In November 2010, Interior Secretary Ken Salazar rolled out the Administration’s “Smart from the Start” Program to develop wind off the Eastern Seaboard of the United States. Nearly two years later, on October 23, 2012, Interior awarded the first lease under the Program to NRG Bluewater Wind Delaware LLC for a lease off the coast of Delaware. Slow but steady progress is being made under the Program. Whether this progress will continue depends, in part, on whether the Production Tax Credit (PTC), which supports all wind projects in the U.S., is renewed. The PTC expires at the end of this year.

This article briefly describes the status of the federal leasing program and adjacent state activities. Unlike the oil and gas program, where lessees know that refineries will purchase the oil they find, offshore wind developers are left largely to their own devices to identify the companies who will purchase their resource. The lack of extensive coordination between state and federal laws and policies has been one factor that has stymied the development of offshore wind. The other is the price point at which offshore wind can be delivered compared to the decreasing cost of natural gas.

Two recent studies have once again touted the potential benefits of offshore wind. A report prepared by IHS Global Insight for the Atlantic Wind Connection (the developer of the backbone to connect all offshore wind farms with one transmission link), and released at the October 9 American Wind Energy Association’s (AWEA) Conference in Virginia Beach, Virginia, predicted that developing 7 GW of wind off the Atlantic coast would lead to: 1) a total of 173,000 new jobs; and 2) an increase of $4.6 billion in federal, state, and local government revenues. A similar and recent report prepared by the National Wildlife Federation (NWF) confirmed that we are at a “Turning Point for Atlantic Offshore Wind Energy.” The NWF report concluded that developing offshore wind (52 GW) could generate $200 billion in new economic activity, create 300,000 jobs, and sustain power for about 14 million homes while still protecting marine wildlife. Whichever study you rely on, the potential for renewable energy and job creation is great.

Authority for offshore wind leasing beyond state waters is in the hands of the Bureau of Ocean Energy Management (BOEM) of the Department of the Interior. However, BOEM cannot dictate to states and consumers whether to accept or buy the power generated by the wind farms. This is left strictly in state hands. And the policies for purchasing and encouraging offshore wind have varied greatly among the Atlantic States.

Following is an update on what each state is doing and the related federal leasing program adjacent to each state, beginning with Maine and proceeding to South Carolina.1 The update begins to tell the story of how important it is for the U.S. to have a single coordinated policy for federal leasing and state offtake (or power purchase) agreements if wind development in the U.S. is to catch up with that in Europe.

Maine

BOEM has issued a notice of intent to lease offshore Maine and conducted two information sessions in Maine on October 23 and 24, 2012 to explain the next step in the leasing process. Statoil North America, Inc. (Statoil) submitted an unsolicited proposal to BOEM in October 2011 for a commercial lease. Recently, the Maine Public Utility Commission (PUC) rejected a proposed term sheet from Statoil for utilities to purchase power from the wind farm because of the high costs. However, the PUC will reconsider the proposal if Statoil improves its offer.

Massachusetts

In May 2012, BOEM announced the Wind Energy Area (WEA) to be developed off the coast of Massachusetts and adjacent to Rhode Island. Ten developers expressed an interest in building farms off the coast of Massachusetts. On November 2, 2012, BOEM released its draft Environmental Assessment for the Massachusetts WEA, which will be located some fourteen miles south of Martha’s Vineyard. This location may avoid the view shed issues that plagued the Cape Wind project for so long.

In the meantime, the long-planned and controversial Cape Wind project, which began in 2001, has completed its significant permitting hurdles. In August, Cape Wind received its final permit when the Federal Aviation Administration (FAA) determined that the project would not pose a hazard to navigation. Interior had previously awarded a lease to the project consisting of a 130-turbine, 486 MW farm in Nantucket Sound. Cape Wind aims to complete financing for its wind farm in 2013, begin cable work in 2013, and start construction in 2014. Cape Wind signed a 15-year contract with NSTAR Electric for 129 MW of the project and has a contract with National Grid for 50% of its output.

