Europe, General Electric, North America, Siemens

A happy ending for US offshore wind power?

Issue 10 and Volume 18.

A decade of delay occasioned by hostile landowners and legal hurdles could now be nearing its end as the US’s first pioneering wind projects close in on approval for installation, writes Elisa Wood.

Elisa Wood

Offshore wind development in North America has played out a little bit like the plot of Samuel Beckett’s absurdist play ‘Waiting for Godot’ – lots of expectation but no arrival. The wind saga has run for at least a decade with a cast of characters that includes some of America’s richest families, most prominent companies and best-known political figures.

Now wind advocates say the continent is truly on the verge of installing offshore turbines. That’s been said before. But are the turbines really coming this time?

“I’m very optimistic the industry is about to take off. But we have to define ‘take off’. We are not talking Internet time,” said Joel Whitman, director of corporate strategy for UK-based Global Marine Systems.

“We’re trying to build an industry that has a very long future. We are talking about a massive transformation in the way Americans think about power,” he adds.

Indeed, consumer opposition and regulatory confusion lie at the heart of the nearly decade-long delay. The United States has never before sited an offshore wind farm, so Congress and government agencies found themselves figuring out the rules as they went along, and sometimes throwing out those rules and starting over again.

And, as in all good stories, the hero faces powerful antagonists: a group of ultra-wealthy shoreline property owners – among them the Kennedy family, fossil fuel magnate Bill Koch and former Reebok CEO Paul Fireman – who have attempted to block the 130–turbine Cape Wind project, the first offshore project proposed in the United States, which has struggled for approval for almost a decade.

But Cape Wind has kept its eye on the prize and, step by step, has withstood legal challenges and overcome regulatory hurdles. Under development by Boston-based Energy Management Inc., Cape Wind scored a big win in October when Ken Salazar, US Secretary of the Interior, granted the project the first lease to operate a wind farm in federal waters. The 28-year lease gives the developer the right to operate the project in an area of 40.2 km2, 8 km off the coast of Cape Cod, Massachusetts. Cape Wind must pay $88 278 in annual rent prior to production, and a 2–7 per cent operating fee during production, based on revenues it generates from selling the offshore wind energy into US Northeast markets.

With the lease in hand, Cape Wind finally has most of the paperwork to move forward, with only one major approval remaining: from Massachusetts officials for its power purchase agreement with National Grid. A decision is expected around mid-November 2010. Once it has all approvals, Cape Wind says it should be able to complete construction in about two years, making it the leading candidate to become America’s first offshore wind farm.

The wind cries transmission

Less than a week after Cape Wind won its lease, the US offshore wind industry was again in the news, this time because an Internet giant entered the market. Google unveiled plans to partner with three other companies to develop the nation’s first offshore super grid to connect wind farms planned south of Cape Wind in Mid-Atlantic coastal waters.

“This system will act as a superhighway for clean energy. By putting strong, secure transmission in place, the project removes a major barrier to scaling up offshore wind, an industry that despite its potential, only had its first federal lease signed last week and still has no operating projects in the US,” said a blog titled ‘The wind cries transmission’ by Rick Needham, Google’s Green Business Operations director. The blog revealed Google’s plans on 11 October, the day before the super grid was announced.

Google plans to take a 37.5 per cent equity stake in the initial development stage of the 350-mile high voltage direct current transmission backbone that will run under the sea from Virginia to New Jersey. Called the Atlantic Wind Connection (AWC) the $5 billion project is designed to have a 6 GW capacity, equivalent to 60 per cent of the wind power installed in the US in 2009.

“Huge” was the word Andrew Spielman, partner in Hogan Lovells’ environment practice, used to describe the AWC’s influence on the offshore wind industry. “To use an overused phrase, it’s a game changer,” he said. In his view, this is particularly so as the partnership “is a well-funded joint venture with technical expertise”.

While Google is the household name that draws widespread media attention to the AWC, the other partners – Trans-Elect Development Company, Good Energies and Marubeni – are well-known in energy and finance circles.

Trans-Elect, the lead partner, became the US’ first independent transmission company to acquire the transmission system of an investor–owned utility when in 2002 it purchased 11 587 km of lines for $570 million from Canadian company TransAlta. It has since acquired or participated in several major US projects. Good Energies has invested in renewable energy companies with a pipeline of 6 GW across Europe and North America; its stake in the super grid is equal to Google’s 37.5 per cent. Marubeni, the fourth investor, is a Japanese company with 7300 MW of net power capacity worldwide and a global reach in several industries, including food, pulp and paper, metals and energy.

A map created by the National Renewable Energy Laboratory (NREL) illustrates offshore wind potential in the United States Source: NREL

The investors plan to develop the Mid-Atlantic super grid in five phases, which would start with a 1500 MW segment built over two years. Construction should start on the system’s first wind farm in 2013 and commercial operation should begin in 2016, according to Marubeni.

The partners chose the US Mid-Atlantic because of its vast potential for offshore wind development, with shallow water that extends far out to sea, allowing wind farms to be constructed beyond the view of property owners. Google says that the region has potential for more than 60 GW of offshore wind.

