Some Encouraging Developments: Submerged Land Leases in the Mid-Atlantic to Be Issued in 2012; New Funding Opportunities from DOE

Although we are already well into the first quarter of 2012, there are still a number of unresolved 2011 matters that deserve some attention. We are still grappling with the biggest elephant in the room-- that is, the on-going congressional effort to extend and/or authorize certain tax incentives (e.g., the Offshore Wind Investment Tax Credit ) designed to promote renewable energy projects. However, despite the ongoing lethargy and frustrations with respect to tax incentives, the Obama Administration continues to authorize agency initiatives supporting the development of a U.S. offshore renewable energy industry. In the last two days, both the Department of the Interior ("DOI") and the Department of Energy issued important and (pardon the pun) groundbreaking announcements impacting offshore wind.

DOI Announces Three Important Things in One Week!

Industry participants and observers alike are likely reeling from the sheer volume of industry-moving announcements issued by DOI in the last week.

First, on February 2, 2012, DOI Secretary Ken Salazar and Bureau of Ocean Energy Management ("BOEM") Director Tommy P. Beaudreau announced the results of the National Environmental Policy Act ("NEPA") environmental assessment ("EA") performed with respect to proposed Wind Energy Areas ("WEAs") located on the Outer Continental Shelf ("OCS") off the coasts of New Jersey, Delaware, Maryland and Virginia. The Environmental Assessment, which was published today in the Federal Register, concluded that there would be no significant environmental and socioeconomic impacts from issuing wind energy leases in the designated mid-Atlantic WEAs.

The EA considered potential impacts arising out of site characterization and assessment activities that would need to occur before developers could build generation facilities on the OCS. These activities include geophysical, geotechnical, archeological and biological surveys and the installation and operation of meteorological towers and buoys. The EA will provide baseline data and provide substantial context for BOEM's consideration of future leasing proposals in the mid-Atlantic Wind Energy Areas and in the Bureau's review of developers' site assessment plans. If a lessee proposes a wind energy generation project on its lease, BOEM would prepare a separate site- and project-specific analysis under NEPA of its construction and operations plan, and provide additional opportunities for public involvement.

Although the NEPA clearance should enable developers to move forward more quickly with projects proposed for the mid-Atlantic WEAs, BOEM and DOI have yet to finalize the lease auction process through which developers must compete with one another for leases. Notwithstanding the pending auction methodologies, Secretary Salazar stated today that submerged land lease proposals for projects in the mid-Atlantic WEAs will be vetted before the end of 2012.

In DOI's press release, Depute Secretary of the Interior David J. Hayes offered the following comments on the EA and FONSI:

“Today’s announcement opens up the ‘sweet spots’ off the mid-Atlantic coast for development of our nation's remarkable offshore wind resource... Interior will continue to do its part to build a world-class offshore wind industry that provides clean, reliable, home-grown power and the American jobs that come with it.”

Second, in a surprisingly efficient move for BOEM, the Bureau simultaneously published Calls for Information and Nominations ("CFI") for WEAs located off of Maryland and Virginia. The CFIs were issued to solicit lease nominations from potential project developers and to request public comments regarding site conditions, resources and multiple uses of the Wind Energy Areas.

Finally, BOEM published a new submerged land lease form in the Federal Register. BOEM developed the lease form following consultation with the public and with industry representatives with the hope that the form will "streamline the issuance of renewable energy leases on the OCS." The lease form will be effective 15 days following publication, i.e., on February 17, 2012.

Readers, I know it's a lot to take in. But wait. There's more!!

DOE Wants to Give You Money!

On February 1, 2012, the US Department of Energy's Wind and Water Program published a notice in the Federal Register announcing its intention to release a Funding Opportunity Announcement ("FOA") tentatively entitled "U.S. Offshore Wind: Advanced Technology Demonstration Projects." The preliminary notice of the FOA has been published to solicit comments from the public and from prospective FOA applicants in advance of the final FOA publication on February 29, 2012.

This FOA is being issued in furtherance of one of the two primary goals set forth February 2011 DOE/DOI inter-agency Strategic Work Plan, an initiative designed to implement the Obama administration's National Offshore Wind Strategy. The two essential goals of the Strategic Work Plan included the creation and implementation of DOI's Smart from the Start program, and the creation of oversight of incentives and funding by DOE for innovative processes and technologies that will help lower the cost of offshore renewable energy to DOE's 2020 goal of $.10/kWh.

According to the Federal Register notice, DOE distributed $26.5 million to 19 offshore wind technology projects and $16.5 million to 22 "market-barrier removal" projects in 2011. The Federal Register notice does not indicate how much money will be available through this round of funding.

In addition to accepting comments by postal and electronic mail, DOE has scheduled a public meeting on February 7, 2012 from 9:30am to 12:30pm at the L'Enfant Plaza Hotel, 480 L'Enfant Plaza Southwest, Washington, D.C. to address comments and questions from the public and from prospective applicants.

2011 Wrap Up, Part 1: Northeast Projects Update

For offshore wind industry participants (and spectators), 2011 was a bit of an emotional roller coaster -- and some of the most intense drama occurred in the last days of December. From Congressional battles over expiring tax incentive legislation, to highly influential and precedential court decisions and project specific developments, the events of 2011 have set the stage for what could become a climactic 2012.

The next several posts will be dedicated to addressing where some high-profile projects left off in 2011 and considering where those projects may go in 2012 by geographical region. This post will discuss New England projects including Cape Wind, Deepwater Wind's Block Island project, and Anbaric Transmission's recently announced Bay State Offshore Wind Transmission System.