Rhode Island

BOEM identified the WEA off the coast of Rhode Island earlier this year, received eight expressions of interest, and has conducted an Environmental Assessment (EA) for both Massachusetts and Rhode Island.

In the meantime, Deepwater Wind has proposed a small wind farm to be built three miles southeast of Block Island consisting of five turbines. The wind farm is expected to generate 125,000 MW hours annually and supply the power needs of the majority of the residents of Block Island. Excess power will be shipped to the mainland via the bi-directional Block Island Transmission System. In August 2010, the Public Utilities Commission agreed to a 20-year Power Purchase Agreement (PPA) with National Grid to buy energy from Deepwater at 24.4.cents/ kWh for the first year, with 3.5% annual increases. Deepwater Wind plans to begin construction as early as 2014. On October 2, 2012, Deepwater Wind announced that it had submitted its final state and federal permit applications for the project. Permits are required from BOEM, the U.S. Army Corps of Engineers, and the Rhode Island Coastal Resources Management Council for this project intersecting state and federal waters. This pilot project could be the first operating wind farm off the Atlantic Coast if Cape Wind doesn’t beat them to the punch.

New York

BOEM launched a Task Force for New York in 2010 and is holding public meetings in the State. In September 2011, a lease application was filed for the Long Island-New York City Offshore Wind Project, a 350-700 MW project off the Rockaway Peninsula. This Project is a collaboration of the New York Power Authority, Consolidated Edison of New York, and the Long Island Power Authority. Deepwater Wind has also proposed two projects in and around New York. One is a project to sell power to the Long Island Power Authority from a 150-wind turbine project in Rhode Island Sound that would be connected by a transmission line to Long Island. The other is a proposal to sell power from a 1,000 MW wind farm off of New York City south of Long Beach Island into the New York power grid.  

New Jersey

Governor Christie has been a supporter of offshore wind but the State Board of Public Utilities (BPU) has yet to issue final regulations for a financing mechanism called ORECs or Ocean Renewable Energy Certificates that would allow offshore wind developers to sell their wind into the New Jersey marketplace at a higher price provided the benefits outweigh the costs. In August 2012, the BPU issued proposed final rules governing the OREC process and the comment period closed on October 20, 2012. In the meantime, BOEM identified the WEA for New Jersey, completed its EA for the lease sale, and received eleven expressions of interest from developers. Leases could be issued in early 2013.

A separate wind project has been proposed by Fishermen’s Energy. Fishermen’s has proposed a 25 MW, fiveturbine pilot project located 2.8 miles off Atlantic City, i.e., in state waters. The U.S. Army Corps of Engineers has issued a construction permit for the near-shore project but the BPU has delayed approval of the project until the company proves that it can deliver a net economic benefit to the State.  

Delaware

BOEM identified a 122 sq.mi. WEA off of Delaware, finalized its EA, and announced, in April 2012, that NRG Bluewater Wind was the only qualified company interested in the DE WEA so there was no competitive interest in the site. NRG Bluewater had proposed a 200 MW wind farm thirteen miles off the Delaware Coast and had secured a PPA with Delmarva Power. In December 2011, the project was put on hold when the PPA was terminated due to lack of financing for the project. But, on October 23, 2012, BOEM awarded the lease to NRG Bluewater. Whether NRG Bluewater holds the lease or sells it to another developer remains to be seen. Regulated utilities in Delaware can receive 3.5 Renewable Energy Credits for each MW of offshore wind energy purchased from a project sited off the Delaware coast before May 31, 2017.

