Energy & Environment

The Struggle to Implement Offshore Wind Farms

Offshore wind farms are on the cusp of becoming a serious source of energy for a host of states -- if they can only get those turbines in the water.
by | January 2011
 

The fight went on for eight years: Massachusetts-based Energy Management Inc. (EMI) wanted to build a 130-turbine wind farm on Nantucket Sound -- right off Cape Cod. While federal regulators went through rigorous and lengthy environmental reviews, landowners raised objections. Their main argument: The wind farm would be an eyesore that obstructed their ocean views.

Last fall, EMI’s argument finally prevailed. In October, the federal government issued the nation’s first commercial lease for an offshore wind farm, to be called Cape Wind. A month later, state regulators approved a power-purchase agreement with the energy company National Grid, which will buy about half the power generated by Cape Wind.

But the stamp of approval -- from the feds and the utility market -- doesn’t mean the battle is over. Cape Wind, which will generate up to 420 megawatts of electricity, faces more obstacles: finding a buyer for the remaining 50 percent of the power, securing financing for the reportedly $2 billion project and opposition from the politically powerful residents of Cape Cod.

Mark Rodgers, communications director for Cape Wind, is undeterred. “The Cape Wind review was so slow,” he says. “It was probably the most thoroughly reviewed project in the history of New England, maybe the United States. We can stick it out a little longer.”

Offshore Wind Power's Future

A decade from now, the Cape Wind saga may be remembered as the labor pain that helped birth a new industry. Although the U.S. boasts more installed onshore wind capacity than any other country, the nation lags in the offshore arena. European countries have put in place more than 1,000 offshore wind turbines since the early 1990s. China set up its first offshore wind farm last year, and it’s supplying power to 200,000 Shanghai households. A second plant, also in the East China Sea, will be built next year.

By contrast, the U.S. has yet to build a single wind turbine in state or federal waters. But change may be on the horizon, and Cape Wind isn’t the only sign of it. According to a report by the U.S. Department of Energy’s National Renewable Energy Laboratory, planning for wind development is well under way, with the largest concentration of sites proposed for mid-Atlantic states. Half a dozen offshore turbine projects capable of generating 3 gigawatts are currently undergoing federal review, with about a dozen more moving through the state permitting process.

Investors are also getting on board. Last October, search engine giant Google and investors Marubeni Corp. and Good Energies announced plans to finance a $5 billion, 350-mile underwater transmission line to support multiple wind farms in four mid-Atlantic states, from New Jersey to Virginia. Turbine manufacturers are doing their part to scale the fledgling sector, targeting bigger designs and deeper installations. Supporters tout offshore wind’s potential to create green jobs, reduce greenhouse gas emissions from fossil fuels and pave the way for a clean energy future.

That’s the positive news. Whether the recent activity translates into actual industry growth will depend on major federal-level policy changes and the ability of federal and state regulators to bring more stability to the burgeoning industry. “We need a national renewable energy policy -- a policy that doesn’t change every two years,” says Bob West, managing director of the Ocean Energy Institute, adding that several factors are creating uncertainty in the offshore wind power market: cumbersome permitting processes, low natural gas prices and federal wind subsidies that are set to expire in 2012. “Without that certainty,” he says, “it’s going to be difficult to get these projects off the ground.”

The Increasing Popularity of Offshore Wind Power

Offshore wind is moving to the top of the renewable energy wish list -- at least on the East and Gulf Coasts -- for valid reasons. For starters, ocean breezes are far more abundant and reliable than wind blowing onshore. “You get more wind more often,” West says. A slew of recent reports underscore the resource’s almost boundless nature. The National Renewable Energy Laboratory estimates that offshore wind capacity within 50 nautical miles of the U.S. coastline is about 4,000 gigawatts -- or about four times the amount of energy flowing through the current electrical grid. The nonprofit organization Oceana calculates that New Jersey could meet 92 percent of its electricity needs with offshore wind.

Strong, steady output isn’t the only advantage of offshore turbine fields. With onshore fields, building overland transmission lines involves not only local, state and federal governments, but also negotiations with hundreds of private property owners. Not so with offshore transmission, where there are only three stakeholders: the city, state and federal government. In addition, offshore wind offers the potential for more efficient transmission, especially for coastal states now dependent on energy imported from afar.

