Opportunities and challenges for a floating offshore wind market in California

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Opportunities and challenges for a floating offshore wind market in California

PIETER-JAN VANDENBRANDE

Master of Science Thesis

Stockholm, Sweden 2017

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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

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Opportunities and challenges for a floating offshore wind market in California

Pieter-Jan Vandenbrande

Approved

2017-05-30

Examiner

Terrence Brown

Supervisor

Serdar Temiz

Commissioner

n.a.

Contact person

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

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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.

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1 Introduction 1

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 Review 4

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

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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

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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

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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

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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 advantages

over onshore wind for some states. The total available offshore wind resources are

far larger than the onshore wind resources for the coastal states and some coastal

states do not have the correct topography for land-based wind power (Musial and

Ram,

2010). Additionally, the interest in offshore wind parks is high as the optimal

onshore wind park sites are in locations where relatively few people live, whereas

the optimal offshore sites are near the East and West Coast, where the majority of the

population lives (Small, Beirne, and Gutin,

2016). Offshore wind turbines also avoid

many of the social problems such as noise and visual complaints and the “Not In My

Backyard” (NIMBY) phenomenon. However, the offshore wind energy industry is

relatively new and only present at large scale in Northwestern Europe (Henderson

and Witcher,

2010). The reason for this is because the current fixed-bottom tech-

nology, where turbines are planted into the seabed, makes the deployment of wind

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Chapter 1. Introduction 2

turbines only economically feasible in shallow waters. The sites available in the US for fixed-bottom offshore wind turbines are very limited due to the deep ocean wa- ters (US Department of Energy,

2016). Recently, floating turbine technology has been

developed, enabling offshore wind power where it was previously too expensive or too difficult to install fixed-bottom offshore wind turbines (“Floating offshore wind

market outlook”). These floating concepts are now being tested and have revived

many of the coastal states’ interest in offshore wind energy.

California is driven to reduce its environmental impact and has set ambitious re- newable energy goals with its Renewable Portfolio Standard (RPS). The Californian RPS requires that utilities provide a certain percentage of their energy as renewable energy (Musial et al.,

2016). California is one of the leading states concerning green

energy production with around 29% of the states’ electricity coming from renewable sources. The RPS goal has been set at 33% by 2020, and 50% by 2030 (Pyper,

2015).

If California is to succeed in its renewable energy targets, it will need to make use of its vast untapped offshore wind resources (Dlouhy,

2016), which could fulfill the

state’s energy demand many times over (Schwartz, Heimiller, and Haymes,

2010).

1.2 Purpose and Research Question

While the use of floating offshore wind turbines seems promising, there are many environmental factors that influence the introduction of floating turbines. This paper analyses the readiness of California for an offshore floating wind turbine market by looking at political, economic, social, technological, legal and environmental factors.

The research that has been conducted on these topics is mostly done by government organizations. The general industry and technology trends are described and fore- casted on a large time-scale in which recommendations are given to the government so that they can prepare the industry and change policies (Anderson,

2013; DOE, 2016; Smith, Stehly, and Musial, 2015; US Department of Energy, 2016). This re-

search takes a different approach as it analyses the current situation in California and its suitability for a floating offshore wind market. As such, the market opportu- nity is considered not only from an economic or technological perspective but from an overall analysis, and is analysed in the current time period.

This leads to the following research question:

What are the challenges and opportunities for a floating offshore wind market in

California?

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1.3 Delimitations

This research is limited to an analysis of the market environment for floating off- shore wind energy in California. The readiness of other states for floating offshore wind solutions may be equally interesting but a choice has to be made due to time constraints. California is chosen because of its excellent offshore wind resources and very deep waters, even close to the shore. As such, the state is a good candidate for floating wind parks (Musial et al.,

2016). The scope of the research is to give an

overall view of the market and situation in California from various angles (political, economic, social, technological, legal and environmental) in order to get a picture that is as complete as possible. The research will not focus in-depth on each of these aspects as this exceeds the scope of this thesis, however more detailed research will often be referred to.

1.4 Limitations

This research is primarily limited by time, for this reason only secondary data is used and no primary data on the subject is collected. Another limitation is the quickly changing business landscape in the United States for renewable energy projects and offshore wind energy projects in particular. This means that sections of this research need to be updated frequently. Care is taken so that the sources used in this work are as recent as possible. Furthermore, the floating wind turbine technology discussed in this paper is still in its infancy but is expected to reach a commercial stage in the coming years.

1.5 Research Structure

The second chapter of this thesis is a literature review on offshore wind energy and

its recent developments. Furthermore, it informs about offshore wind projects that

are currently being set up in the United States, and also explains what the energy

market in California looks like. Chapter 3 introduces the theoretical frameworks

that will be used to assess the external business environment. The methodology in

Chapter 4 explains more in detail how the research will be carried out. The analy-

sis of the external business environment for floating wind solutions in California is

made in Chapter 5. Next, Chapter 6 discusses the opportunities and threats in the

Californian environment for floating wind projects based on the analysis of the var-

ious environmental factors. Finally, a conclusion is made on the market situation in

California for floating offshore wind turbines.

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4

2 Literature Review

The literature review gives more information on the wind energy industry. The first part is focused on describing the current offshore wind energy industry and how it is evolving. It includes a short overview of the different main technological, economic and political aspects. The recent developments in the offshore wind industry are described in which the role of floating wind turbines is further explained. Finally, a short overview is given on the recent offshore wind activities in the US, and insight is given into the energy market in California.

2.1 Offshore wind energy overview

This section gives an overview of the global offshore wind energy industry and some of the recent developments that are taking place. Europe has the most developed offshore wind energy industry, with more than 91% of the total installed offshore ca- pacity (Global Wind Energy Council,

2015). Therefore, the history and current status

of the European industry is very relevant, especially so as most of the technological developments are happening in Europe and will be exported to emerging markets.

