2013: A Big Year for Offshore Wind

If you have been watching the offshore wind industry in the United States for the last decade -- and if you are reading this blog, I assume that you have -- you are probably tired of hearing the much-hyped announcement at the beginning of each year, i.e., "THIS YEAR WILL BE THE YEAR THAT WE PUT STEEL IN THE WATER!!"  Eleven months later, December arrives and we are forced to admit that this was not, in fact, "the year." 

Faithful readers, I beg you to put your skepticism and regulatory fatigue aside because 2013 will actually be the year that we see the first wind turbines constructed in US waters.   

(1)  Cape Wind Makes Strides Towards Obtaining Financing

More than twelve years after Cape Wind announced its plan to construct the United States' first offshore wind project in Nantucket Sound, the project's developers have signed on with the Bank of Tokyo-Mitsubishi UFJ (BTMU) to arrange debt financing for the project.  BTMU will also commit "a significant amount of debt capital" that will go toward development and construction costs.  Arranging financing for the project is the critical step that Cape Wind must complete before initiating construction on the project.

Cape Wind began seeking financing in 2012 after it finalized the second of its two 15-year power purchase agreements (PPA) with National Grid and NSTAR, the state's two largest electric utilities.  Cape Wind's PPAs account for 77.5% of its projected output.

Cape Wind Associates has designated Barclays to provide financial advisory services to Cape Wind.  Barclays will continue to assist them to procure investors and equity financing for the project.  Although Cape Wind has not disclosed its full project costs, news analysts have predicted that the project costs will approach $2.6 billion.

Cape Wind's deal with BTMU is strong evidence that the project is on track to meet its construction schedule.  Cape Wind has stated that it intends to begin construction on the planned 130 turbine-project by the end of 2013 with the expectation that the project will be partially commissioned in 2015 and fully commissioned in 2016. 

Potential investors have a keen interest in Cape Wind's ability to meet its end-of- 2013 "begin construction" milestone.  If Cape Wind can begin construction before January 1, 2014, the American Taxpayer Relief Act of 2012 (P.L. 112-240), or "ATRA", effective as of January 2, 2013, will enable Cape Wind to take advantage of the much-discussed Production Tax Credit ("PTC") or the Investment Tax Credit ("ITC"). 

Before the ATRA amendment, Internal Revenue Code Section 45(d)(1) provided that a project had to be placed in service “before January 1, 2013” in order to claim the PTC which is currently 2.2 cents per kilowatt hour sold to a third party.  The January 2, 2013 Amendment now provides that a renewable energy project is eligible for the tax credit if “the construction... begins before January 1, 2014”.  In the same legislation, a corresponding change inserting the language “the construction of which begins before January 1, 2014” was made to Section 48(a)(5)(C)(ii) of the Internal Revenue Code to allow facilities eligible under amended Section 45 the option to elect to use the ITC in lieu of the extended PTC.  The ITC will provide a potential investor with tax credits equivalent to up to 30% of the project cost.  Of course, a project can only claim the ITC or the PTC-- not both.
 

Cape Wind says it has secured all if its federal and state permits and was the first recipient of a submerged land lease for the development of a renewable energy project in federal waters.  Cape Wind has also received approval for its Construction and Operations Plan from the Department of the Interior.

(2)  DeepCWind Consortium to Install Floating Turbine in Maine State Waters

The DeepCwind Consortium is scheduled to place a one-eighth scale prototype of a floating deep-sea wind turbine developed at the Advanced Structures and Composites Center at the University of Maine in Castine Harbor (mid-coast Maine) sometime in April 2013.  The prototype turbine would be the first ocean-based wind turbine installed in US waters.

According to the most recent Supplemental Environmental Assessment documents filed with the Department of Energy in January, the 20 kilowatt floating prototype turbine tower has a total height of fifty-seven feet and will be moored with three lines and anchored at a thirty-meter depth.  Its floating radius will leave it five-hundred to one-thousand-feet west of land.  The wind turbine is being built at the University of Maine's Advanced Structures and Composites Center.  Once complete, the turbine will be shipped to marine construction and engineering firm Cianbro's facility in Brewer, Maine where it will be reconstructed in the Penobscot River.  A Maine Maritime Academy tugboat will tow the turbine to its moorings in Castine Harbor.  The turbine will be connected via a submerged cable to a small substation near Dyce Head that will feed the turbine's electric output into the grid. 

The installation of the one eighth scale prototype is the second phase in DeepCwind Consortium's five-phase plan towards implementing a full-scale floating offshore wind farm off of the Maine coastline.  The third phase, which is rumored to be scheduled to be implemented in the summer of 2013, includes the installation of up to two one-third scale (three hundred foot-tall) prototype floating turbines in the waters off of Monhegan Island.  DOE has already issued a finding of no significant impact with respect to the installation and testing of the one third scale turbines.

The development and testing of floating wind turbines in Maine is authorized and permitted in part under Maine Public Law Chapter 270, An Act to Facilitate Testing and Demonstration of Renewable Ocean Energy Technology, which provides generous permitting guidelines for projects located in designated deep water testing sites in Maine state waters.   

The DeepCwind Consortium consists of a collaboration of universities, nonprofits, and utilities led by the University of Maine and funded in part by the US Department of Energy and the National Science Foundation.