Massachusetts - Cape Wind: Another Year of Courtroom Battles Comes to a Close

As has been the case for most of the last decade, the bulk of activity relating to the proposed Cape Wind Offshore Wind farm in 2011 took place in the Courtroom. See e.g, Circuit Court ruling remanding FAA’s No Adverse Effect Decisions. However, in the final days of 2011, Cape Wind secured a favorable ruling from the Massachusetts Supreme Court upholding its proposed power purchase agreement (PPA) with National Grid. See Alliance to Protect Nantucket Sound et al., v. Department of Public Utilities, et al., No. SJC-10934 (Dec. 28, 2011).

On December 28, 2011, the Massachusetts Supreme Court issued its decision to uphold the PPA between Cape Wind and National Grid (National Grid PPA). The National Grid PPA requires National Grid to purchase 50% of the energy, capacity and Renewable Energy Credits (RECs) produced by Cape Wind —i.e., up to 234 megawatts—and will extend for fifteen years beginning on the date that Cape Wind begins commercial operation. The National Grid PPA was the first to be approved under a provision of Massachusetts’ Green Communities Act that allows renewable energy generators to enter directly into long term contracts with utilities.

The lawsuit was filed in late 2010 after the Massachusetts Department of Public Utilities (DPU) issued a formal approval of the PPA. The plaintiff group, comprised of long-standing opposition group Alliance to Protect Nantucket Sound, trade organizations Associated Industries of Massachusetts and New England Power Generators Association, and Canadian energy distributer TransCanada Power Marketing, Ltd, alleged that (1) the National Grid PPA violates the commerce clause of the United States Constitution; (2) the DPU improperly found that the National Grid PPA was in the public interest and cost-effective; (3) the National Grid PPA should have been solicited through a competitive bidding process; and (4) the DPU made a mistake when it both approved a method for recovering project costs from all distribution customers and required the National Grid PPA to include financing provisions sufficient to fund development of a renewable energy generation source.

Massachusetts Supreme Court Justice Margot Botsford wrote in the decision that while the Massachusetts Green Communities Act does not explicitly address the authority of state regulators to approve cost-recovery methods for renewable power:

[I]t is well established that the (Massachusetts Department of Public Utilities)
has the statutory authority to rule on the appropriateness of proposed
cost-recovery formulas…

(T)he department's decision in this proceeding is not precluded by the fact that the proposed cost recovery method is novel, particularly in light of the new emphasis on development of renewable energy in the (Green Communities Act)…

The department permissibly determined that the environmental benefits of (the power purchase agreement) … will accrue to all National Grid customers, and it is therefore appropriate to require all customers to share in the costs of acquiring these benefits, in accordance with departmental precedent…

Although the affirming Supreme Court decision removes the uncertainty associated with outstanding legal challenges to the National Grid PPA, it remains to be seen whether the resolution of that challenge will yield sufficient confidence to inspire another utility to enter into a PPA with Cape Wind for the remaining 50% of its projected output.


Rhode Island- Block Island 5-Turbine Demonstration Project: 2012 Could Be The Year.

Following the resolution of a much belabored challenge to the Rhode Island Department of Public Utilities’ approval of its PPA, Deepwater Wind hopes that 2012 will be the year that they can begin construction on its five-turbine wind farm -- and recent events suggest that they may be able to bring that goal to fruition.

In late December, Rhode Island news sources reported that Deepwater Wind’s Chief Administrative Officer Jeff Grybowski has stated that the company will announce the involvement of a major new investor in early 2012. Although the identity of the new investor has not yet been announced, Grybowski said it is a “major global industrial company that sees a bright future for offshore wind.” The unnamed new investor will partner with investment management firm D.E. Shaw to fund the development of the Block Island wind farm, which is slated to be constructed within three nautical miles of Block Island in Rhode Island state waters.

Also in December 2011, Deepwater Wind hosted a public meeting to ensure sufficient public involvement and support for the proposed 15-mile transmission line that would connect the Block Island wind farm to the grid. The current plan shows the transmission line beginning at the 5-turbine Block Island Offshore wind farm, making landfall at the Narragansett Pier through the seawall and then following a route through Narragansett’s shorefront. The transmission line would and end at a private transmission station in South Kingstown before feeding into National Grid’s network. Deepwater has commited to spending $6 million to conduct environmental surveys of the sea floor and along the entire route where the transmission line would be constructed proposed, and along the route of a 14-mile cable that would link the project, and Block Island, to the Rhode Island power grid.

Deepwater Wind has stated that it hopes to complete the transmission line and the Block Island Wind facility by 2014.

New England Coastal Waters - Anbaric Transmission: An Offshore “Backbone” Transmission Line for the Northeast

Following the positive feedback from government agencies and some industry insiders in response to Atlantic Wind Connection’s proposed “backbone” transmission project for the Mid-Atlantic region (a/k/a, the "Google project"), it was only a matter of time before someone proposed to construct a similar project in the northeast. And so, it was not a huge surprise when Anbaric Transmission, an experienced subsea transmission project developer, announced in mid-November 2011 that it had filed a request for interconnection with the New England ISO for what it calls the “Bay State Offshore Wind Transmission System.”

The Bay State Offshore Wind Transmission system is designed to accommodate 2,000 MW of offshore wind energy and will serve generation developers who responded to the Bureau of Ocean Energy Management’s Requests for Interest for designated Wind Energy Areas off of New England coastlines. See here, pg. 12-14. BOEM has received responses from ten developers proposing to build a total of 8,000 megawatts of offshore wind.

Anbaric Transmission has been involved with two previous subsea transmission projects: the Neptune Regional Transmission System, a 660-MW submarine connection between New Jersey and Long Island, and the Hudson Transmission System, a 660-MW line under construction beneath the Hudson River between New Jersey and Manhattan.