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Shifting Winds: What Offshore Wind Means for Power Pricing

The Biden Administration’s infrastructure plan has stolen headlines in the recent week, for good reason, as it would have far reaching impacts on existing infrastructure and the energy industry. However, a week before the plan was released, the Administration made another ambitious announcement: a goal to reach 30 GW of offshore wind capacity by 2030. The regulatory implications of that announcement is a topic for future Energy Market Commentaries (and the Power View contains a complete list of currently proposed offshore wind facilities). Today’s commentary dives into how offshore wind differs from what we have seen onshore and what are the potential energy pricing implications in the PJM market.

Currently, Wind makes up about 6% of operational capacity in PJM. However, this is not evenly spread throughout the ISO, with the bulk of it in the western portion of the ISO in Illinois and Indiana near Chicago. This means up until this point, eastern PJM has been largely protected from the day-to-day pricing volatility that comes with sizeable wind generation. This can be seen in the graphic below that summarizes volatility over the last five Aprils at the Chicago Hub versus the New Jersey Hub.

Eastern pricing volatility (using New Jersey as a proxy) has been more muted, seen as a larger proportion of days to the left, versus Chicago hub pricing, which has seen wind penetration and the resultant volatility. So as offshore wind capacity is built out on the Atlantic Seaboard would we expect to see the same kind of volatility in New Jersey prices as we have seen in Chicago?

Let’s begin by looking into how wind patterns differ onshore versus offshore since that will be one of the most important factors in wind generation profiles. The following graphic compares wind speeds at the sites of proposed or operational wind projects offshore, in coastal New England, and in the Texas/Oklahoma Panhandle from 2007 to 2014.

Two observations are apparent from this data. The first is that offshore wind speeds are on average higher than what we have seen onshore. However, season to season, we see more volatility in wind speeds, with much higher speeds in the winter than speeds dropping steeply in the summer (even below Texas/Oklahoma Panhandle speeds).

What about intraday volatility in wind speeds? Will we see similar impacts to pricing that we have observed in ERCOT, SPP, and PJM’s Chicago Hub? The following graphic shows average intraday wind speeds in both summer and winter.

The hour-to-hour changes in offshore wind speeds are minimal compared to onshore wind, so while we will certainly see some additional intraday volatility in pricing due to offshore wind, it will likely not be to the same extent seen in the onshore wind belt. This changes opportunities for quick-fire natural gas plants to mitigate wind generation intermittency. Since intraday volatility will be more muted, those looking for where short-term energy storage or quick-fire natural gas generation fits into the long-term US supply stack should look to areas with more volatile wind patterns.

For more data and analysis around the power markets, request a one-on-one demo of BTU Analytics’ Power View.

Matthew Hoza

Matthew Hoza

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