Renewable Energy and International Competition

Among the panoply of reasons why the United States must invest in and develop an alternative renewable energy industry is the oft-touted call for energy independence. As we all know, reliance on fossil fuel and oil is environmentally costly. But even for those remaining holdouts who insist that the causes of global climate change are not anthropogenic, there is no denying that the middle eastern oil states have more leverage and power over us than we are comfortable with as a result of our insatiable thirst for oil. In short, whether our reasons are environmental or political, we must find a way to end our foreign energy dependence.

A number of recent studies published by the National Renewable Energy Laboratory and the American Wind Energy Association demonstrate that the United States hosts a wide array of accessible renewable energy resources including solar, biomass, and on and offshore wind. One of the more obvious benefits of using these renewable resources is that the fuel sources are cost free. However, the turbines, photovoltaic films, and other renewable energy infrastructures are not free and the companies that make these things are still profit-seeking businesses who must seek out welcoming regulatory environments in which to develop and flourish.

Right now, we are at a crossroads. The United States can either decide that it wants to encourage a renewable energy industry or it can decide to dither around in the regulatory morass in which we have been stagnating for the last decade and more. But the longer we wait, the more likely it is that once we do decide to get in the game, the industry will have taken root elsewhere, and we will once again find ourselves dependent on foreign nations whose markets and political policies are not in tune with our own. One of the biggest threats to the United States renewable energy industry is China:

"China vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world's largest maker of wind turbines, and is poised to expand even further this year."

"China has also leapfrogged the West in the last two years to emerge as the world's largest manufacturer of solar panels. And the country is pushing equally hard to build nuclear reactors and the most efficient types of coal power plants."

"These efforts to dominate renewable energy technologies raise the prospect that the West may someday trade its dependence on oil from the Mideast for a reliance on solar panels, wind turbines and other gear manufactured in China."

See, http://blog.algore.com/2010/02/china_in_the_lead.html

The European Wind Energy Association 2009 annual report states:

• 199 offshore wind turbines were installed and grid connected totalling
577 MW during 2009, up 54% from the previous year-- a total of 828 offshore
turbines have now been installed (and interconnected) offshore in nine European
countries;
• Turnover in 2009 was approximately €1.5 billion, and is expected
to double in 2010 to
approximately €3 billion;
• 1,000 MW expected to be
installed during 2010, a 75% market growth compared to 2009;
• 17 offshore
wind farms under construction, totaling over 3,500 MW and a further 52 offshore
wind farms have been fully consented, totaling more than 16,000 MW;
• More
than 100 GW of offshore wind farms currently being planned by project
developers
and utilities.

According to Offshore Wind China (www.offshorewindchina.com/english/index.aspx), in addition to a 56% average growth rate per year over the last five years for the wind energy industry generally, China is also making concrete progress with offshore wind projects:

China is regarded as one of the richest countries in offshore wind resources,
whose mainland coastline is about 18,000 kilometers – the fourth longest
coastline in the world. At 10 meters’ height, the offshore wind resource is
estimated to be 750 million KW, among which 100 million KW is in the 10 meter
depth waters. With the nation’s 40％ population, the coastal area is the most
developed area in China and also the largest consuming market for
electricity. The first Chinese offshore wind farm in Shanghai went online
in 2009 as a demonstration project, followed by further ambitious plans to build
more offshore wind farms in the costal provinces of Jiangsu, Zhejian, Fujian,
Guangdong and Shandong. It is estimated that Jiangsu province will
establish the offshore wind farm with the total capacity of 7GW and Zhejiang
province of 2.7 GW by the year of 2020. The development of offshore wind power
has a huge potential in China.

As of this post, the United States has not fully permitted-- nevermind installed-- a single offshore wind turbine.

For the domestic Offshore Wind Industry, many are looking to Secretary Salazar's imminent decision on the future of the proposed Cape Wind project as a canary in the coalmine. DOI Secretary Salazar has indicated that he will issue a decision as to whether the Cape Wind project may be sited in Nantucket Sound by the first week of April. Although the project has proven that its benefits will significantly outweigh any environmental detriments (as demonstrated by the final Environmental Impact Statement issued in 2009), several Native American tribal groups, including the Wampanoag, have challenged the project and requested that the National Parks Service identify Nantucket Sound as a protected historic site. Nearly all offshore industrial interests have rejected the NPS's determination that Nantucket Sound is eligible for this status because it would likely impart a "chilling effect" on nearly all offshore development projects. This decision is the final federal regulatory hurdle that Cape Wind must overcome before the project is able to obtain a site lease.