2.1.1 History and current situation

The first offshore wind power was installed as early as 1991. The wind turbines with a capacity of 4.95 MW were installed in a water depth ranging from 2.5 m to 5 m at the Danish coast (Rock and Parsons,

2010). Since then the offshore wind industry

has evolved steadily to the situation today. The installed offshore wind capacity per country in 2015 is shown in Figure 2.1. In 2016, Europe was leading the offshore wind energy industry with a total installed capacity of over 12 GW (EWEA,

2016).

The main countries that are involved in offshore wind are the UK, Germany, Den-

mark, China, Belgium, Netherlands, Sweden, Japan, Finland, and Ireland. The US

only has a marginal amount of installed offshore capacity. The UK is leading the

industry with 40.8% of the total installed offshore wind capacity. Next is Germany

with 32.5% of the share. In 2016, most capacity was added in Germany (813 MW), the

Netherlands (691 MW) and the UK (56 MW). The majority of the total European off-

shore capacity is installed in the North Sea (96.4%), the remaining capacity is located

in the Irish Sea. Figure 2.2 shows the cumulative and annual installed offshore wind

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capacity in Europe, and demonstrates the steady increase in the annual amount of installed capacity. There are several factors that have caused the recent increase in popularity and growth of offshore wind energy.

FIGURE2.1: Installed offshore wind capacity per country (Data from Global Wind Energy Council,2015)

FIGURE2.2: Cumulative and annual installed offshore wind capacity in Europe (MW)(WindEurope,2017)

Onshore wind technology has been around since the 1970s, and the first commercial wind farms were built in the 1980s in California (Bilgili, Yasar, and Simsek,

2011).

Throughout the years, the technological advancements in wind turbine technology

have caused the cost of wind turbines to fall, making wind energy increasingly at-

tractive. Nowadays, onshore wind is cost-competitive with many of the conven-

tional power generation sources, especially when taking the environmental advan-

tages into account (Henderson et al.,

2003). Yet, the potential for onshore wind en-

ergy capacity is limited. Installing onshore wind farms requires sites with good

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Chapter 2. Literature Review 6

wind resources and the availability of space. Due to public and political resistance, the amount of available onshore sites is becoming increasingly small. This public re- sistance is mostly a consequence of the Not-In-My-Backyard (NIMBY) phenomenon, where people are enthusiast about renewable energy, until the solution is offered in their backyard. Offshore wind farms, however, have several advantages over on- shore farms. Firstly, there are large free areas in the sea that are suitable for wind farms (Esteban et al.,

2011). The wind speeds in the sea are higher on average and

more stable. This is an important factor to consider as the power produced by a wind turbine scales with the cube of wind speed. The higher wind speeds increase the ef- ficiency of the wind turbines, and makes fluctuating power supply less of an issue.

Because they are installed offshore, the visual and noise pollution is very limited.

This largely resolves the NIMBY problem. The characteristics of the air flow above outstretched water allows for other optimisations in the wind turbine design. How- ever, there are many technological, economical and political challenges that slow down the progress of the offshore wind energy industry.

2.1.2 Overview of technological, economic and political aspects

There are various aspects that influence the development of the offshore wind en- ergy industry. Some of the technological, economic and political aspects and trends that are deemed most relevant to understanding the offshore wind energy industry are briefly discussed here.

Technological

As wind energy technology evolves, so does the size of the turbines.

The state-of-the-art technology in 1982 was a wind turbine with a 15m rotor diam- eter and a capacity of 55 kW (Bilgili, Yasar, and Simsek,

2011). Nowadays, turbines

with a capacity of 5 MW and a rotor diameter of 126 m are not uncommon. The im- pressive evolution of European wind turbines is shown in Figure 2.3. Offshore wind turbines are usually larger than onshore turbines. The reason for this is that onshore turbines are limited by the transportation of the turbine parts such as the blades and tower. At sea this is not an issue, making higher cost reductions due to economies of scale possible. Also, offshore wind turbines do not have to consider visual and noise pollution as much as its onshore variant. Currently, the wind turbines that are used in offshore wind parks are based on the same technology as the onshore wind turbines.

There are a number of technological challenges that are presented when building offshore wind parks. The different parts in the lifecycle of an offshore wind park, as built in Europe, are shown in Figure 2.4, the duration of the different phases is made based on the existing European offshore wind parks. Just like many other re- newable sources of energy, wind energy suffers from a non-consistent power output.

The output is dependent on the wind and can not always be precisely predicted. The

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FIGURE2.3: Evolution of European wind turbines over time (Bilgili, Yasar, and Simsek,2011)

.

capacity factor is a measure of this. The capacity factor is the ratio of actual power generation over a time period divided by the installed capacity (Ozgur,

2013). The

capacity factor of different forms of energy generation is given in Table 2.1. The ca- pacity factor for offshore wind energy is higher than for onshore wind energy, with values of 31% and 27% respectively (Green and Vasilakos,

2011). However, the in-

termittent power generation still poses problems for both the transmission network and the energy market price. Storage solutions and backup systems are required to deal with the fluctuating power generation.

Generation Type Capacity Factor

Solar Panels 10-25%

Wind Turbines 25%

Hydroelectric Power Stations 40%

Coal Fired Power Plants 70%

Nuclear Power Plants 89%

Combined Cycle Gas Turbine 38%

TABLE2.1: Capacity factor for different energy sources (Ozgur,2013)

The paper on offshore wind farm development by Perveen, Kishor, and Mohanty (2014) highlights the most important technological challenges. In order for offshore wind farms to be connected to the energy network, large transmission and distribu- tion systems have to be designed in order to be able to carry and efficiently distribute the energy from the many interconnected turbines. These transmission systems are highly costly, since the energy has to be carried across distances greater than 50 km.

