The statements and views expressed in the postings on the Ocean & Offshore Energy Projects and Policy Blog are my own and do not reflect those of Nixon Peabody LLP. This Blog does not provide specific legal advice. Reading or visiting this Blog does not create an attorney client relationship. This Blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Wednesday, December 29, 2010

What Happened? 2010 Edition.

2010 has been a big year for offshore wind energy. We have seen regulatory revolutions and revelations, lingering litigations, project progress, legislative luminaries, and capital commitments-- not to mention these annoying alliterations! Here are my top 10 news items for 2010:

1. Salazar Signs Approves Cape Wind and Signs Submerged Land Lease

In April, Interior Secretary Ken Salazar granted federal approval to Cape Wind’s long-suffering offshore wind project slotted for construction in Nantucket Sound off the coast of Massachusetts. In October, Salazar took the stage at AWEA’s Offshore Wind Conference in Atlantic City and signed the first ever submerged land lease for an offshore renewable energy project. As a conference attendee and witness, I admit that I may have teared up—but just a little!

2. Google Invests in Atlantic Wind Connection Backbone Transmission Cable

In October, internet giant and financial juggernaut Google announced its intentions to invest undisclosed, but potentially enormous sums of money to build an undersea cable to connect and transmit energy from offshore wind projects to distribution centers between New Jersey and Virginia. The project, known as the Atlantic Wind Connection, filed a plan with the FERC on December 21.

3. New Jersey Enacts Offshore Wind Economic Development Act
Speaking of transmission and infrastructure, New Jersey enacted legislation that not only calls for the production of at lease 1,100 megawatts of offshore wind generation, but also offers direct financial incentives to businesses that build manufacturing, assemblage, and water access facilities for qualified offshore wind projects. These incentives include tax credits and funding from the New Jersey Economic Development Authority (NJEDA).

4. MMS becomes BOEMRE in the wake of the Gulf Spill; BOEMRE to Handle Offshore Wind Regulation

Following the tragic and unfathomably destructive BP oil spill in the Gulf of Mexico, the Obama administration restructured and renamed the former Mineral Management Services and created the new Bureau of Ocean Energy Management, Regulation and Enforcement. Although some un-named (and snarky) industry insiders have been known to pronounce the new DOI bureau acronym as “bummer”, there is nothing depressing about the new “Smart from the Start” initiative that BOEMRE will be overseeing in the New Year!

5. Salazar Introduces Streamlined Permitting Process: “Smart from the Start”

In response to resounding complaints from project developers, financiers, and just about everyone else with an interest in offshore renewables, DOI Secretary Salazar announced a revised permitting process designed to eliminate regulatory redundancies and “needless red tape.” The new program, which Secretary Salazar's office has titled "Smart from the Start", and which began with BOEMRE’s immediate identification of several designated Wind Energy Areas in November, hopes to diminish the length of the permitting process by two to five years.

6. Deepwater Wind Announces a 1,000 MW Project for the Rhode Island Sound

In early December, Deepwater Wind announced that it has revised its original plan for a 100 turbine, 350 megawatt wind farm and has instead submitted plans for federal approval for a 1,000 megawatt wind farm in the Rhode Island Sound. The plan also includes a transmission line that would distribute electricity produced by the project to distribution centers between Massachusetts and New York.

7. 1603 Renewable Energy Tax Credit Extended for Another Year

In late December, Congress passed a one-year extension of the 1603 renewable energy investment tax credit as part of a multi-billion dollar tax cut package. The tax credit could provide a financial boost to offshore wind projects if construction begins before December 31, 2012.

8. Various Utility Commissions Reject, Approve, Reconsider and Litigate Various PPA Agreements for Proposed Projects

In March, the Rhode Island Public Utilities Commission rejected a power purchase agreement for Deepwater Wind’s Block Island project (starting at 24.4 cents per kilowatt hour) as “commercially unreasonable.” Rhode Island legislators then directed the commission to reconsider and the contract was approved. The PPA has been challenged yet again though, and the RI Supreme Court is expected to address the issue in 2011.

Likewise, the Massachusetts Department of Public Utilities approved National Grid’s PPA with Cape Wind. This PPA has also been challenged.

9. Maine Takes The Lead In Deep Water Floating Turbine Technology

Following a 2009 DOE Grant, Dr. Habib Dagher and his team at the University of Maine Advanced Structures & Composite Center have taken the lead in the U.S. market with regard to developing floating turbines designed for deep water wind farms. Maine has identified and approved three test areas in state waters where the team plans to test its floating turbines.

