Offshore wind has long been touted as the next big addition to the U.S. energy mix. With the start of construction of the Block Island Wind Farm off the coast of Rhode Island, many are hoping the project will trigger a gale force of offshore wind energy. Offshore wind resources are abundant, stronger, and blow more consistently than land-based wind resources. The U.S. Department of Energy (U.S. DOE) estimates that 4 million megawatts (MW) of capacity could be accessed in state and federal waters along the coasts of the United States and the Great Lakes.

Indeed, macro energy supply, economic considerations, and climate-related concerns support the development of U.S. offshore wind projects in regions such as New England and the Mid-Atlantic. As traditional fossil-fuel power plants are retired from states’ energy portfolios, offshore wind energy is ready to step into the void to help meet demand through a renewable medium.

Still, offshore wind in the United States remains in its infancy. Large scale offshore projects face difficult regulatory obstacles, including a maze of permitting and environmental laws and requirements. This is no more evident than in the long-awaited 130-turbine Cape Wind project in Nantucket Sound off the coast of Massachusetts, which remains in limbo after more than a decade of planning, regulatory proceedings, and federal court litigation. Other proposed projects off the coasts of New Jersey and Delaware have succumbed to these obstacles as well.

The Outlook for Offshore Wind Energy is Bullish as All Eyes Turn to the Coast of Rhode Island

At the moment, attention is focused on the first commercial-scale offshore wind project to commence construction: Block Island Wind Farm, off the coast of Rhode Island.Deepwater Wind, the project developer, estimates the proposed wind project will generate over 100,000 megawatt hours of energy annually, supplying the majority of Block Island’s electricity needs. The first of five 1,500-ton foundations, which will support the 30 MW project, was installed last month. The project is expected to begin producing energy in late 2016.

There is optimism that if this project succeeds, it will open the door for other economically sound offshore wind projects. And, as discussed below, the factors that previously impeded development of such projects are beginning to line up favorably, thus causing industry leaders to be bullish on the future of offshore wind.

Regulatory and Legal Clarity: It is important to note that the current road block for the Cape Wind project is purely economic. During the project’s pendency, many of the regulatory and legal uncertainties driven by challenges from opponents were resolved in court rulings. Earlier this year, however, the project stalled over financing issues when its energy off-takers withdrew from their power purchase agreements. Previously, other uncertainties were resolved by the passage of the Energy Policy Act of 2005. In particular, questions of federal versus state jurisdiction and the authority of the federal government in waters up to 200 miles from the shoreline were resolved by this legislative action, which established permitting authority in the Bureau of Ocean Energy Management (BOEM), a federal agency within the Department of the Interior.

The Block Island project has clearly benefited from lessons learned by Cape Wind, as witnessed by the speed with which the former moved through the offshore wind approval process. Although the Block Island development is in Rhode Island state waters, Deepwater Wind already has “steel in the water” as a result of collaborative efforts of state regulators and BOEM. The federal agency timely awarded a right-of-way (ROW) grant for an eight nautical mile-long, 200-foot wide corridor in federal waters on the OCS for transmission to connect the wind farm to the mainland.

In part, these achievements occurred due to Deepwater Wind’s successful engagement with stakeholders. The project developer worked closely with the U.S. Army Corps of Engineers to analyze the potential environmental effects of the project under theNational Environmental Policy Act, and received a Finding of No Significant Impact (FONSI) in late 2014. Also, environmental groups like the National Resources Defense Council (NRDC) were engaged and their concerns addressed by altering the construction schedule to allow migratory whales to mate from November through April, and agreeing to utilize the best available technology to protect marine life from sound harassment.

Favorable Political Climate: The political climate for offshore wind also appears to be brightening. The U.S. DOE has promulgated a national plan to support deployment of 10 gigawatts (GW) of offshore wind capacity by 2020 and 54 GW by 2030. Additionally, there remain glimmers of hope that federal wind tax incentives will remain in place, with the Production Tax Credit (PTC) extender bill passing the Senate Finance Committee in July 2015. Moreover, the U.S. Environmental Protection Agency’s final Clean Power Plan, which was announced on August 3, 2015 by the Obama administration, requires a 32 percent reduction from 2005 levels in carbon emissions from existing power plants by 2030. To reach this goal, the plan incentivizes states to implement zero-carbon emitting sources of energy, such as solar and wind.

Additional Leases: The availability of lease sites, a crucial factor for successful project development, also appears to be trending upward. BOEM, in conjunction with several coastal state governments, is poised to open the procurement process in New York and New Jersey, while stakeholders presently are being engaged in North Carolina and South Carolina. On the other hand, there are less than ten active leases, which were awarded on a competitive basis. Recipients of these leases must submit to BOEM a Site Assessment Plan and Commercial Operation Plan for approval. Thus, a BOEM-issued lease does not authorize any construction; instead, it paves the way for a full Environmental Assessment (EA) which adds at least a year onto a project’s timeline before ground breaking may occur. Acquiring projects in mid-development is also an option, but proposed lease assignments are also subject to approval by BOEM.

Financing: Obtaining project financing has been a challenge too. Financiers are wary of unproven technologies and the other risks associated with offshore wind energy, preferring to fund land-based resources with which they are familiar. Although offshore wind is a proven energy producing technology in Europe, the same can’t be said for the U.S., where the only examples are failed projects.

Yet, the landscape seems to be shifting on the financing front as well. The Cape Wind project blazed a trail through the federal and state permitting landscape identifying and removing many of the administrative and regulatory obstacles that had haunted offshore wind projects. The Block Island project secured its required $290 million in debt and equity financing earlier this year. Given the relative speed with which the Block Island regulatory approvals were obtained, regulatory risks may become less of a concern for investors. It bears reminding, however, that the Block Island project is small compared to other pending offshore projects, which have price tags in the $1-3 billion range. That said, having secured the needed permits, successfully navigated the regulatory reviews, and obtained financing, there is reason for optimism that the Block Island project will open the door for future offshore wind projects.

One such 68-turbine project being planned by US Wind, Inc., off the coast of Ocean City, Maryland, will be capable of generating 500 MW of electricity. To cover the project’s nearly $2.3 billion cost, the company plans to pursue a mix of financing mechanisms including a substantial state subsidy to be repaid after the turbines are constructed and operating. Another project from the same developer as Block Island, Deepwater Wind, is Deepwater ONE also in Rhode Island Sound. This planned 150-200 turbine project will be capable of generating from 900 to 1,200 MW. It too will carry a much larger price tag than the Block Island project. Thus, the proponents of these projects and others will look to Block Island’s success to help overcome investor reluctance to finance offshore wind projects.

Offshore Wind is Poised to Fulfill Expectations

With added certainty in the regulatory and legal landscape and a more favorable political climate, financing opportunities are poised to increase as the technology and financing models are proven. Thus, the offshore wind industry finally may fulfill its promise as a crucial resource that will curb greenhouse gas emissions and help wean the U.S. off fossil-based fuels. The Block Island project is the first to have “steel in the water,” but we believe it will most certainly not be the last.

**Sullivan & Worcester served as pro bono counsel for the Conservation Law Foundation, assisting the non-profit organization’s participation as an amicus curiae party in the federal court litigation supporting the proposed Cape Wind project.