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Still early days for North American offshore wind rush

UNITED STATES: Offshore wind in North America is not a matter of if but a matter of when--and that when is getting closer. With no offshore wind project yet installed in North American waters, gauging the players and the developers is not a perfect science.

Click to download full screen versionBut 21 projects in 11 states and one Canadian Province have achieved varying levels of progress towards potentially seeing construction in coming months or years.

As sure as the ocean tides ebb and flow, some proposals will fade away, some will be built, and new projects will enter the small field of potential offshore wind plants.

Cape Wind, the 468 MW proposal off Massachusetts, has both toiled the most and made the most progress.

It is the only project that has both a construction permit and a power purchase agreement (PPA)—pending state regulatory approval.

It received its federal permit in late April after nine years of often-contentious opposition. Local foes along Cape Cod and the Massachusetts islands are largely concerned with the aesthetic impact of the project.

As the first serious project to seek construction approval, Cape Wind is largely responsible for the federal permitting and offshore lease structure that was formed in recent years and in place today.

Its opponents are still appealing the project’s approval in the court system but there is no longer much chance they will do more than add legal delays.

With its permitting battle behind it, Cape Wind is seeking approval of its PPA with the Massachusetts Department of Public Utilities (DPU). Regional utility National Grid agreed to buy half of the wind project’s power at $0.0187/kWh for 15 years with annual price increases of 3.5%.

Hearings began at the DPU in September 2010 and a decision is expected by mid November. Cape Wind has a tentative contract to source Siemens turbines but a final contract is not expected until the PPA is approved and most or all of the remaining half of the power output is sold.

National Grid has a conditional contract for the 50% balance, which it would likely sell to other utilities.

Cape Wind’s projected energy cost—by some estimates 25% higher than conventional power in the region—caused a stir during the DPU hearings but is in line with the costs for offshore wind in Europe.

Offshore wind is not cheap, but it is the most economic bulk clean power available in the Northeast United States. Many Northeast states, including Massachusetts, have set hard targets for utility use of renewables.

A snapshot of current prices for offshore wind does not, however, easily reflect the added value of price stability the project could bring to a US region that has some of the highest energy prices in North America.

It is primarily these higher prices and a high reliance on volatile natural gas and heavy oil power plants that makes the Northeast the most promising for offshore wind.

These prices have helped attract some of the most serious development in offshore wind in North America.

Not far from the Cape Wind proposal, developer Deepwater Wind, secured a PPA with utility National Grid for the output of its 28.8 MW proposal near Block Island for 20 years at $0.0244/kWh, with 3.5% increases per year.

Various appeals fighting the PPA approval have been filed so Block Island wind remains in limbo.

PPAs are no guarantee a wind project will be built but they are often a leading indicator.

Land-based projects in the US with PPAs tend always to be built—although offshore is an untested market.

The third and final project in the US to secure a PPA is the Mid-Atlantic Wind Park, a 300–450 MW project proposed off the Delaware coast by Bluewater Wind, a subsidiary of utility NRG Energy.

The wind plant has a 25-year contract for the first 200 MW with utility Delmarva set at $0.0132/kWh, with annual increases of 2.5% plus additional substantial value in Renewable Energy Credit (REC) sales.

The developer is currently seeking to sell the remaining project built-out and has since extended its target online date by two years to December 1, 2016.

New Jersey promise

After the three contracted projects, some of the more promising offshore contenders are in New Jersey. New York’s neighbour to the south has firmly taken the title for the strongest commitment from a US state to support offshore wind, according to Matthew DaPrato analyst at Emerging Energy Research.

None of its projects have permitting approvals or tentative power contracts but they are in a state that has mandated the use of offshore wind.

Utilities there are already required by the state’s renewable energy standard (RES) law to increase their use of renewable energy.

In summer 2010 lawmakers added an offshore specific requirement that would support 1.1 GW of offshore wind. The policy was signed into law in August and state regulators are at work shaping the law into a workable policy.

Utilities will be required to buy offshore wind or pay so-called alternative compliance payments. Exact details have yet to be finalised but similar RES policies applicable on land have tended to have enforcement teeth that result in real megawatts put onto the grid.

