California aims for 7.6GW of offshore wind by 2035

UPDATE: On August 22, the California Public Utilities Commission approved the proposed decision described in this article.

If California wants to meet its goal of building gigawatts of floating wind turbines off its coast in the coming decades, the state needs to go big or go home.

So say clean-energy industry groups and environmental advocates who are praising a recent proposal from the California Public Utilities Commission that they believe will help keep the state’s offshore wind ambitions on track.

On Friday the CPUC announced its intention to set an initial target of 7.6 gigawatts of offshore wind for the state to procure by 2035. That target falls halfway between the 5 to 10 gigawatts that a roster of pro-offshore wind groups had asked the agency to procure, and is meant to be the first step toward fulfilling the state’s long-term plan of getting 25 gigawatts of wind energy online by 2045.

“California’s energy transition requires a rapid, transformative approach,” representatives of environmental justice organizations, wind power industry groups, and the Port of Long Beach wrote in a letter to Governor Gavin Newsom and state energy agencies earlier this month. ​“The benefits of offshore wind can be best realized through an initial large-scale procurement that will set a strong foundation for the market to take off.”

These groups are relieved that the CPUC’s new proposal doesn’t follow the recommendation of a needs assessment the agency had commissioned, which advised only 1 to 3 gigawatts of offshore wind procurement by 2035. That analysis, which was conducted by consultancy E3, suggested that this lesser target would minimize ​“total ratepayer cost and risk” — a nod to the state’s obsessive concern with keeping fast-rising electricity rates in check.

But offshore wind backers warned that such a small target would fail to spur the billions of dollars of private-sector investment needed to stand up a nascent offshore wind industry from scratch.

That, in turn, could kill off any hope of building an offshore wind fleet that, multiple studies indicate, will be vital if California is to reach its long-term goal of carbon-free electricity by 2045. Offshore wind is essential for meeting that target because it produces more power in the evening hours, when the solar power California now relies on for clean electricity is less available.

“This proposed decision is a critical step towards creating a robust offshore wind industry that will promote California’s clean energy, reliability and economic development goals,” Molly Croll, director of Pacific offshore wind at American Clean Power, a clean energy trade group, said in a Monday statement. ​“Although we were advocating for a 10 GW procurement need, we are grateful to the CPUC for recognizing the potential benefits of offshore wind to the state and the scale of procurement needed for supporting infrastructure at scale and for market transformation.”

Why offshore wind advocates were worried

The CPUC has made containing electric rate increases a centerpiece of its decision-making process over the past few years. California’s three major investor-owned utilities have the highest electricity rates in the continental U.S., and their rates are expected to rise faster than those of any other state in the next few years.

But clean energy advocates say that the agency’s attempts to reign in those rising costs often wind up undermining clean energy sectors that are key to the state’s plans to transition off of fossil fuels. Rooftop solar in particular has taken hits from the CPUC’s decision to reduce compensation for rooftop solar systems of customers served by the state’s three major utilities. Community solar and battery developers were disappointed by another decision earlier this year to reject a proposal that had won backing from a wide array of supporters. And the CPUC’s rejection of a $744 million heat pump and building electrification plan from the utility Southern California Edison was widely criticized by environmental groups.

Offshore wind backers worried that the CPUC would continue this pattern in its dealings with the offshore wind sector and argued that it would be a mistake for the agency to crimp its long-term offshore wind plans in order to mitigate short-term utility rate increases. That’s because the costs ratepayers will pay for offshore wind power won’t start appearing on utility bills until years in the future.

What’s more, California’s rate increases are not being driven by the cost of clean power generation. Rather, they are primarily the result of the tens of billions of dollars that California’s largest utilities are investing in expanding their power grids and preventing them from sparking deadly wildfires.

There’s no doubt that floating offshore wind will be more expensive than the solar farms and batteries now being built at gigawatt scale across California. ​“The first bid of offshore wind that’s procured will be expensive,” said Lauren Kubiak, a senior scientist working on California climate and energy policy at the Natural Resources Defense Council (NRDC).

But the cost of failing to build offshore wind is far more likely to be higher than the cost of building it, she said. ​“We see greater downsides to setting a procurement target that’s too low than too high,” she said — a point that she and NRDC senior analyst Mohit Chhabra reiterated in a blog post earlier this month. As investors and developers move into the state, ​“there will be some competition, and learnings that can lower the next tranche of offshore wind cost.”