Also, as more wind turbines are connected to the electricity grid, their influence in- creases. Currently new solutions are sought to be able to manage the grid in a smart way.

The conditions in which offshore wind turbines have to operate are a lot harsher

than the onshore conditions. Robust technology is required if the turbines are to be

safe and reliable (Sun, Huang, and Wu,

2012). The wind farms are usually at remote

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Chapter 2. Literature Review 8

FIGURE2.4: Life cycle of offshore wind farms in Europe

locations, which poses additional problems for the instalment and maintenance. The deeper the water gets, the more expensive and difficult it is to anchor the turbine to the seabed. The existing infrastructure and vessels to manage these operations are limited as very specific machines are required. This bottleneck in the supply chain limits the production speed of wind parks.

Political & Economical

Onshore wind energy is already competitive with fossil

fuel based power sources, and currently the cheapest form of renewable energy in

places with good wind resources (WindEurope,

2015). However, building offshore

wind farms is still much more expensive than onshore wind. The economic feasibil-

ity of such projects is usually determined by electricity cost per unit (kilowatt-hour),

capital cost and operational and maintenance cost (Perveen, Kishor, and Mohanty,

2014). Especially the initial investment, or capital cost, that is required for the con-

struction of offshore wind parks is very high. One of the main factors that con-

tribute to this high price is the construction of the offshore foundations. The paper

by Green and Vasilakos (2011) shows the significant increase in installation costs as

a function of water depth and distance from the shore. Figure 2.5 shows the lev-

elised cost of electricity for the major power generation technologies in Europe. The

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levelised costs of energy (LCOE) represent the costs of production without interven- tions, which means subsidies and pollution costs are not taken into account. The LCOE of offshore wind in Europe is between e102/MW and e152/MW, compared to e52 to e110/MWh for onshore wind (WindEurope,

2015). As mentioned before,

the power output of wind farms is not perfectly steady, and is also not always easy to forecast. This volatility of wind speeds causes fluctuations in the energy prices.

In countries with a considerable amount of installed wind power, the energy prices will drop below average at times when wind speeds are higher and vice versa for lower wind speeds (Green and Vasilakos,

2010). Like all renewable energy sources,

wind energy has the advantage of being an inexhaustible energy source. This also means that the produced energy is free from the volatility of fuel prices that other fuel based power sources suffer from, like coal, oil, natural gas, biomass and nuclear (Snyder and Kaiser,

2009). Also, not everyone agrees that the economic viability

should be measured purely by the LCOE as this calculation excludes many of the harder-to-quantify advantages, such as the advantages to the society and the envi- ronment. Siemens, for example, introduces a new calculation model: Society’s Cost of Electricity (SCOE) (Siemens,

2014). SCOE accounts for many factors: subsidies,

transmission cost, variability costs, geopolitical risk impact, environmental impact, social effects, and employment effects.

FIGURE2.5: Levelised Cost of Electricty (LCOE) of power generation technologies in Europe (WindEurope,2015)

Investments from private investors, backed by institutional support, are needed to ensure the future of offshore wind. Governmental support is still very important at the current state of the offshore wind industry, even in Europe. The support is neces- sary to make offshore wind energy competitive against conventional power sources.

Strong support policies enable the industry to grow, while lowering prices through

learning effects, economies of scale and technological developments. Many different

support policies are being used to make offshore wind energy economically interest-

ing. Couture and Gagnon (2010) analyze seven remuneration models to assess their

implications for renewable energy investments. The support policies are country

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Chapter 2. Literature Review 10

specific and will be discussed in the case of California later in this research. Cur- rently, the EU is supporting offshore wind using two approaches: the feed-in tariff and green certificates (Green and Vasilakos,

2011). In the case of a feed-in tariff, the

EU sets a fixed price per energy unit. This price is based on a number of variables such as the technology used, the location of the wind park, the year it was commis- sioned, and so on, and has to be set carefully. If the price per unit is too high, then disproportionate profits are made at the cost of governmental money, if the price is too low, then no company wants to pursue the technology and progress comes to a standstill. The second approach is based on tradable green certificates. These are awarded for generating green energy and can be sold to companies that do not meet their own amount of green energy certificates.

2.2 Developments in offshore wind

The increased investments and interest in offshore wind energy have caused new technologies to emerge in the last few years. The offshore wind resource around the world is very large, but the current technology of offshore wind turbines does not allow for wind parks to be installed at many of these sites. The current technology relies on bottom-fixed foundations, which are only economically feasible in shallow water (around 30 meters). In 2016, the average water depth of Eurpean offshore wind farms was 29.2 m with an average distance of 43.5 km to the shore (WindEu- rope,

2017). The distance to the shore and water depth are steadily increasing as

the industry matures. However, this also means that the already high capital invest- ments of offshore wind parks increase rapidly as the water becomes deeper. This creates a need for new technology: floating wind turbines.

2.2.1 Floating wind turbines

The idea of floating wind turbines has been around since the beginning of the rel-

atively young offshore wind industry in the 1990’s. Floating wind turbines are off-

shore wind turbines that are mounted on a floating structure, and the oil and gas in-

dustry has shown that large robust platforms in deep seas are indeed possible. The

three main technologies for floating wind turbines are shown in Figure 2.6. Floating

turbine technology now enables the deployment of wind turbines in deep waters,

which was previously infeasible from both an economic and technical standpoint.