The policy push means New Jersey has at least three wind projects under development and making notable progress: the 348 MW Garden State Offshore Energy, which is a joint venture between utility PSEG Renewable Generation and Deepwater Wind, a 350 MW proposal from Bluewater Wind and NRG Energy, and a third 20 MW proposal by Fisherman’s Energy.

Fisherman’s Energy may also build a second and larger 350 MW project either in addition to its first 20 MW phase or in place of that first phase.

Last year the New Jersey Board of Public Utilities awarded separate $4 million grants and associated permitting for the companies to set up meteorological measurement equipment and conduct other early development research.

Other aspirants

State support varies, however. While New Jersey has provided early seed money and passed the most supportive law to date among the US states for offshore, other states have rhetorically supported offshore wind but not backed it up with enough tangible help.

In New York the New York Power Authority (NYPA) has backed a plan to promote development of offshore wind off the coast of Lake Erie, one of the Great Lakes on New York’s north-western border.

NYPA released a request for proposals to gauge interest but the state has not followed suit with subsidies or a utility procurement requirement like New Jersey.

NYPA says it has received proposals from five interested developers but the project fundamentals are not strong to support the higher costs of offshore wind in the Great Lakes. Power prices in and around New York’s Lake Erie shores are some of the lowest in the state and these low power prices tend to be the norm in other Great Lakes.

A certain buzz and excitement has formed in the past two years over offshore wind in the Great Lakes but the fundamentals are more challenging than off the Atlantic Ocean coast.

Great Lakes proposals in other states, such as a 20 MW project off the Cleveland, Ohio, shoreline in Lake Erie, will face a similar hurdle. GE Energy, which aims to bring to market a direct drive offshore-specific wind turbine, formalised a partnership with developer LEEDCO to be the technology partner for the Lake Erie project, but power prices will remain a hurdle for all projects proposed in the area.

Additionally, many onshore wind project opportunities remain viable around the Great Lakes at a lower cost and lower risk.

Canadian solution

The Canadian solution to low costs for power in the Great Lakes area is for the government to pay above market rates in order to support renewable energy.

After New Jersey in the US, the Canadian province of Ontario is the next state actor in North America to have provided the most tangible support for offshore wind. In May 2009 it passed its Green Energy and Green Economy Act.

The package includes a so-called Feed-in-Tariff or Fit policy for renewable energy, which in this case promises a guaranteed, fixed purchase price for 20 years, paid by the Ontario Power Authority (OPA).

The Fit provides C$0.19/kWh for offshore projects, a price considered high enough to support serious deployment of offshore wind, although projects will have to meet a 25% local content threshold demonstrating that at least that level of investment is spent on goods and labour in Ontario. The local content requirement rises to 50% after 2012.

The project proposals have quickly added up with a first volley from Windstream Energy, with a 300 MW project, and an initial 450 MW project from Trillium Power, followed by further ambitious Trillium stages.

The Windstream proposal was awarded a power contract for its project but the OPA has since put a hold on incoming applications because of overwhelming interest.

The speculative sector

Developers are also looking offshore elsewhere in the North America but these locations are more speculative at this time. This includes off the coast of Texas in the Gulf of Mexico.

But as with Great Lakes, the fundamentals are more difficult than in the US Northeast or off Ontario, and likely more challenging.

Two companies have leased offshore wind space from the Texas General Land Office but power prices are mediocre to support offshore wind and there is additional risk from hurricane winds, which today’s offshore wind turbines are not well designed for.

Back in the Northeast, the state of Maine has tried to woo developers with a request for proposals and some limited funding but it, too, faces an infrastructure challenge.

Unlike much of the eastern seaboard to the south, most of the Maine shoreline drops off rapidly into deep water so Maine’s approach has been to pursue companies interested in yet-to-be-commercialised deepwater floating wind turbine platforms.

Norwegian utility Statoil has expressed interest in Maine. It is currently testing a Siemens 2.3 MW turbine on a floating platform off the coast of Norway at a depth of 220 metres.

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