Will North Carolina go big on offshore wind?

By Heather Richards, Kristi E. Swartz | 04/13/2022 07:12 AM EDT

The Biden administration will hold lease sales next month. But the state’s offshore wind future could hinge on what Duke Energy — North Carolina’s large utility — and state regulators decide to do.

A wind turbine spins off the coast of Virginia.

A wind turbine spins off the coast of Virginia. Francis Chung/E&E News

North Carolina is about to take center stage in the Biden administration’s push for offshore wind, with a major federal lease sale set for this spring that proponents say could drive a billion-dollar industry in the state.

But there’s one problem: Duke Energy Corp. — the state’s largest utility — and state regulators haven’t fully committed to offshore wind just yet.

Duke’s caution about the burgeoning industry underscores how wobbly offshore wind’s footing is in the state. North Carolina also shows how individual state dynamics — and the actions of utilities and state regulators — will be just as important in the development of offshore wind as the Biden administration’s enthusiasm for the sector’s potential to combat climate change and generate jobs.


In the industry’s favor, the Biden administration recently announced the May lease sale of two leases totaling 110,000 acres off North Carolina’s coast. Wind farms in those locations could make it possible for the industry to meet the offshore wind target of 8 gigawatts by 2040 set by the Democratic Gov. Roy Cooper.

Last year, the state also passed a law that mandates carbon reduction in the electricity sector, requiring Duke Energy and regulators to bring that about over the next decade.

But the law doesn’t require offshore wind or subsidize it. And offshore wind — including the transmission lines needed to connect wind farms in the water to North Carolina population centers inland — may be prohibitively expensive.

The North Carolina Utilities Commission will be weighing offshore wind against cheaper and geographically convenient alternatives that Duke can use to meet its power needs, like solar or additional onshore wind, experts said.

In the Northeast, offshore wind is poised to be a major player, buoyed not only by the Biden administration’s ambitious climate commitments but support from state governments that have committed to purchasing electricity generated by wind farms. The payoff for that kind of backing was recently seen off the coasts of New York and New Jersey — two states that have bet big on offshore wind — when developers bid an unprecedented $4 billion on six leases (Climatewire, Feb. 28).

In North Carolina, the industry needs more certainty to really take off, said Lucas Stavole, senior analyst for North American wind for Wood Mackenzie. He suggested this could come either through a stronger legislative mandate or a more aggressive stance from Duke Energy.

“Duke has shown some kind of peripheral interest but hasn’t done anything strong,” he said, comparing it to Dominion Energy Inc., which is committed to developing a 180-turbine wind array in Virginia.

Duke CEO Lynn Good told analysts in an earnings call last November that the company was “evaluating offshore wind.” She added, “I would just say there’s more to come here.”

More recently, however, the company has signaled firmer interest.

Last month, the Bureau of Ocean Energy Management, which will run the May lease sale, revealed that Duke is a prequalified participant, alongside 15 other companies. That means Duke could end up competing with a slew of other developers, oil companies and utilities that have proved eager to gobble up offshore acreage for the country’s hottest new electricity sector.

Shortly after that sale, the company is scheduled to reveal its own carbon action plan, which may offer a greater understanding of how the industry fits into Duke’s outlook.

Experts who spoke with E&E News said it’s not a question of whether offshore wind comes to North Carolina. The state already has one developer planning a 69-turbine wind farm about 40 miles off the state’s coast, the Kitty Hawk project by Avangrid Inc., although that will likely export power to Virginia rather than the Carolinas.

The question is rather how much offshore wind really takes hold — particularly how much of an economic driver it can become for North Carolina as states compete to win parts of the new industry’s supply chain.

The uncertainty partially rests with a 10-year offshore energy leasing moratorium ordered by former President Donald Trump at the end of his administration. The ban goes into effect this summer.

While the Biden administration supports offshore wind, it is not expected to remove the moratorium due to a 2019 court ruling over energy leasing. When the Trump White House tried to reverse a similar offshore energy moratorium in the Arctic, a federal judge in Alaska rejected the move, saying while presidents can issue leasing moratoriums, only Congress has the authority to remove one (Energywire, April 29, 2019).

Congressional attempts to remove the moratorium have been proposed but haven’t been passed.

But even as the state looks “down the barrel of the leasing moratorium,” the Biden administration is moving the industry forward, said Nick Jimenez, an attorney with the Southern Environmental Law Center who follows state energy policy.