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FIGURE2.6: Technologies for floating offshore wind (European Wind Energy Association,2013)

The floating turbine technology offers several economic benefits. First of all, the initial investments of floating offshore wind parks are expected to be lower due to various reasons (European Wind Energy Association,

2013). Secondly, the necessary

supply chain and port infrastructure for floating wind turbines are very similar to the existing fixed-bottom offshore wind turbines. But, the installation costs are likely to be much smaller as up to 20% of the capital expenditure of offshore wind farms comes from the production and installation of substructures. So, a cost reduction here can significantly reduce the total costs of offshore wind. Floating wind plat- forms can be assembled on-land, or in a dry dock, and then be towed out to sea.

This allows for an easier and more efficient installation as less vessels are needed.

Also, the installation of floating wind turbines is less dependent on weather condi- tions compared to fixed-bottom turbines. Most of the installation cost for a floating structure comes from installing the mooring lines and anchors. In case of a turbine breakdown or other large maintenance, the floating turbine can be towed back to shore to undergo maintenance, avoiding the use of expensive vessels, and decreas- ing the operations and maintenance (O&M) costs. Floating foundations have the added advantage that they are relatively easy to adapt to different types of turbines, meaning that the same foundation can be used regardless of turbine design. This decreases manufacturing and supply chain issues.

The first full scale floating offshore wind turbine was installed off the shore of Bergen

in Norway in 2009 (Perveen, Kishor, and Mohanty,

2014). The project was led by

Statoil-Hydro and Siemens, and consists of a single 2.3 MW turbine using the spar

technology. The pilot project was successful and Statoil considers the turbine ready

for commercialization. Statoil is now planning a floating wind turbine park in the

North Sea near Scotland. The park is called the Hywind Scotland Pilot Park and

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Chapter 2. Literature Review 12

will use the already tested floating Hywind turbine technology. The park will be- gin production in 2017 and have a total capacity of 30 MW. Since 2009, many other companies have also been working on testing new substructure concepts. The most notable ones are Windfloat, Blue H TLP, Kincardine, Floating Haliade 150, Winflo, PelaStar, Ideol and Hexicon (European Wind Energy Association,

2013).

2.3 Offshore wind in the United States

The offshore wind energy industry in the United States is in its very early stages. The first commercial offshore wind park with a capacity of 30 MW has been taken into operation in late 2016 off the coast of Block Island, Rhode Island (Geuss,

2016). The

launch of this wind park will hopefully kickstart the offshore wind energy industry in the US, as there are many other projects planned at the East Coast, Pacific Coast and Great Lakes. The status of these projects is shown in Figure 2.7. As of 2016, 11 commercial leases for offshore energy were granted by the federal government.

The total energy potential on these sites is as much as 14.6 GW (US Department of Energy,

2016).

FIGURE2.7: Offshore wind projects development in the US as of June 2016 (DOE,2016)

The European offshore wind energy environment is unique because of several rea-

sons. The North Sea is characterised by relatively shallow waters and good wind

resources. The regions around the world that have characteristics similar to those of

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the North Sea are rather scarce. That is the prime reason why most of the offshore wind energy development in Europe are seen near Northwestern Europe (Hender- son and Witcher,

2010). Other European countries such as Spain do not have the

same coastal characteristics. The seabed in the Mediterranean and the Atlantic drops a lot faster, making the instalment of offshore wind energy a lot more challenging and very costly with the current fixed-bottom technology.

The United States have a big installed onshore wind power capacity but are lagging behind in the development of offshore wind farms as the offshore potential is rather limited with the current fixed-bottom technology due to deep ocean waters. This makes onshore wind power currently more preferable. Although the US is behind in the offshore wind energy industry compared to Europe, it can use this to its ben- efit. The wind energy market in Europe is maturing, causing the costs to drop and technological developments now enable offshore wind in deep waters (US Depart- ment of Energy,

2016). This has resulted in an increased in interest in offshore wind

in the US. Especially as the sites with good wind resources that are currently being used for onshore wind are in locations where relatively few people live, whereas the optimal offshore sites are near the East and West Coast, where many people live (Small, Beirne, and Gutin,

2016). This would mean the power generation is close to

the population, reducing the cost of expensive transmission lines. The emergence of an offshore wind energy industry also offer local economic benefits in the form of employment and investments to a country or state (Todd, Chen, and Clogston,

2013). According to Pollin, Heintz, and Garrett-Peltier (2009) the offshore wind en-

ergy industry creates more jobs than onshore wind per MW, because of the higher manufacturing and maintenance costs, and creates many more jobs than are cur- rently needed in the fossil fuel based energy industry.

However, beside the difficult access to offshore wind with the current technology, there are many other factors, which are political, economic, legal, social and envi- ronmental in nature, that are slowing down wind farm developments in the US.

A market report made by the US Department of Energy (DOE) indicates that the biggest challenges of offshore wind in the United States are a combination of the high costs required for such installations combined with the complex regulatory en- vironment (DOE,

2016). The regulatory approval for wind parks takes too long and

is one of the main reasons that the offshore wind industry in the US is lagging behind in the development of its offshore wind energy industry(Kennedy,

2012).

An example of the regulatory difficulties that can be encountered is demonstrated

by the 468 MW Cape Wind project off the coast of Cape Cod in Massachusetts. The

Cape Wind project took 9 years of permitting before it was given a commercial lease

in 2010 (Musial and Ram,

2010). The main reason that this took so long is that the

lease decision needs to be approved by the United States Department of the Interior

(DOI). The DOI is a federal instance in this case responsible for assessing the risks to

the marine environment. The project later ran into more legal troubles as it had to

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Chapter 2. Literature Review 14

comply to the many federal laws that are in place to protect the environment and the historic and natural resources (Cassell,

2016). This process again requires coopera-

tion and approval of many different federal actors such as the US Coast Guard and the Fish and Wildlife Service. In 2014, the project was initially approved, but it was accused several months later of violating some of the federal statutes, mostly related to the impact the wind turbines would have on the seabed. The court decided that additional geological surveys need to be carried out to ensure that the impact on the seabed is minimal. More precise details of the regulatory aspects of offshore wind energy in the US are left out for now and will be come back to later in this thesis.