But that is only the beginning for offshore wind potential in the United States. A technical study that the National Renewable Energy Laboratory (NREL) concluded in September 2010 found US offshore wind could produce four times the power of all the nation’s current sources.

The states with the richest wind potential within 50 km of shore include Hawaii with 637 GW, California (587 GW), Michigan (Great Lakes) (483 GW), Louisiana (315 GW), North Carolina (297 GW), Texas (278 GW), Oregon (219 GW) and Massachusetts (200 GW).

But NREL admits the 4150 GW of wind potential it identifies is based purely on technical potential, without considering human use, environmental impact or unsuitability for development – all factors likely to significantly trim true potential. The West Coast, for example, is considered inhospitable to large scale wind farming because of its rocky shoreline and near-shore deep waters.

It’s good to be second

Furthermore, as Global Marine Systems’ Whitman points out, building offshore wind farms is far from easy, even after they are approved. Not even a fraction of the gigawatts that NREL identifies are likely to appear off US coasts any time soon.

The story told is that US offshore wind has been delayed by deep-seated resistance, but that is only part of the tale, he said. “None of this is insurmountable. But the truth is that these policies need to be thought through, so as many people are happy as possible.”

Several complexities must be considered to get the job done right, he said. For example, transmission cable must be laid under water. Along the heavily populated Eastern coastline, which is expected to host much of the US offshore wind development, the seabed is already teaming with conduits for telecommunications. The gas, oil and fishing industries have also laid claim to the seabed through prior use.

The Stemat 82 cable-laying barge at work on the Horns Rev offshore wind farm off Denmark Source: Global Marine Systems

“We are going to put these wind farms off of New York, Massachusetts, Delaware, New Jersey. Those are densely used areas. There is a lot of cable down there. If I have to repair a telecom cable near turbines, what is the process for doing that? What are the boundaries?” he said.

“We [Global Marine Systems] have been in the cable maintenance business for 150 years, so we operate a fleet of vessels that maintain telecom cable. One part of our business knows that inside and out, and the other side of our business is trying to figure out these site issues for power. So we are asking ourselves what is best practice when these two things need to co-exist?”

Another issue is how to integrate offshore wind – and, even more significantly, an offshore wind ‘super grid’ – into the mainland grid. “We are now talking entire power plants at sea. So starting with the grid design, where is the power going to come in – and can the grid handle it?”

Whitman, who works out of Global Marine Systems’ Boston office, says the US has the advantage of coming to offshore wind later than Europe, and can benefit from lessons already learned by European policymakers and contractors. “Those guys in Europe have a decade head-start. It is good to be second. The guy who went first gets to go through all the drama of making mistakes.”

What are some of those lessons? While initial permitting and development may be slow, once building begins, speed counts. For example, when Global Marine Systems arrives at an offshore wind site to pull cable, foundations must be ready and engineering specs in place. If the specs are changed, work is delayed and costs skyrocket. The vessel charge is $150 000 per day. A change in design might add two hours per day to the vessel’s work schedule.

“With three turbines, I am now one day behind. With 130 turbines, I am weeks and weeks behind,” he said.

“Behind me is the barge with the turbines. He is really expensive. If I’m delayed, he’s delayed. Everyone is haemorrhaging money. So this requires deep experience and some very specific equipment and some very sophisticated planning. There wasn’t an appreciation by some of the projects that have gone before as to the level that this has to be done.”

Eastern States back Offshore Wind

Whitman predicts that installation of US offshore turbines may begin in 24 to 36 months. Cape Wind is widely expected to be the first because it is furthest along in the regulatory process. Neighbouring Rhode Island also has a project at an advanced stage in the process, a 28.8 MW demonstration wind farm proposed off Block Island by New Jersey-based Deepwater Wind. The pilot project is meant to be a precursor to a larger 106–turbine project planned off Rhode Island’s coast by Deepwater.

After seeing how hard it was for Cape Wind to win approvals, Rhode Island officials attempted to smooth the process by designating areas off the state’s coast for expedited zoning review. The state also chose a preferred developer – Deepwater Wind – to receive state assistance. National Grid signed a contract to purchase the demonstration project’s output and, after a couple of attempts, won approval of the deal from the state Public Utilities Commission.

But the contract was almost immediately challenged by Rhode Island’s Attorney General and by manufacturers, who argued that National Grid is paying too much for the power at 24.4 cents/kWh from 2013. The Conservation Law Foundation, an environmental group that typically backs offshore wind, also challenged the contract on the grounds that the state had not followed a fair competitive process. Deepwater officials argue that the project is more expensive than Cape Wind, priced at 18.7 cents/kWh, because it is a small pilot project and lacks the economies of scale of Cape Wind.

The delay has frustrated Rhode Island Governor Donald Carcieri, who – like other East Coast governors – sees offshore wind power as a way to boost jobs. “The Attorney General is using his office to try to score political points and bring relevance to his campaign, instead of exercising his responsibilities to the state,” said Carcieri.

The Eastern Governors are vying with each other to attract turbine manufacturers, but more significantly they are vying against the Midwestern states. American Electric Power, a utility that owns the single largest chunk of the US power grid, about 62 764 kilometres of transmission, has floated the idea of a land-based ‘super grid’ that would move wind power from the Midwest into the power hungry East Coast cities.

