Anthony J. Pennings, PhD

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Will Offshore Wind Power Print Money?

Posted on | March 15, 2021 | No Comments

Research is showing that offshore wind farms can increase biodiversity in oceans. Like sunken ships, windmill installations present unique opportunities for facilitating marine life. These new habitats create artificial reefs and marine life-protection areas. Undersea hard surfaces rapidly collect a wide range of marine organisms that build and support local ecosystems. They also provide some refuge from trawlers and other industrial fishing operations.

This post will examine the prospects of wind energy, one of the promising alternative renewable energies that will work with hydropower, solar, and even small-scale nuclear energy to power the smart electrical grids of the future. Is offshore wind feasible? What are the downsides? Will it be profitable? Can it literally “print money” once it is operational?

Wind and torque combine to transform mechanical energy into electricity. The physics of windmills means that big is better. The larger the propellers that can be built, the more efficient they become. Bigger windmills capture more wind, and that produces more torque. The more propellers can harvest the power of the wind, the more electricity they can produce. The equation below describes the relationship between wind speed, torque, and power output.

torque and angular speed

Media economics can help us understand the economics of wind power. Media projects, such as books and films, as well as digital software, require significant expenditures upfront, but the cost of each succeeding unit of output is relatively low. What is the cost of each copy of Windows 11? Renewable energies tend to have the same characteristics, what economists call low marginal costs. Once a windmill is manufactured and installed, the cost of each kilowatt produced starts to decrease. The marginal cost of each unit of output costs less. Granted, the costs of maintenance, recycling, or reusing these large machines are valid points of concern.

Personally, wind power hadn’t impressed me in the past. In graduate school in Hawaii, I recall a large windmill near the North Shore surf spots that didn’t seem to generate much power. Driving up into San Francisco along Interstate 5, the windmills seem big and slow. However, flying regularly over northern Texas and Oklahoma, the wind farms become a bit more impressive. Understanding the fundamental economics and the basic engineering and science of wind energy is useful for policy analysis.

Unlike solar, wind power is not directly contingent on solar rays but on larger climatic events. The US Department of the Interior‘s Bureau of Ocean Energy Management (BOEM) has been conducting environmental impact studies and is giving conditional permission to build offshore wind farms. Contracts to provide wind electricity as low as 5.8 cents per kilowatt-hour are being negotiated. Massachusetts, Virginia, and the far coast of Long Island, New York are some of the major sites under development. While previously a global laggard, the US is expected to become a significant offshore electricity contributor after 2024.

The future of US offshore wind energy is dependent on several economic variables. One is power purchase agreements (PPAs) that businesses and other organizations use to solidify long-term purchases of electricity. Another is renewable portfolio standards (RPSs) that obligate US states to procure a certain percentage of renewable energy. RPSs have contributed to nearly half of the growth in renewable energies since 2000. Tax incentives are important and depend on the political winds. The US Treasury extended safe harbor tax credits for renewable energies, including offshore wind, in light of the COVID-19 pandemic. Offshore wind auctions are also crucial as the real estate cry, “location, location, location” resonates strongly in this industry.

Renewable critics, such as the Manhattan Institute have been been critical of offshore windmills, arguing that they decline some 4.5% in efficiency every year. Another concern is who will pick up the decommissioning costs of deconstructing and recycling the windmills. But the technology is new, as are the maintenance, recycling, and regulatory practices.

Wind could be a significant boost for coastal communities. Major cities closely tied to the ocean through fishing and shipping are likely to benefit from offshore wind, as it may provide affordable electricity and much-needed economic benefits. Tourism will benefit from cheap electricity as did Las Vegas when it had access to power from the Hoover Dam. In terms of jobs and the revitalization of shore-based businesses a wide range of services will be needed. Energy control centers, undersea construction, equipment supply, and maintenance operations are just a few of the opportunities emerging around ocean-based renewable energy sources.

This blog post examines the environmental, economic, and social benefits of offshore wind energy, highlighting its potential role in the future renewable energy mix. Environmentally, offshore wind farms may increase marine biodiversity by creating artificial reef-like habitats on their undersea structures. These installations not only support ecosystems but also act as protective zones against industrial fishing, contributing to ocean health. Thus, offshore wind development has dual benefits: clean energy production and marine conservation.

Economically, offshore wind shares similarities with media industries in that both require large upfront investments but benefit from low marginal costs over time. Once installed, windmills generate electricity at decreasing per-unit costs, making them potentially highly profitable, especially as turbine efficiency increases with size. Policy frameworks such as power purchase agreements (PPAs), renewable portfolio standards (RPSs), tax incentives, and offshore wind auctions are crucial in determining the industry’s viability. Early contracts suggest offshore wind can compete on price with traditional sources, with negotiated rates as low as 5.8 cents per kilowatt-hour.

Socially, offshore wind energy could revitalize coastal communities through job creation and local economic development, encompassing activities such as undersea construction, equipment maintenance, and energy management services. While critics raise concerns about declining efficiency, decommissioning costs, and the relative newness of the technology, these issues remain tied to changing practices and innovations. Overall, offshore wind is positioned to become a key driver in the transition to sustainable abundance, offering both energy security and socio-economic benefits in the coming decades.

Movies require extensive upfront expenses in production and post-production, but each showing in cinemas worldwide costs relatively little. Wind power requires a significant capital investment to be deployed. But the wind is free, so once operational, the windmill begins to produce electricity. Lubrication and other maintenance activities are needed at times, but electricity is created as long as the wind is blowing. If the infrastructure is set up efficiently, it will print money.

Citation APA (7th Edition)

Pennings, A.J. (2021, Mar 15) Will Offshore Wind Power Print Money?. apennings.com https://apennings.com/digital-media-economics/will-offshore-wind-power-print-money/

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AnthonybwAnthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea and a Research Professor for Stony Brook University. Born in New York, he taught at Marist College, Poughkeepsie before spending most of his academic career at New York University. He started his academic career at Victoria University in New Zealand after a decade in Hawaii at the East-West Center in Honolulu. He lives in Austin, Texas when not in South Korea.

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    Professor (full) at State University of New York (SUNY) Korea since 2016. Research Professor for Stony Brook University. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, digital economics, and global political economy

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