2.4 Energy Market California

This section serves as an introduction to the energy market in California. Some statistics are given of the current energy market and trends are explained.

In 2015, California generated 196 TWh of electricity, where its main sources of elec- tricity generation were natural gas (59%), forms of renewables (24.5%), nuclear (9.4%), and large hydroelectric installations (5.9%) (California Energy Comission,

2016). Cal-

ifornia imports more than 33% of its energy, with the Southwest importing 63.4 TWh and the Northwest importing 35.8 TWh. A large part of the imported energy in the Southwest comes from coal installations, while the Northwest has a higher mix of renewables in the import. The state’s total yearly electricity demand is around 295 TWh, but the electricity consumption per capita is quite low compared to other states due to the mild climate, and has been forecasted to remain relatively constant in the forthcoming years (Rockzsfforde,

2015).

The Renewables Portfolio Standard (RPS) is a state law that requires retail sellers to serve a certain percentage of the electricity from renewables. This goal is set at 33%

by 2020, and 50% by 2030. In October 2016, 27% of California’s electricity came from

Renewables which puts it in a good position to reach this goal (California Energy

Commission,

2016). It is the leading state in many of the renewable sources such as

wind, solar and geothermal. In practice, the percentage of renewables is controlled

by using Renewable Energy Credits (RECs). The operation and maintenance of the

transmission infrastructure is the responsibility of the California Independent Sys-

tem Operator (CAISO). The California Public Utilities Commission (CPUC) is the

legal instance that regulates the public utility companies which are private compa-

nies. Some of the biggest investor-owned utility companies in California are Pacific

Gas and Electric Company (PG&E), San Diego Gas & Electric (SDG&E) and South-

ern California Edison (SCE). CPUC is responsible for the implementation of the RPS

in Investor Owned Utilities (IOU) (State of California,

2017b). The distribution of

power generation from renewable energy sources in 2016 is shown in Figure 2.8. It

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is the California Energy Commission (CEC) who decides which installations are el- igible. It is interesting to note that large hydroelectric installations are not counted as a renewable energy source. The last few years, the generation from distributed small-scale solar panels has increased vastly. Figure 2.9 shows the distribution of the total installed capacity of renewable energy sources (26300 MW) in 2016. The figure shows that almost half of the installed solar photovoltaic cells are self-generation, and the state is well on its way to meet the goals it has set for distributed self- generation. Hydroelectric sources are used to provide a larger part of the state’s electricity demands, but have been doing poorly in recent years due to droughts (Tweed,

2016). California’s electricity import has gone up, especially in the evenings

when solar generation decreases, because of the local gas generation that has been decreased as a consequence of the RPS (U.S. Energy Information Administration,

2016). The last nuclear reactor in California will soon close and offshore wind parks

could potentially help to serve as a more consistent baseline load (Speer, Keyser, and Tegen,

2016).

FIGURE 2.8: Total electricity generation from renewable sources in California (2016) (California Energy Commission,

2016)

FIGURE 2.9: Total installed capacity of renewable sources (2016) (California Energy Commission,

2016)

California is known for its high installed capacity of onshore wind. In 2016, the first

offshore wind park was proposed. The project is called Trident Winds and envisions

to install about 100 floating wind turbines, a capacity of around 765 MW, at the

Central Coast (Trident Winds,

2016). Trident Winds has requested a lease for a site

48 km off the shore of Point Estero, with water depths of up to 1000 meters. An old

P&GE power plant would be used as the onshore substation to connect the wind

farm to the grid.

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16

3 Theoretical Framework

In this chapter some insight is given into how a business environment can be eval- uated. To achieve this, some theoretical frameworks will be introduced that can be used to assess a business, market or industry. These frameworks provide the basis to answer the proposed research question.

3.1 Introduction

The business environment of an organization encompass the factors that have an im- pact on the operating situation of an organization (Worthington and Britton,

2009).

Both small and large companies need to assess the environment that they are work- ing in. The business environment plays a big role in how businesses make decisions and design their future strategies. A good environmental analysis shows how a mar- ket or industry should be approached in order to be successful, or even if success can be achieved in the market with the value the company is currently offering. The business environment consists of both external and internal elements (Cadle, Paul, and Turner,

2010). The definition and techniques to analyse these environments are

explained in the following sections.

3.2 External Business Environment

The external business environment is defined as the environment that influences the functioning and strategy of an organization, but is not under direct control of the organisation (Cadle, Paul, and Turner,

2010). The external environment contains

opportunities and threats that should be recognized by the organisation in order to be successful. There are many tools to analyse the external factors influencing the environment. The most well known techniques are the PESTEL analysis and Porter’s Five Forces framework.

3.2.1 PESTEL Analysis

The PESTEL analysis is a marketing tool often used by businesses to analyse the

external or macro-environment. By analysing the driving forces behind a market or

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industry, an organization can determine its business position. A PESTEL analysis can also give information on the market tendencies and uncover the opportunities or challenges available in a certain industry or market (Hollensen,

2007). PESTEL

is an abbreviation for political, economic, social, technological, environmental and legal. The PESTLE analysis is focused on exploring each of these factors. Making strategical decisions is not a part of the analysis, but can be a continuation of it. The various factors are explained more in detail below. It must be noted that these factors are often interlinked and as such influence each other.

Political

The political situation in the studied area can significantly influence an industry, business or market. If the political climate is stable, then the business envi- ronment is easier to evaluate. This will reduce risks for companies that want to enter a certain industry or market. If the political situation is such that trends are easy to forecast, then this can create business opportunities.