Central procurement: California’s move to jump-start offshore wind

The CPUC was ordered to conduct the needs assessment under AB 1373, a state law passed last year to overcome a specific challenge: the lack of a central entity to procure the massive amounts of power needed to jump-start an offshore wind industry and meet the state’s offshore wind goals.

The law authorizes the California Department of Water Resources, which operates dams and aqueducts across the state, to sign contracts for gigawatts’ worth of generation from offshore wind farms, geothermal power plants, and pumped-hydro storage facilities, and to recover the costs from customers of the state’s investor-owned and municipal utilities and community energy providers.

The goal of AB 1373 was to combine the buying power of the state as a whole to reach scales of procurement that no single utility in California could justify, Croll explained. A number of East Coast states with gigawatt-scale offshore wind targets, including New York, Massachusetts, New Jersey, and Maryland, have also centralized procurement targets at the state level through different approaches.

California’s coastal waters are much deeper than those along the East Coast, which means the state must use floating wind turbines rather than ones that can be anchored to the seafloor. That’s a far less developed technology and has been deployed only at a relatively small scale in Europe to date.

However, even the standard seabed-anchored projects along the East Coast have been struggling with rising capital costs and supply chain disruptions over the past few years. Several gigawatt-scale contracts have been canceled, and while new contracts are being approved, the prices for them are rising.

These dynamics have put East Coast state lawmakers and regulators in a bind. Rising electricity rates have soured public opinion on costly new utility infrastructure, making it more difficult for them to support the cost increases that offshore wind developers are proposing.

But offshore wind projects can take up to a decade to be built, and they rely on simultaneous investments in manufacturing capacity, port facilities, and workforce development to happen. Delaying or downsizing the targets for that development increases the risk that this coordinated investment and infrastructure buildout will fail to materialize.

Major global wind developers such as Equinor, Invenergy, and RWE have already bid a collective $757 million for the rights to develop federally regulated tracts of ocean off California’s central and northern coast that are capable of hosting up to a total of 4.5 gigawatts of floating offshore wind. That’s just the first step in a multistage process that’s expected to yield the state’s first floating offshore wind farms no earlier than 2028.

Croll pointed out that American Clean Power’s wind developer members rely on a sufficiently large procurement target to achieve the economies of scale needed to drive down borrowing costs to finance their work, invest in floating offshore wind turbine manufacturing, build the port facilities to move them from land to ocean, secure the specialized ships needed to tow and deploy those turbines to where they’ll be generating power, and pay their share of the cost of constructing offshore transmission lines to connect them to shore.

“The cost decline over time is a function of deployment at a certain level. It’s not just happening because time is passing,” she said.

No matter the CPUC’s target, the Department of Water Resources won’t have to agree to contracts that are priced too high, Croll said. The state can simply decline to accept overpriced bids.

The CPUC’s 7.6 GW procurement target puts the agency in sync with other state agencies, which are moving ahead on their offshore wind plans, noted Dan Jacobson, senior advisor for Environment California, one of the groups that had pushed for a bigger target. Earlier this month, the California Energy Commission approved a strategic plan to achieve 2 to 5 GW of offshore wind by 2030 and 25 GW by 2045, a task mandated by AB 525, a state law passed in 2021. And CAISO, which manages the state’s transmission grid and energy markets, in May approved a 10-year transmission-buildout plan that includes two major offshore transmission projects that would make up about $4.1 billion of the plan’s total $6.2 billion in costs.

“If we set a high goal for procurement, we’d hope the market would respond with innovation and that competition would drive down prices,” Jacobson said. ​“That’s good, because what’s becoming more and more challenging is the task of staving off the worst impacts of climate change. We have to be fast, incredibly smart, and very inexpensive. It’s very hard to do those three things in unison.”

Kubiak of the NRDC noted that the CPUC’s proposed decision sets up ​“procurement process elements that will help contain costs, including three phases of procurement over 2027 to 2030 to allow learnings and cost reductions to be incorporated into bids later in the process.”

Containing costs will be an important area of focus for the CPUC and other state agencies as they move ahead on the multiple steps needed to reach the state’s offshore wind goals, said Alexis Sutterman, senior policy manager at Brightline Defense, an environmental justice advocacy group that supported a larger procurement target.

“We have strong recommendations on protecting low-income ratepayers,” she said, including cost caps on bids and assurances that developers adhere to community benefits plans that provide funds to low-income and tribal communities. At the same time, ​“this initial upfront investment will really drive down cost in the long term,” she said.