Maryland

BOEM has identified a WEA for Maryland covering about 79,000 acres and located 10 miles from Ocean City, Maryland. BOEM has completed its EA for Maryland and has received six expressions of interest from developers for the Maryland WEA. Maryland has a renewable portfolio standard requiring that 20% of the State’s electricity be generated by renewable sources by 2022. In addition, Governor O’Malley has proposed legislation, the Maryland Offshore Wind Energy Act of 2012 (HB 441), to encourage the development of 200 MW of offshore wind energy off the Eastern Shore. The bill required utilities to source 2.5% of their electricity from offshore wind, starting in 2017. Utilities could satisfy the standard by buying offshore wind renewable energy credits from developers or developing qualifying projects themselves. The House amended the bill to cap cost increases at $1.50 per month for residential customers, but it stalled in the Senate Finance Committee. Governor O’Malley has another year in his term to try and get this bill passed.

Virginia

On February 3, 2012, BOEM identified the Virginia WEA and issued the Call for Interest in leases off Virginia. Eight companies responded with expressions of interest. In 2012, BOEM finished its EA for the entire Mid-Atlantic WEA (including Virginia, Maryland, Delaware, and New Jersey) and found no significant environmental impacts from the first step in the process of conducting site assessments. BOEM has tentatively decided to award the entire Virginia WEA, consisting of approximately 113,000 acres, to one developer for ease of leasing. In 2010, Governor McDonnell established the Virginia Offshore Wind Development Authority to promote offshore wind and bring high-tech jobs to the Commonwealth. The State also has a voluntary goal of generating 15% of its electricity from renewable energy sources by 2025. A final sale notice for the Virginia WEA lease could be issued by BOEM before the end of the year.

North Carolina

BOEM has conducted a series of Task Force meetings in North Carolina and is in the process of identifying the WEA for North Carolina. North Carolina has a requirement that utilities generate 12.5% of their electricity from renewable energy sources by 2021.

South Carolina

The BOEM South Carolina Task Force was launched in 2012, but there is no designated WEA for South Carolina yet. A 2008 study prepared for the General Assembly recommended that the State establish a policy to support 1,000 MW of offshore wind by 2018, create a state renewable energy standard, a state leasing process, and a one-stop shop to coordinate developers’ permitting and regulatory needs.

Atlantic Wind Connection

Bringing the wind power to shore presents its own challenges. Some developers, especially utilities with power stations located close to shore, are proposing direct transmission cables between the offshore wind farms and the local power stations. In contrast, the Atlantic Wind Connection (AWC), a consortium of Trans-Elect and Atlantic Grid Development, sponsored by Good Energies, Google, and Marubeni Corporation, has proposed to construct a single transmission line or backbone to connect all of the offshore wind farms and bring up to 7,000 MW of offshore wind into the electric grid. AWC estimates their link will enable the supply of power to 1.9 million households. In May of this year, BOEM found there was no competitive interest in such a backbone and has begun an environmental review of the project. The backbone also has to be permitted by the Federal Energy Regulatory Commission (FERC).

Other Federal Permitting Issues Remain

While BOEM is the principal federal leasing authority for offshore wind on the outer continental shelf of the U.S., other agencies may weigh in with regard to their specific concerns, e.g., shipping, wildlife protection, aviation, etc. For instance, a year ago the Coast Guard began a Port Access Routes Study to identify potential conflicts between offshore wind development and shipping lanes, but has not completed it. The Department of Defense has reserved the final say on whether offshore wind farms interfere with their missions especially off the coast of Virginia. None of these issues will be resolved until the final leases are awarded and specific terms incorporated.

Conclusions

This year and next are critical years for the development of offshore wind farms. As the recent studies indicate, the potential for offshore wind and its attendant job creation, including for new construction of offshore supply vessels, is huge. But, the threat of changing policies and lack of a level playing field with other sources of energy makes it challenging to compete. The possible end of the PTC this year also does not bode well for this renewable energy source. As detailed above, the development of offshore wind, and attendant transmission lines, entails a complicated multi-tier, multi-step process of federal leasing and permitting, on the one hand, and state energy policies and incentives on the other. There is no single one-stop shop of federal permitting and financial incentives that crosses state lines and simplifies the application and approval process. Only the well-heeled developer can afford to pursue the process to completion, and only the patient consumer can expect one day to benefit from this clean source of abundant energy off our Eastern Seaboard.