The East Coast Governors have protested against the idea, banding together to urge federal officials to let them develop their own renewable energy industries, rather than having to rely on wind imports. Given that many of the states, particularly in the Northeast, have little land for terrestrial wind farms and no desert for concentrated solar power, offshore wind becomes their most feasible alternative for large-sale renewable energy development.

In June, ten Eastern states joined forces and signed an agreement to create the Atlantic Offshore Wind Energy Consortium, meant to foster federal-state teamwork to build wind farms along the Atlantic’s Outer Continental Shelf.

Atlantic states are also coming up with innovations to attract the offshore wind industry. New Jersey, for example, has established a revenue mechanism for promoting offshore wind that mimics its highly successful solar renewable energy credit programme.

Under a law enacted in September, utilities must buy a certain amount of ‘ocean renewable energy certificates’ (ORECs) under 20-year terms to foster 1100 MW of development. State regulators will set the OREC price through a competitive process each year to ensure a certain stream of revenue for offshore wind farms.

A subsidiary of Public Service Enterprise Group (PSEG), a $13 billion energy company in New Jersey, hopes to win a contract through the state competitive bidding for its proposed 350 MW wind project being developed in a 50-50 joint venture with Deepwater Wind 16 to 20 miles off the southern New Jersey coast.

Rules are still being worked out for bidding, but it is known that the state will expect projects to demonstrate economic benefits, such as job creation. In fact, the new law offers $100 million in tax credits to turbine and other component manufacturers.

“The state wants to create something large enough, a supply chain, to entice manufacturers. We are meeting with a number of different vendors so that we will have a bid package that will include several manufacturers,” said Scott Jennings, president of PSEG Global.

But Jennings has a concern in how quickly the federal government will grant operating leases, beyond the one already given to Cape Wind. The process could take seven to nine years, which Jennings said “is not commercially viable.”

Five wind farm projects in June 2009 won interim exploratory federal leases to build off the Atlantic coast. Three leases are for areas off New Jersey and two for areas off Delaware. The developers are Deepwater Wind, Bluewater Wind and Fisherman’s Energy of New Jersey. The leases allow them to set up meteorological towers and conduct environmental site studies.

In June, the industry received encouragement that the federal government would move more quickly on operating leases, when the Department of the Interior set up a new regional renewable energy office in Virginia to expedite the process.

But the Atlantic coast is not the only area of North America that holds strong promise for offshore wind development. The New York Power Authority is reviewing five proposals vying to build wind farms in Lake Erie or Lake Ontario. In Ohio, General Electric and the Lake Erie Energy Development Corporation are making plans to develop offshore wind farm in Lake Erie near Cleveland, Ohio.

Perhaps most significantly, Ontario is pushing forward aggressively to develop offshore wind on the Canadian side of the Great Lakes, offering a siting process that is less onerous to developers than the US approach.

 

Siemens 2.3 MW wind turbines are installed at the Horns Rev II offshore wind farm Source: Siemens

Given the steadiness of winds off the Great Lakes, the province sees wind energy as a resource to fill a supply gap as it shuts down its coal fired plants by 2014.

Ontario developers have applied to lease contiguous offshore locations on the Canadian side of the Great Lakes that would generate 20 790 MW, roughly 59 per cent of the province’s total installed generation capacity, according to Trillium Power, which plans to build its first offshore wind farm, the 420 MW Trillium Power Wind 1 about 17 to 28 km off the northeast shore of Lake Ontario. The project, like others in Ontario, will benefit from the province’s feed-in tariff of 19 Canadian cents/kWh ($0.1882).

With so many developers attracted to North America, and so much recent government support, industry insiders say offshore wind development is inevitable and likely to occur sooner rather than later – even if, as recently as 15 October, the Alliance to Protect Nantucket Sound, Cape Wind’s archenemy, petitioned the Massachusetts Department of Public Utilities to reject Cape Wind’s power purchase agreement (PPA) with National Grid.

“Approving the Cape Wind PPAs would amount to imposing a multi-billion-dollar tax increase on Massachusetts consumers, driving up not only their electricity rates but the costs of all things they purchase, because businesses would need to include the extra costs in the prices of their products,” the organization argued in a legal brief, which Cape Wind and its supporters have attempted to rebut.

The project’s backers claim that even if fossil fuel prices remain stable, the project will only add 2 per cent to ratepayer bills in 2013. But if fossil fuel prices rise with economic recovery, Cape Wind output could become a bargain, said Cape Wind’s president Jim Gordon.

With the decade-long battle still raging between Cape Wind and its opponents, some wonder what other offshore wind farms will face as they make their way through the difficult US regulatory system. Will it take this long for the second wind farm to be sited?

“The scepticism is fair. But Rome wasn’t built in a day and the US offshore infrastructure won’t be either,” Spielman said. “But I think it will be built. It sort of has to – the offshore wind resource is just too big to ignore.”

Elisa Wood is a freelance journalist based in Virginia, USA, who specializes in energy issues.

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