10. Steelworkers Union Files Trade Case Against China

In early September, the Steelworkers Union filed a 5,800 page petition with the office of the US Trade Representative to the WTO alleging that China has made unfair use of billions of doallars of subsidies, and has instituted performance requirements preferential practices and other "trade-illegal activities to advance its domination of the [renewable energy] sector." The focus of the USW's latest petition is the export to the US of Chinese-made equipment for alternative energy projects like land based and offshore wind turbines and solar-energy projects. The Union's petition identifies five major areas of "protectionist and predatory practices used by the Chinese to develop their green sector at the expense of production and job creation here in the US." These five areas include:
a. Restrictions of access to critical materials;

b. Prohibited subsidies contingent on export performance or domestic content;

c. Discrimination against imported goods and foreign firms;

d. Technology transfer requirements for foreign investors; and,

e. Trade-distorting domestic subsidies.

On Oct. 15, the U.S. Trade Representative announced its intention to proceed with further investigation of the case. On December 22, the US Trade Representative announced that it will be seeking World Trade Organziation dispute resolution with regard to China’s Subsidies for Wind Power Equipment Manufacturers.

Monday, December 13, 2010

Largest U.S. Offshore Wind Farm Proposed for Rhode Island

Rhode Island-based offshore wind developer Deepwater Wind submitted an application to the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) to build the largest offshore wind project in the United States: a 200 turbine, 1,000-megawatt offshore wind project in Rhode Island Sound. The project, called the Deepwater Wind Energy Center, also includes a proposal for an undersea transmission network designed to stretch from Massachusetts to New York. The turbines and installation would cost an estimated $4.5 billion to $5 billion, and the transmission system will cost an additional $500 million to $1 billion.

If approved, the Deepwater Wind Energy Center will be installed in four phases, with construction starting in 2014. The first 50-turbine phase will go on line in 2015 with additional construction phases to follow.

The Deepwater Wind Energy Center proposal replaces Deepwater Wind’s 2008 proposal to construct a 350-megawatt, 100-turbine project. Deepwater Wind reports that the aggressive new proposal was motivated by technological innovations that increase energy generation potential while diminishing costs, as well as DOI’s recently announced "Smart from the Start” regulatory initiative.

Diminished timelines for regulatory approvals may help to overcome investor reluctance. Regulators previously predicted time frames of 7 to 9 years before an offshore wind project could be brought online. Investors typically shy away from projects with start-up timelines longer than (at the most) 5-6 years. Deepwater Wind, along with most U.S. offshore wind developers, has lauded the proposed revisions to the regulatory process under the Smart from the Start program which among other things, promises expedite permitting for qualifying offshore renewable energy projects and may enable regulators to issue the first submerged land leases to developers by late 2011 or early 2012. See also here.

In addition, technological improvements to wind turbines have the potential to materially impact economy of scale analysis of offshore wind projects and make larger projects far more cost-effective. Here, Deepwater’s 200-turbine plan will produce more than triple the energy wattage than the 100-turbine plan. This is in part due to innovations in turbine design. While most existing European and Asian offshore wind installations have used 3 to 3.6 megawatt turbines, manufacturers (including Areva Renewables and REpower Systems) have now made 5 and 6-megawatt turbines available.

Using larger turbines improves the economies of scale for developers like Deepwater Wind and can translate into better pricing for rate-payers. Deepwater Wind CEO Bill Moore has predicted that the 200-turbine project will be more cost-effective than Deepwater’s much smaller Block Island wind farm (turbines, wattage) and could reduce prices a third lower than the 24.4 cents/kWh rate set under Deepwater Wind’s Block Island project power purchase agreement with National Grid. “This ‘second generation’ of offshore wind farms will be larger and farther from shore, and will produce lower priced power, using more advanced technology than the offshore projects announced to date. We expect the offshore wind industry in the United States to follow the European experience, where a more mature industry is building larger projects farther from shore,” Moore said in a press release.

Provided the project obtains a myriad of state and federal regulatory approvals, the Deepwater Wind Energy Center will be located in a 270 square-mile area between Rhode Island and Massachusetts in federal waters directly south of Sakonnet Point between Block Island to the west and Martha’s Vineyard to the northeast. This area is subject to a Memorandum of Understanding between the states of Massachusetts and Rhode Island, and is referred to as the “area of mutual interest.” The proposed project area is consistent with Rhode Island’s recently issued and approved Special Area Management Plan (SAMP)—essentially, an ocean-zoning plan designed to identify and protect fishing grounds, shipping lanes and glacial rock formations. Deepwater Wind submitted an application for a submerged land lease on the area of mutual interest in October 2010.

The multi-state transmission network, known as the New England-Long Island Interconnector (NELI) will extend from Massachusetts to New York and would enable Deepwater Wind to sell power to any of the states located along the seaboard where the network will be located including Connecticut, Massachusetts, New York and Rhode Island. The ability to distribute and sell energy to multiple states ensures that Deepwater will be able to sell all of the power produced by its project and also ensures that the investment cost of construction that is factored into power rates will not fall on ratepayers in Rhode Island alone.

As of this writing, it is not clear whether the NELI transmission system will ultimately interconnect with the planned Atlantic Wind Connection subsea transmission system which is planned to extend from New Jersey south to Virginia.