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Friday, February 25, 2011

Ontario's Moratorium on Offshore Wind in the Great Lakes: Impacts on U.S. Great Lakes Offshore Wind Development

What Canada Did

On February 11, 2011, the Ontario Ministry of the Environment ("MOE") announced that it has suspended all activities pertaining to offshore wind development in the Great Lakes. See HERE for official statement. Accordingly, the MOE has suspended review of all applications for Renewable Energy Approvals and is not accepting any further applications for offshore wind projects in the Feed-In-Tariff ("FIT") program. Further, the Ontario Ministry of Natural Resources ("MNR") will not accept any new Crown land applications for offshore wind development and will cancel all existing Crown land applications for offshore wind development that do not have a FIT contract, including those with Applicant of Record status.

The Canadian Wind Energy Association ("CanWEA") and many developers, including Trillium Wind Power Corp., have broadly criticized the MOE's decision to halt the review of permit applications and approvals. The developers have noted that MOE and MNR’s cancellation of submitted applications will cost their investors the value of years of work and have a severe adverse impact on investors’ view of the reliability of offshore wind as an investment option in the future.

MOE has promised that projects will receive refunds for the site release permitting process, developers like Trillium say that a refund for an application fee cannot compensate for the last 15 years of time, money, and resources that they have dedicated towards developing their proposed project.

Why Canada Did It

The MOE stated that this moratorium has been instituted to allow time to review further scientific research on the effects of offshore wind projects on freshwater ecosystems. Others speculate that MOE's alleged need for additional environmental and engineering studies is simply an excuse to provide the Canadian government with more time to re-evaluate and align their offshore regulatory processes and policies.

Although a variety of federal and provincial authorities have issued legislation impacting offshore wind development on the Canadian side of the Great Lakes, neither the provincial government of Ontario nor the federal Canadian government have established a clear directive with regard to what studies, permits, applications, or other submissions must be prepared and submitted and in what order. For example, developers seeking to build offshore wind projects need to obtain submerged land leases from the Ministry of Natural Resources. The MNR has not yet established a competitive application process to govern the issuance of submerged land leases, which give developers site control to conduct environment and meteorological testing on their proposed site. This lack of a competitive process has resulted in a number of applicants -- qualified and unqualified -- being granted “placeholder” rights to a designated area just by virtue of filling out the application with no qualifications standards and thereby are precluding any other applicants whom may be better prepared financially and/or technically. Moreover, there is no official coordination between the leasing/siting process and MOE’s authority to issue Renewable Energy Approvals under the Feed in Tariff program.

What This Means for the U.S. Offshore Wind Industry

Although stakeholders in the U.S. Offshore Wind industry have not reacted strongly thus far, Canada’s offshore wind moratorium could provide fodder for a variety of opposition groups in the U.S. Traditionally, parties that oppose offshore wind development focus on one of three areas: (1) complaints about the visual impacts; (2) alleged adverse environmental impacts; and (3) increased rates associated with fixed prices set forth in power purchase agreements. Since the MOE has indicated that this moratorium stems from possible concerns regarding environmental and/or engineering issues, parties opposing U.S. Great Lakes developments may cite the Canadian moratorium as justification for implementing identical delays for U.S. projects in the Great Lakes.

More concerning is the impact that this decision may have on investor confidence. Although the U.S. Department of the Interior has instituted a more rigorous process (via the Final Rule and the Smart from the Start initiative) by which developers may pursue approvals for offshore wind developments, there is still significant uncertainty in the process. Possible investors for U.S. projects will certainly consider the losses which will inevitably be sustained by investors in the Canadian projects whose applications have been cancelled and/or whose submission is now indefinitely suspended. The potential for financial losses resulting from an unpredictable and untried regulatory process—even if these losses are a result of a completely independent foreign regulatory system— may appear that much more real to investors who are considering investing in U.S. offshore projects.

On the plus side, the Ontario market collapse may also increase investment in the U.S. offshore wind industry and result in more opportunities for job creation on our side of the border. As a result of its FIT program, many manufacturers and investors have viewed Ontario as having taken the lead in offshore wind development. Ontario's indefinite moratorium on offshore wind permitting means that Ontario has effectively lost that competitive advantage. Incentive-based legislation (e.g., the New Jersey Offshore Wind Economic Development Act and recently proposed legislation in Maryland) and slow but steady project progress in the U.S. may now compel these manufacturers to set up shop in the U.S. instead-- thus garnering the associated revenue and job creation for the U.S. economy.

Special thanks to Leslie Garrison of Bluewater Wind/NRG for her contributions to this post.

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