State government officials are getting in position to tap the benefits, although the degree of investment varies widely. Heading the pack is New Jersey, which last summer approved one of the most aggressive pieces of offshore legislation in the country: a $100 million tax credit for offshore wind developers and supply chain manufacturers. “We are sending a strong market sign that we are interested,” says Michele Siekerka, assistant commissioner for economic growth and green energy for the state’s Department of Environmental Protection. “Our goal is to build an industry around these projects.” So far, the federal government has granted “interim limited leases” to three offshore wind farms in New Jersey. The temporary leases allow companies to conduct preliminary site research and put up meteorological towers to measure wind and wave speed.

Last spring, the Virginia Coastal Energy Research Consortium identified 25 sites a dozen miles off Virginia Beach that could provide 3,200 megawatts of electricity. To help facilitate the process, the state approved a “permit by rule” measure to streamline reviews for wind energy projects. “Virginia is second only to California in the amount of energy it imports,” says Maureen Matsen, the state’s deputy secretary of natural resources. Pursuing an offshore portfolio is part of the state’s strategy to close the gap between local supply and demand.

In 2008, Delmarva Power, a Delaware-area utility, signed a 25-year power-purchase agreement with NRG Bluewater Wind, an offshore developer seeking to build a 450-megawatt farm 14 miles off the coast. “Delaware has an aggressive 20 percent renewable portfolio standard,” says Bridget Shelton, a spokeswoman for Pepco Holdings, Delmarva’s parent company. “This project will help us meet that goal.” The NRG Bluewater power-purchase agreement is one of only two in the country -- the other is between Cape Wind and National Grid.

Blowing Past the Obstacles

All this forward movement sounds promising, but the obstacles to implementation loom large. Topping the list is the time it takes to secure a federal lease. Where natural gas permitting takes one or two years, permitting for offshore wind farms takes much longer -- sometimes four or five times as long. “We cannot get financing for a project that takes seven to nine years to be permitted,” Matsen says. “That’s the biggest obstacle.”

Offshore developers relay their tales of bureaucratic purgatory. In the wake of last year’s Deepwater Horizon oil spill, the Minerals Management Service dissolved into the Bureau of Ocean Energy Management, Regulation and Enforcement, one of several challenges that led NRG Bluewater to extend the start date of its purchase agreement with Delmarva Power by two years, until 2016. NRG Bluewater President Peter Mandelstam notes that American offshore wind farms have languished over the past few years while China “went from no offshore capacity to 103 megawatts in the water and spinning.”

What will it take to put American turbine fields in the water? Many experts believe the proposed Atlantic transmission line that would link multiple turbine fields with a single power line may be just the catalyst the industry needs. The project is backed by deep-pocketed investors and its unique design -- of one linking line -- should help mitigate the variability inherent in each individual wind farm, says Willett Kempton, a professor at the School of Marine Science and Policy at the University of Delaware. The latter is important. By increasing the predictability of the power, Kempton says, “you increase the value of the power.”

Improving the marketability of offshore wind is important, considering that the relatively high cost of the resource is another impediment to industry growth. The Cape Wind power-purchase agreement, which sparked one of many debates over the project, has National Grid paying about 18.5 cents per kilowatt hour, about twice the wholesale market rate for electricity. That price premium is expected to disappear as the offshore industry matures and prices for fossil fuel increase. But until then, determining how to mitigate the impact on ratepayers is a challenge.

As of December, Google and Good Energies pledged $200 million each toward the line’s first phase -- a 150-mile segment from New Jersey to Delaware. The project’s size dovetails with current industry practice, where “the perspective is we need to have more megawatts per installation,” Kempton says, adding that offshore manufacturers are designing 10- to 15-megawatt turbines instead of the typical 2- to 5-megawatt machines used on land.

As private-sector innovation advances, industry watchers are waiting for a complementary move by federal policymakers. Last November, the Obama administration unveiled plans to accelerate the federal approval process for offshore wind energy permitting -- but the details have yet to be revealed. Another unknown is the future of two wind energy subsidy programs scheduled to expire in the next two years: the 30 percent cash grant program for renewables and the federal loan guarantee for clean energy projects.

For their part, states can act to offer more favorable incentives for wind developers -- and make sure the reality matches the rhetoric. Virginia, for example, only has a voluntary renewable portfolio standard -- not a mandatory one -- creating a less attractive climate for manufacturers.

Offshore Wind Power Developers Look Forward

The U.S. onshore industry had its best year in 2009, with about 9,900 megawatts of installed new capacity. “That’s mostly due to the cash grant,” Mandelstam says. “What’s happened on land can happen offshore.”

For now, though, the industry remains in limbo. It’s a familiar state for offshore wind companies, especially Cape Wind. Despite the uncertainties, the developers hope to begin construction at the end of 2011. “We are cautiously optimistic,” Rodgers says.

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