It’s working on new potential wind energy areas — a lengthy process — that will serve future lease auctions after the moratorium is lifted in 2032. And it’s racing to hold the lease sale before the moratorium sets in.

Wind proponents hope that momentum is enough to lift the industry and give North Carolina an edge. A state study released earlier this year that weighed the governor’s offshore wind targets found 2.8 gigawatts from offshore wind projects could drive up to $4.6 billion in net economic benefit for North Carolina and create up to 31,000 construction jobs.

Steve Kalland, executive director of the Clean Energy Technology Center at North Carolina State University, noted that the state isn’t eyeing wind simply for the clean electricity — officials want the construction, operations and maintenance companies they expect to develop with the sector. Right now, the Tarheel State is “playing catch-up” in a race to capture as much of the foundling industry’s supply chain as it can, he said.

Take manufacturing, “something that North Carolina is very good at,” he said. North Carolina has the highest manufacturing GDP on the East Coast and ranks fifth in the nation.

“We don’t build a lot of cars, but we build a lot of the parts that go into cars. It’s that kind of potential story,” Kalland said of offshore wind.

A turning point?

When North Carolina’s Legislature passed House Bill 951 — or the “Energy Solutions for North Carolina Act” — last year, offshore wind proponents saw it as a game changer for the industry in the South.

“That was really a big turning point for offshore wind,” said Katharine Kollins, president of the Southeastern Wind Coalition. “Offshore wind only makes economic sense if you have some kind of carbon policy.”

Indeed, the fledgling offshore wind sector’s momentum in Northeastern states is largely thanks to state laws mandating a transition to clean energy sources, and those legal mandates are often paired with subsidies to drive down costs and risks of development.

The North Carolina law puts the state on a path to slash carbon emissions 70 percent by 2030, on its way to becoming net zero by 2050.

Kollins and some others say that has to mean offshore wind, a massive resource for clean energy.

But the fact that much of the law hinges on regulatory approval by the North Carolina Utilities Commission is one of the reasons offshore wind is not guaranteed, one expert familiar with the ongoing dialogue said. This person was granted anonymity because of how sensitive the issue is for the commission.

A primary job of the commission is to make sure that new power generation is necessary to bring reliable service to customers, the expert said. With the arrival of H.B. 951, that’s a little more complicated as there is this overarching renewable mandate to reach. But it doesn’t guarantee offshore wind.

“The commission could say, ‘Well, that’s nice, Duke. But why should customers pay for it when there’s no mandate for offshore wind?’” the person said.

The law orders a “least cost” approach to reach the state’s carbon reduction goals, which is interpreted more as the most efficient or reasonable approach, explained James McLawhorn, director of the energy division for the commission’s public staff.

It’s that framework that the public staff, which advocates for ratepayers, will consider when they weigh Duke’s clean energy strategy. The staff have not yet taken a position on offshore wind as part of the state’s carbon reduction actions.

“We recognize there is going to be an economic impact on the customers of this,” McLawhorn acknowledged of the state law. “If there’s a less expensive way to achieve the same thing without compromising reliability, that would be the path we would want the utilities to take.”

The cost equation is one of offshore wind’s most significant hurdles. In North Carolina, that price tag isn’t only for the large offshore wind arrays but for the high-power transmission lines to connect pulses of offshore power to population centers that in North Carolina lie in the center of the state.

Duke would have to build out significant transmission for the electrons to get where they are needed, said Preston Howard, a former lobbyist with the North Carolina Manufacturers Association who now works for the Carolina Industrial Group for Fair Utility Rates. Much of the state’s population lives far from the coast, unlike in Virginia and the Northeast, he said.

Generally, utilities are eager to develop big capital projects. That’s because regulated power companies can make profits mostly in one way: build new stuff and make a regulated return on the investment by charging customers for it.

“Offshore wind and the transmission investments that are necessary to go with it would give Duke something to invest capital in, and that’s a significant part of the business model for regulated utilities,” said Kalland with North Carolina State.

But Duke will have to balance that economic revenue model against the imperative in the state clean energy law to keep costs as low as possible.

“I think the ‘least cost’ component really handicaps offshore wind,” Howard said.

Kollins, however, said it comes down to what Duke decides about offshore wind in North Carolina. While it’s true state regulators have to look at the “least cost” and have the authority to decide on what expense is worth it for the carbon reduction plans, Duke has significant influence, she said.