In many industries, political support is important as it can favour businesses by offering support policies. A tax reduction, tax policies or other subsidies can in turn significantly impact the economic environment. If there is governmental support then this can also speed up the regulatory process, the contrary is true if the political instances disapprove of a business opportunity.

Economic

The economic situation is very important for any business. If the the economic climate in a certain area is stagnant or even in decline, then businesses will refrain from entering the market as the risks are too high. This is especially true for industries that are capital intensive. Also, it is harder to take a loan or find investors in an economically unstable area.

Social

The social aspects are highly important when doing business. The culture, gender, age, demographic, etc. need to be understood as they help to profile cus- tomers and are relevant to the market situation. The attitude of people in a certain area can decide if a product or business will be successful or not. This attitude is shaped by the social aspects and is different between regions.

Technological

The availability of technology can decide whether or not a business

opportunity is feasible. The existing supply chain in a nearby area might for example

facilitate the expansion to a new market. If no infrastructure exists yet, then this

needs to be taken into account. There is also the possibility for new technologies to

emerge and open up new markets, or destroy old ones.

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Chapter 3. Theoretical Framework 18

Environmental

In this research the environment encompasses the natural environ- ment, the regulatory and other environments are part of the other factors in the PES- TEL analysis. The impact of the environment is growing as business and industries are now becoming more and more a function of the environment. So is, for exam- ple, climate change driving the energy sector towards a more sustainable direction.

Also, the geographical location and access to natural resources can be a determining factor in business decisions.

Legal

It is critical to have knowledge about the different laws and statutes relevant to the market and industry. It must be noted that the legal system might be impacted by the political situation. As such the stability of the legal environment needs to be assessed.

3.2.2 Porter’s Five Forces

Porter’s Five Forces framework (PFF) is another tool to assess the external business environment. However, the focus of the framework is different from the PESTEL analysis. PFF is used to look at the industry an organization is competing in. The analysis identifies the competition that is present and how intensive this competi- tion is. This competition landscape determines the profitability and business oppor- tunities for an organization in the industry. The five forces that are looked at are (Harvard Business Review,

2008; Hunt and Morgan,1995):

Threat of new entrants

How likely is it that new organisations will enter the mar- ket? A lot of new entrants will increase competition and most likely decrease profits.

Threat of substitutes

Are there any organizations that offer a substitute for the product or service that you are offering?

Bargaining power of customers

How much power does the customer have and can he pressure the organization? The customer usually has a high bargaining power if there are many alternatives. This will translate into lower profits and a fiercer competition.

Bargaining power of suppliers

How much bargaining power do the suppliers have? If there are many suppliers that can offer the same product or service, then the bargaining power of the supplier decreases.

Industry rivalry

How competitive is the rivalry in the targeted industry?

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3.3 Internal Business Environment

The internal business environment on the other hand are the factors within the or- ganization that have an impact on the success of the business. These are under di- rect control of the organization. It is important that an organization can identify its strength and weaknesses. Organizations have many different ways of doing this, for example by defining their core competencies, or by looking at their track-record or portfolio to see where they have previously found success. A simple and effective way of doing this is by conducting a SWOT analysis.

3.3.1 SWOT Analysis

SWOT stands for strengths, weaknesses, opportunities, and threats. In a SWOT anal- ysis the internal strengths and weaknesses of the organization are evaluated and the external opportunities and threats are assessed. The analysis of the external environ- ment in the SWOT analysis is a simplified version of the PESTEL analysis. It allows for a quick assessment of the organisation in the market or industry. The combina- tion of the internal and external aspects are often used to set up a strategy for the organization. The following parts are analysed in a SWOT analysis.

Strengths

The internal strengths of the organisation are listed. The strengths should be considered compared to the competition. An example of a strength is a strong product, a certain patent, or even a diverse team.

Weaknesses

The weaknesses in the organisation are the areas where the company needs to improve to be competitive.

Opportunities

There are opportunities in the external business environment that an organization can take advantage of. This might for example be an emerging mar- ket due to a technological advancement.

Threats

The external environment can also pose threats that can damage the orga-

nization. For example, increasing resource prices can threaten profitability.

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20

4 Methodology

This chapter explains the methodology that is used to answer the research question.

Firstly the research paradigm that is used is explained, next more information is given on the research method and how the data is gathered. Finally some critique is given on the the research method, including reliability and validity issues.

4.1 Research Paradigm

The research paradigm influences how a study is carried out as it tells how knowl- edge is viewed by the researcher (Hussey and Collis,

2009). There are two main

paradigms: positivism and constructivism, or also called interpretivism. In this the- sis the interpretivist approach is taken. Saunders, Lewis, and Thornhill (2009) ex- plain that the social world of business is too complex to be put into laws, therefore

“it is necessary for the researcher to understand the differences between humans in our role as social actors.” Thus, this leads to a research that is more qualitative in its nature. Unlike, the positivism paradigm which relies more on quantitative and objective data to get to a conclusion.

4.2 Research Method

This research is exploratory and based on qualitative data. This approach was cho- sen after carrying out an extensive literature review concerning the trends and de- velopments of the offshore wind energy industry. The literature review revealed that a qualitative approach is the most effective way of answering the research ques- tion. A quantitative approach was deemed too complex and not more relevant to the research than using a qualitative approach.

