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Offshore Wind’s Impact to Natural Gas Generation

Momentum behind U.S. offshore wind development continues to gain traction, as evidenced by the first major offshore wind project, located off the coast of Massachusetts, beginning construction late last year. The Biden administration’s goal for 30 GW of offshore wind by 2030 has driven the Bureau of Ocean Energy Management to expand lease offerings, drastically increasing potential installed capacity off the Atlantic coast. As these projects eventually make their way into service in ISO New England (ISO-NE), those impacts will mostly be felt by the marginal producer of power across the region: natural gas-fired power plants.

Today’s Energy Market Insight is an excerpt, with edited graphics, from a recently published article from BTU Analytics that discusses the impacts of offshore wind to natural gas power plant economics and regional transmission congestion, as well as the knock-on effects to New England gas demand and pipeline flows. If you are a BTU Analytics or FactSet client, email info@btuanalytics.com for a copy of the full article.

Historically, ISO-NE has been insulated from the buildout of renewables, due to limited land availability and lack of favorable wind and solar resources. To date, the region has relied primarily on natural gas and nuclear power plants and, in times of natural gas scarcity, oil and dual-fired oil/natural gas plants.

While the market has seen little impact from large-scale renewables generation, that dynamic will likely change as proposed offshore wind farms begin to come to market. When the grid is uncongested, thermal power plants (natural gas, coal, oil, and nuclear powered) in New England dispatch following the dispatch curve shown below. Renewable resources, like offshore wind, would sit lower and further to the left than the nuclear generators on this curve, since their variable cost of generating electricity is minimal or even negative, due to tax incentives. This effect serves to reduce the net load on the system, reducing the number of generators that would need to be dispatched and driving down power prices.

Varying the amount of offshore wind generation affects the amount of gas-fired generation that is at risk of falling out of the generation stack based on economics. The graphic below shows potential displacements in 2025 and 2027 compared to the total natural gas generation that would be expected without offshore wind generation.

Assuming the 2027 buildout of offshore capacity is paired with appropriate transmission upgrades, offshore wind is modeled to bring about a material impact on natural gas plants in New England. However, changes brought on by new offshore wind production do not end at power plants. The pipelines that supply their fuel will have to adjust to the changes in behavior of their offtakers, directly affecting their flows. Historically observed volumes from plants at risk reach just under 20% of total power burn in the region, with winter volumes spiking up to 30% in February due to stronger wind generation.

The above graphic shows volumes by pipe supplying the plants at risk, however, curtailments of regional LNG imports and a resurgence of latent demand would mitigate impacts on pipeline flows to some degree. Even with these mitigating factors, natural gas dynamics in New England are due to change with the introduction of offshore wind generation. For a deeper in-depth analysis of the anticipated impacts to power and gas markets in New England as the development of offshore wind continues, request your copy of our recently published paper by emailing info@btuanalytics.com.

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Matthew Hoza is a Manager of Energy Analysis for BTU Analytics. Currently he is leading the power team in the development of BTU Analytics’ Power View platform, which provides capacity, generation, and power price outlooks for ISOs and utility areas across the US. Previously, Matthew led the natural gas team that develops and maintains outlooks for natural gas production, demand, pricing, and infrastructure, as well as provided bespoke natural gas market analysis. He holds a M.S. in Finance from the Simon Graduate School of Business at the University of Rochester and B.S. in Physics from Florida State University.

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