“The biggest hurdle is going to be how much the utility wants it,” she said. “If they want to do something, they’re the ones who convince the Legislature, they’re the ones who convince regulators, and frankly, they’re often the ones who convince the public.”

‘Very viable’

Duke has said repeatedly that offshore wind is under evaluation.

Spokesperson Bill Norton said the company had taken steps to “maintain its optionality” in the upcoming lease sale as part of its ongoing consideration of offshore wind’s potential.

“We’ve conducted several stakeholder meetings as we develop a proposed Carolinas Carbon Plan, and this public input is helping guide our recommendations for future generation investments, including the potential for wind,” he said in an email.

Duke is working on its carbon-cutting proposal during these public meetings for the Carolinas Carbon Plan, per H.B. 951, and is scheduled to file it with state utility regulators by May 16.

“Offshore wind is very much coming up to a place that we think will certainly be technically mature; it comes down to the economics,” said Adam Reichenbach, a senior nuclear engineer with Duke, in a recent meeting the company conducted online to explain its modeling process and discuss generation options. “We do think that is very viable.”

Company officials have included offshore wind and next-generation nuclear in the same conversation during the Carolinas Carbon Plan meetings. This is because a provision in the law gives Duke some leeway in reaching its interim 2030 carbon dioxide-reduction target if one or both of those options is chosen.

During the March meeting, Duke officials said it would consider at least 800 megawatts of wind by 2030 followed by another tranche two years later. This reflected a major shift in its modeling because of questions and pushback from clean energy advocates and others who pressed Duke on why it couldn’t add offshore wind to the grid sooner. What’s more, the utility now says there is enough available transmission to connect the first 800 MW to the existing power grid.

Still, it would be expensive. In supporting documents, Duke notes that estimated transmission upgrades for offshore wind would cost roughly $441 a kilowatt, but roughly $100 a kilowatt for all other resources.

The cost of an offshore wind project over time is roughly two times higher than solar and onshore wind: $140 a megawatt-hour versus $65 to $70 a megawatt-hour.

What’s more, any type of newly developed or untested generation poses risks to the utility. The higher the risk, the higher the cost.

“The reliance on new-to-Carolina resource types that don’t have an operating history in this region carries risks,” said Glen Snider, head of Duke’s long-term planning, during the utility’s February carbon meeting. “The more that we’re looking to do things in new ways, the more challenges that we might be taking on.”

Indeed, electric companies are obligated to operate a reliable and resilient power grid that will keep the lights on during a wide range of conditions, including extreme weather. This means any utility, Duke included, won’t bank on generation technologies that are being developed but don’t have a proven operating history. That could put its grid reliability at risk.

What’s more, it’s hard to control costs and a project’s timeline if there’s no experience in building it.

“In order to recommend a plan, we need to be confident that we can actually deliver,” Snider said.

That includes securing all the regulatory approvals and permits, having a robust supply chain and meeting a designated cost and schedule, he said.

Virginia’s approach

The dynamics shaping North Carolina’s offshore wind future are not unlike what’s played out recently in Virginia.

Like North Carolina, Virginia’s offshore wind sector could be driven by a monopoly utility. Also like North Carolina, Virginia recently passed a law to phase out carbon sources of power — the Clean Energy Economy Act.

But in that case the General Assembly did specifically support offshore wind, naming it a public good, which potentially circumvents cost hurdles.

Dominion Energy, the largest electricity company in Virginia, has now planned the largest offshore wind project in the country, a 2,600-MW array off the coast of Virginia Beach. It has already built a pilot project of two turbines that cost an estimated $300 million.

The high price tags have created friction. State regulators in 2018 opined that the offshore mandate in the Virginia Clean Energy Economy Act pushed them to approve a likely overpriced pilot project (Energywire, Oct. 20, 2021).

Jimenez, the Southern Environmental Law Center attorney, said the friction over Dominion’s offshore spending was likely more about the utility’s approach to offshore wind than the industry itself being too expensive. But he acknowledged that the expense of offshore development in North Carolina is probably what scared lawmakers away from a direct wind carve-out in their clean energy law.

But advocates of offshore wind in North Carolina remain bullish on the power source, despite its complications.

North Carolina has 300 miles of coastline with relatively shallow depths, and because of its sheer power, offshore wind on just a fraction of that could mean a significant amount of the state’s clean energy goals.

“It’s enough to power the state many times over,” said Jimenez. “I would say that at least some amount of offshore wind is going to be worth it. Despite that, you know, high upfront costs.”