Different frameworks were considered to analyse the macro environmental factors

of an industry. The two main frameworks that were looked at were the PESTLE (po-

litical, environmental, social, technological, legal and environmental) analysis and

Porter’s Five Forces. Both models are complementary and can be used together to

assess both the macro- and micro-external environment. More specifically, Porter’s

five forces is used to see where the power lies in a competitive situation (Harvard

Business Review,

2008). The Porter’s Five Forces framework was therefore discarded

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as the offshore wind energy industry in California is currently non-existent and so no competitive situation exists yet. Because of this, it is not valuable to evaluate the external-environmental factors using this framework. Instead, the PESTEL frame- work is chosen, this method allows for a broad qualitative approach that covers all macro environmental factors. Hence, by carrying out a PESTEL analysis using qualitative data, the state of California’s environment regarding the introduction of floating offshore wind turbines can be assessed. From the PESTEL analysis, a dis- cussion can then be made to evaluate the opportunities and threats for a floating offshore wind market in California. The strengths and weaknesses as they are as- sessed in a SWOT analysis are left out since they are connected to the internal state of a business.

4.3 Data Collection

The data that will be used to solve the research question is secondary. Secondary data is data that has already been collected by a third party (Hussey and Collis,

2009). The secondary data that is available about the offshore wind energy indus-

try and the various factors influencing the offshore wind energy industry environ- ment of California is sufficient to answer the proposed research question. A PES- TEL analysis can be made using secondary data on the condition that it is reliable.

The secondary data that is used in this research is gathered from online sources in the form of newspaper articles, online articles, websites, surveys, scientific papers, government reports, and consultancy reports. Some important sources include gov- ernment reports from the US National Renewable Energy Laboratory (NREL) and the US Department of Energy (DOE). Care is taken to verify the source of the data so that the information is relevant and trustworthy. For example, the data collected about politics is verified through several sources as to keep the political bias to a minimum.

4.4 Ethical and Sustainability Issues

It is impossible to determine if all factors in the PESTEL analysis are equally im- portant to analyse a market or industry. However, in this research all are treated more or less equally as the outcome of the research can not be predicted in advance.

Hence, it might be unwise to disregard the importance of one of the factors in the

PESTEL analysis. Furthermore, many of the sources used in this research likely have

a bias towards renewable energy solutions. While the research has been carried as

ethically as possible, it must be kept in mind that the reality might be less rosy than

represented in these articles.

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Chapter 4. Methodology 22

The topic of this research has social, economic and environmental implications, this

raises the question of sustainability. The overarching problem that aims to be solved

by pushing for renewable energy sources, and offshore wind energy in particular, is

the issue of climate change. It is important to address the social and environmental

sustainability issues that come paired with the need for constant economic develop-

ment.

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5 Analysis California

The following section will go over the various factors that are necessary to evaluate the macro environment of the offshore wind energy industry. The analysis is made so that it can be used to assess the business opportunities for floating offshore wind turbines in California. A summary of each aspect of the analysis can be found in Appendix A.

5.1 Political

The political climate has been one of the most important factors in deciding which energy sources prevail and which sources do not. Governmental and state support is still necessary for most of the renewable energy sources. Without this support in the form of tax reductions or energy subsidies, offshore wind energy still has troubles competing with lower cost energy generation systems such as coal or gas plants, especially in difficult coastal environments that drive up the costs (Siemens,

2014).

The energy industry is not a fair industry as political instances can intervene and change the rules of the game at any time (Alberici et al.,

2014).

Federal politics

The administration under the presidency of Obama from 2009 to 2017 was a big proponent of renewable energy and launched several support actions. The reasons for the Obama administration to support renewables are many-sided. One of the reasons is that an increase in renewables reduces the dependency on volatile fos- sil fuels while also creating many new jobs. In 2009, a framework was launched by the Obama administration to facilitate the development of renewable energy on the Outer Continental Shelf (OCS). Later in 2012, an initiative called “Smart from the Start” was launched to speed up the approval process of offshore wind projects, more specifically targeted at projects in the states of New Jersey, Mary- Land, Delaware and Viriginia (Farquhar,

2011). One of the biggest achievements of

the administration to counter climate change was the implementation of the Clean Power Plan (CPP) in co-operation with the Environmental Protection Agency (EPA).

The CPP was announced in 2015 and has as aim to reduce carbon emissions and

increase renewable energy sources. The emission goal is set and controlled by the

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Chapter 5. Analysis California 24

EPA, but the states can decide for themselves how they want to implement the plans and reduce emissions. If the states are unsuccessful in reducing the carbon emis- sions as stated in the CPP, then the EPA will control the power plants directly. The states have until 2018 to set up a state plan, which needs to be approved by the EPA (Doniger,

2015). From 2022, the laid out reduction of greenhouse gasses is manda-

tory, the CPP comes into full effect by 2030. The CPP also sets up a clean energy credit-based system that rewards clean generation. In this way, renewable energy installations become more economically interesting, while existing dirty plants be- come more expensive. The CPP is seen as the biggest measure taken to fulfill the Paris Climate Agreement. The CPP also envisions an installed capacity of 86 GW from offshore wind by 2050 (Kamper,

2016).

In 2017, Donald Trump was elected as the 45th president of the United States. The election process between Donald Trump and Hillary Clinton was highly turbulent and some see the victory of Trump as a victory of populism (Wilkinson,

2017). The

Trump administration has shown no interest in climate related issues, and even in- tends to counteract the existing plans that aim at reducing greenhouse gases. The administration is instead focused on creating jobs and supporting companies by reducing corporate taxes. One of the envisioned ways to bring back jobs is by re- viving the dying coal industry. For now, the expectation is that federal support for renewables will be extremely low on the agenda, and that the existing support for renewable energies may possibly be cut. Trump initially said that the US would not uphold its promise to follow the Paris Climate Agreement (Milman,

2016). How-

ever, after his election, his position on the agreement has been unclear as even many large companies have asked him to keep supporting the agreement (Egan,

2017).

