% of the renewables and is currently responsible for al- most 5% of the total electricity generation. All wind power is located on-land with Texas, known as the oil state, being a surprising leader, followed by Iowa, Okla- homa and California, and the onshore wind power capacity is still growing rapidly (AWEA, 2016). However, offshore wind parks can have considerable