Thursday, February 10, 2011

There's something clearly wrong with that picture

Today in the United States it is actually easier to go offshore with oil and natural gas drilling than it is to site, permit, and build an offshore wind farm. Yes, offshore wind energy is a new industry. But really...Cape Wind developers began their permitting process in 2001! Ten years! Deepwater Horizon could have another platform up and drilling in half that time.

Just how serious are we about energy independence and combating climate change? (GW)

Can the United States Get Its Act Together On Offshore Wind?

by Peter Asmus
February 10, 2011

Can the United States match words with deeds in its efforts to come clean on the promise of clean energy industries revitalizing both the environment and the U.S. economy?

At an offshore wind power conference held in Boston last week, Michael Bromwich, director of the Bureau of Offshore Energy Management, Regulation, and Enforcement (BOEMRE) promised that the Obama administration is making permit streamlining for offshore wind projects a top priority, even as the same administration tries to clamp down with new safety regulations for the oil and gas industry. What Bromwich didn't say is that under current regulations, it is actually easier to go offshore with oil and natural gas drilling than it is to site, permit, and build an offshore wind farm. There's something clearly wrong with that picture.

Under the current regulatory regime, it takes from seven to ten years to permit an offshore wind project and typically less than half of that for an oil or natural gas platform. In November 2010, Secretary of the Interior Ken Salazar announced simplifications to the permitting process in the "Smart from the Start" initiative. In response, BOEMRE has eliminated the second round of Request for Interest in the permitting process, which is redundant and can delay the permitting process by six months to a year. The goal of the "Smart from the Start" program is to shrink permit approval down to two years, which would translate to a total development cycle of four years.

Furthermore, task forces have been set up in each major offshore wind state along the Atlantic Coast, identifying priority area for development. Publicly funded environmental assessments are also underway so developers can work from shared data sets and steer clear of controversial sites. Some of these states (Delaware, Rhode Island, and New York) are also working to shrink the permitting timeline by adding Power Purchase Agreements (PPAs) s to their competitive solicitations.

A recent report from the National Wildlife Federation claims that the entire Atlantic seaboard stretching from Maine to Florida has over 212 GW of available offshore wind resources, with more than half of this potential renewable energy capacity concentrated between New Jersey and North Carolina (119 GW). This estimate already factors in limiting resource assumptions such as environmental and socioeconomic factors.

Along the Eastern seaboard, every state but Connecticut is offering incentives or issuing requests for future bids for offshore wind power. Up to ten GW of offshore wind is possible by 2020 if Atlantic states complied with RPS legal mandates and specific offshore wind development deployment goals. Several new federal permits to build offshore wind facilities are expected over the next couple of years. There is growing interest in the Great Lakes, with Ohio out in the lead. The grand total for actual proposed offshore wind developments along the Atlantic Coast is between 5.3 to 6.5 GW, with the larger figure including planned build-outs of second or third phases of development.

Given the lack of available onshore sites for wind development, and limited opportunities for solar and biomass resources, offshore wind is seen as the prime technology for Atlantic states to meet their state renewable portfolio standard (RPS) requirements. The high cost of offshore wind, however, has some utilities balking. Since installation, operations, and maintenance represents roughly 70 percent of an offshore wind project's ongoing costs, the key for the U.S. offshore wind market is to boost the domestic supply chain in our ports, vessels, and related infrastructure industries to scale up quickly to drive innovation to reduce the cost of with new towers, foundations, and installation techniques.

A host of issues could still derail near-term progress over the next five years. For example, regulations such as the Jones Act in the United States require that all installation vessels deployed in federal waters must fly the U.S. flag. The problem is that there is not yet a single U.S. vessel specifically designed for offshore wind installations, while a diversity of specialty ships are being deployed in Europe. Loopholes in this law, nevertheless, are being examined by creative developers working around these regulatory restrictions, making it possible to install projects in shallow waters.

Europe's offshore market relied upon deregulated arms of utilities to use their balance sheets to back up offshore wind projects. Project finance models based on PPAs are largely frowned upon in Europe, yet that is the status quo business model employed in the United States. What kind of creative financing models will be required for offshore wind in the United States? That's a very big question with no clear answers in sight.

Last year, the United States lost its global leadership status on wind power to China. In fact, if compared to 2009's ten GW of new capacity, 2010 was just 5,115 MW. Toward the end of last year, the wind industry won a one-year extension of a tax grant program that was originally passed as part of the American Reinvestment and Recovery Act. If a fundamental policy such as this grant program - which offers an equivalent subsidy as the previous production tax incentive (2 cents/kWh) - is not extended, all of the hype about offshore wind will just be more hot air. Since wind power is the fastest growing manufacturing sector in the United States, with 400 new facilities opening up in the last five years, it is clear that developing a clear roadmap and package of new policies to support both offshore and onshore wind power is not just about being green and good, but about economic survival.

Peter Asmus is an analyst at Pike Research specializing in renewable energy.


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