Jumpstarting Offshore Wind through Centralized Procurement in CA

RODEO Team/BOEM

Making offshore wind a reality in California requires significant coordination and collaboration between many state agencies, regulators, buyers, and sellers over many years. The California Public Utilities Commission (CPUC) recently kicked off development of a centralized procurement plan-a fancy way of saying a financial commitment to offshore wind on behalf of all Californians. It is a big step forward toward building wind power off the California coast. NRDC submitted input to the CPUC outlining some key principles for centralized procurement. Our recommendations focus on unlocking a competitive market for offshore wind through a sizeable initial investment and mechanisms that promote cost reductions.

Offshore wind is needed to round out California's mix of renewable resources

California adopted its first renewable portfolio standard in 2002 and by 2022 generated nearly half of its electricity from renewable energy including solar, wind, and geothermal resources. The standard has been successful in increasing deployment of clean energy while creating markets that drive down costs. Going forward, to meet California's 2045 goal to power its grid entirely on carbon-free energy, the state will need to develop more resources that have complementary production profiles to its current resources. The state's heavy reliance on solar means that resources that provide power during winter months and evening hours will be especially valuable to develop for California to meet its clean energy goals.

Offshore wind is one such resource. Winds off the California coast are powerful in winter and evening hours, making it an ideal complement to California's current clean energy system. The federal agency responsible for managing energy development in federal waters, BOEM, has issued five leases off the California coast to offshore wind developers, who are conducting site surveys and developing plans on how to build out offshore wind and necessary infrastructure to integrate it into the grid.

Central procurement can provide the scale and certainty required to jumpstart offshore wind

To build offshore wind cost effectively requires large scale development. In addition to the wind turbines themselves, transmission, ports, and other infrastructure also need to be built. Developers and transmission planners need a commitment that someone will buy the electricity these offshore turbines eventually generate. To make all this initial investment worthwhile, enough offshore wind needs to be purchased. The size of the contracts needed to bring this initial amount of offshore wind online is greater than any one utility or load-serving entity's (LSE) individual needs; in many instances it's also greater than the needs of multiple LSEs combined. Rather than utilizing a traditional procurement model in which developers and individual utilities separately negotiate each contract, a more suitable model is for one entity to negotiate a contract with several developers on behalf of many utilities. This concept of centralized procurement is explained in AB 1373 (2023), which NRDC and other stakeholders supported. The legislation authorizes the Department of Water Resources (DWR) to procure clean long lead time resources such as offshore wind on behalf of utilities and other LSEs.

Absent a central buyer, the need to assign fractional shares to dozens of LSEs who would all have to negotiate their own contracts adds risk and cost to the project that California's electricity customers will ultimately bear. A single buyer that can negotiate contracts on behalf of other LSEs can reduce risk to the developer, increase contracting efficiency, and lead to lower overall pricing.

The details matter in designing an effective centralized procurement process

The CPUC's ruling asked for input on whether there is a need for centralized procurement of clean long lead time resources, and what that need determination should be. The Ruling asks additional questions on a cost-benefit analysis of offshore wind, how to allocate offshore wind costs, and how to design the process.

As outlined in our comments, NRDC recommends that the Commission adopt an OSW need determination of at least 5 GW by 2035. A need determination is a guaranteed minimum amount of resource needed to create market certainty but leaves room for cost reductions through learning and increased deployment. Those 5 GW should be spread between lease areas off the north and central coasts of California to spur investment in transmission and port infrastructure in both areas. We believe this level provides enough certainty to trigger those investments, while leaving room for costs to come down through learning and competitive bidding, and to meet California's offshore planning goal of 25 GW by 2045.

We further recommend:

• The CPUC should update its analysis to assess the full benefits of OSW. The proposed OSW cost-benefit analysis does not fully consider the long life of OSW turbines or benefits of economies of scale, likely leading to an underestimation of the benefits of OSW.
• The CPUC should use non-ratepayer money as much as possible for investment in infrastructure needed for OSW development so that these ports aren't funded through our already high electricity bills.
• The CPUC should consider additional mechanisms to encourage competitive bidding and bring down prices.
• The CPUC should clarify that fossil or hydrogen-based electricity generation, including gas with carbon capture, are not resources eligible for centralized procurement under the AB 1373 statute.

Central procurement is crucial to ensure that there are sufficient amounts of complementary clean energy resources like offshore wind in the future as our electricity demand increases due to transportation, building, and industrial electrification. Our recommendations ensure certainty in OSW buildout while minimizing cost impacts. When California adopted its RPS, the first contracts were at higher prices, but those initial higher prices were what enabled the lower prices and complete market transformation that later followed. Offshore wind costs will likely follow a similar trajectory of cost declines as projects are developed and efficiencies from learnings are integrated. What we do now will have a huge impact on what our grid looks like in 2035 and beyond - it's crucial we design this process in a way that makes sure that buildout is as low-emission, reliable, and cost-effective as possible.

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