The trump administration has explicitly said that it considers budget spent on any

climate change related research to be a waste of the public’s money. In the latest bud-

get outline (April 2017), the budget for the Environmental Protection Agency (EPA)

was cut by almost one third (Merica and Marsh,

2017), the same agency that plays

an important part in supporting and promoting renewable energy policies. How-

ever, the budget plan is not final as it needs to pass through congress first. Trump

has also signed an executive order to review the Clean Power Plan in an attempt to

dismantle it. Many states, one of which is California, are ready to oppose Trump

in his attempts to nullify the CPP. They base their arguments on the basis that CO2

emissions threaten public health and welfare (Selin,

2017). Although Trump’s exact

stance on offshore wind energy is unknown, he has already expressed his dislike to

offshore wind farms in Scotland. His opinion was founded on the visual pollution

that wind farms cause (Fehrenbacher,

2016). It is highly uncertain if this stance will

translate into an actual reduction of federal support for offshore wind energy and

perhaps renewables in general.

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State politics

On the other hand, not all of the energy related decisions are made by the federal government, in reality the interference of the federal government on a state’s energy policy is limited (Burdock,

2016). Many of the decisions concerning energy are made

local and therefore the impact of the presidency can be moderated. Of course, this would require a clear willingness from the state’s government to enforce alternative measures. States are in control of their Renewable Portfolio Standards (RPS) and can influence the legislative pathway regarding offshore wind energy, which will be explained more in detail later in this Chapter. On October 7 2015, the Clean En- ergy and Pollution Reduction Act, also known as SB-350, was passed in California.

This act requires that 50% of the states’ energy must come from renewable energy by 2030 (CALGOV,

2015). This act is an update to the existing RPS, which require

that a certain percentage of the energy comes from renewable sources. As a result of the framework set up by the Obama administration, the California Intergovern- mental Renewable Energy Task Force was created (OffshoreWind.biz,

2017a; Off-

shoreWind.biz,

2016). The California Task Force is an initiative launched to simplify

the bureaucratic processes for the leasing of federal waters on the Outer Continental Shelf of California for offshore wind farm purposes.

California is the leader in installed renewable energy capacity and has had a strong political support history for renewables (Speer, Keyser, and Tegen,

2016). Jerry

Brown, a democratic politician, has been the governor of California since 2011. Brown has held governorship before between 1975 and 1983 and is pushing hard for a re- duction in greenhouse gases. This is illustrated by the climate change strategy pil- lars for California that he set up in January 2015 (CEPA,

2016). At the end of the

Obama’s administration term, he requested the federal government to prohibit the lease of the waters off the shore of California for oil and gas purposes (Rogers,

2016).

This request was made partly out of fear for Donald Trump’s interest in more oil and gas activity. However, the legislation could not be passed quickly enough (Guerin,

2016). Other states such as New Jersey, Rhode Island, Massachusetts and others are

already supporting offshore wind energy projects by signing new laws specific to offshore wind energy (Musial and Ram,

2010; Burdock, 2016). The bills are being

pushed by both democratic and republican governors. Furthermore, Brown has met with the Scottish prime minister to discuss collaborative efforts in offshore wind en- ergy (OffshoreWind.biz,

2017b). It must be noted that Brown will be ineligible for

the upcoming election as there is a two term limit for governorship in California.

However, the state voted strongly democratic in the last presidential elections and is

expected to do the same for the next governor. It is unlikely that the state’s stance on

renewables will change. Of course this is only speculation based on trends (Rogers,

2016).

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Chapter 5. Analysis California 26

Federal tax incentive

The most impactful governmental support for the development of wind energy is the federal Production Tax Credit (PTC). The PTC offers financial support for re- newable energy sources in the form of a fixed sum per unit of energy produced, and is awarded for a set amount of years. It was first introduced in 1992 as part of the Energy Policy Act with the goal to speed up the development of renewable energy sources and to make them competitive with the existing solutions. Since then, the tax has been expired and extended multiple times. The annual installed wind energy capacity in the US is shown in Figure 5.1, and it clearly shows the impact of the tax on the development of wind energy. During the times that the PTC was no longer available, the growth of the wind energy industry was stunted as companies were no longer developing new projects (Simmons and Hansen,

2015).

Currently, the future of the PTC and its role in a potential offshore wind energy industry is highly unpredictable. Most recently in 2015, the wind power PTC was extended, but according to a 5 year phase-out plan, which means that the tax credit will be lowered by 20% every consecutive year starting from 2015 (Bailey,

2016). Fur-

thermore, the tax credit does not make a distinction between offshore and onshore wind energy. This means that most likely no offshore wind project will qualify for this federal support. Twenty state governors have already addressed this issue in a letter to Donald Trump as the future of an offshore wind energy industry in the US is unlikely without federal support (OffshoreWind.biz,

2017c). There are currently

two bills, bill S.3036 named ‘Offshore Wind Act’, and bill S.1736 named ‘Incentiviz- ing Offshore Wind Power Act’, which would provide offshore wind projects with an Investment Tax Credit (ITC) so that offshore wind energy has the chance to develop in the US.

5.2 Economic

The purpose of the economic analysis is to determine if the Californian economy is healthy and interested in renewable energy. It must be kept in mind that the different factors in the PESTEL analysis are interrelated and so an impact on the political environment might influence the economic environment as well, tax regulations are a good example of this. Knowledge about the state of the economy is important as it can show if there are investors willing to invest in companies or technologies.

A healthy and stable economy both benefit this. In the first part a short summary

is made of the economic situation in California the past 20 years, with a focus on

energy related topics. This section then leads to California’s current situation.

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FIGURE5.1: Impact of PTC on annual installed wind energy capacity in the US (Simmons and Hansen,2015)

Economy of California

The economic situation in California has known a turbulent history due to a trans-

formation of the economy and a series of crises. The deindustrialization in the 1990s

meant a huge decline in manufacturing jobs (Cody,

2011). The state later went