Secretary Salazar has requested comments from the general public to inform his decision. Hopefully, Secretary Salazar will recognize that his decision and the impact that decision will have on the renewable energy industry in the United States generally will resonate far beyond the clean energy and climate change communities. This is a decision with enormous import for the United States position in world politics and in the international economy.

When Will the US Have A Fully Functional Offshore Wind Farm Installation?

Recently, a member of an offshore renewables interest group in linkedin.com posted a poll entitled: How long before the USA has a fully functional offshore wind farm installation?


This is an entropic question; in fact, it sums up every other question we face in the United States' burgeoning offshore wind industry. I have heard some project developers such as the New York Power Authority say, "We will be up and running in 3 years." Other project developers scoff at the NYPA prediction thinking it aspirational at best. The NYPA, say the cynics, has no lease for the submerged lands in the Great Lakes where it plans to build. Moreover, NY State has no regulatory policy or provisions in place to guide the project through the approvals that will surely be required. Moreover, say the cynics, NYPA does not even have a power purchase agreement (PPA) in place. And furthermore, say the cynics, have these NYPA people been watching the shenanigans that have thwarted progress on the Cape Wind Project since 2002?

The cynics make a good point. Nevertheless, the problems that have plagued Cape Wind may not plague every project. Still, there are significant obstacles. The primary obstacle is the time and expense involved in obtaining MMS licensure and leasing for siting new offshore projects. Having lenders lend, investors invest, or bond financiers structure financing plans involves the provision of significant amounts of capital to develop offshore facilities-- and those financiers expect repayment or a return on investment within what financial folks consider a reasonable time frame, ie, 5 years or so. But confidence in a five year return on offshore projects is extremely difficult due to the uncertain regulatory framework, not to mention the costs that accrue while siting these projects in relation to capital investment return. We need to create a more stable regulatory environment with reasonable deadlines that comport with investment time frames. Simply put, the investors, lenders and/or debt financiers must have some level of confidence that the project will actually get built if they are going to be willing to put billions of dollars on the line.

Cape Wind is probably not a good example for what future offshore wind projects will have to overcome. Cape Wind started seeking approvals back in 2002, and the regulations governing leases of submerged federal lands (as issued by the Mineral Management Services bureau-- a subsection of the DOI) were not issued until May 2009. Consequently, Cape Wind is not subject to the MMS process. Rather, it is grandfathered in and is following a piece meal approach to obtaining the proper clearances.

Cape Wind (like all offshore wind projects) has also had to wait while the Massachusetts state regulators put together some sort of regulatory process and policy (they have now done so-- the Massachusetts Ocean Management Plan is available here: http://www.mass.gov/Eoeea/docs/czm/v1-complete.pdf.

In contrast, future projects in Massachusetts will not need to wait for the state regulators to figure out how to regulate offshore renewable energy projects. Likewise, other states such as Rhode Island and New Jersey either have already or are in the midst of issuing state ocean management plans that will provide guidance for future projects.

The ongoing offshore wind projects that will be subject to the MMS process are in Rhode Island, New Jersey and Maryland/Delaware/Virginia (the "DelMarVa" project. These are slated for installation 15-20 miles offshore.

The DeepCWind project in Maine is a bit different. The Maine test beds are designed to test out a new technology in offshore wind turbines-- turbines that float. Present technologies require the turbines to be secured to the ocean floor, which means that they can only be installed in relatively shallow waters and increases the installation costs and construction impacts significantly. The test beds will be located within 3 miles of the Maine shoreline and therefore will not be subject to MMS' federal regulatory requirements. These test beds will never be scaled up to full utility sized farms. If the Maine project works, a utility scale wind farm would be built much farther offshore-- in the 15-25 nautical mile range. Floating turbine technology would vastly increase the potential for offshore installations -- especially on the west coast where the sea shelf drops off dramatically.

As for the folks who have retreated from wind because of T. Boone Pickens' reversion to natural gas as a result of the NG price drop, my response is this: any resource that is not renewable is by definition price volatile and comes with externality costs that outweigh short term cost benefits. Natural gas prices dropped this year, but no one really believes that natural gas will not become expensive again-- and sooner rather than later. Moreover, Pickens and his ilk have failed to include the financial hit associated with the climate impact of non-renewable energy resources-- the externalities. Natural gas, nuclear, etc...are all an improvement on coal fired power plants, but they all still emit toxins into the environment. Moreover, fuel costs money. I`m not an economist, but I believe that the increased costs associated with purchasing, transporting, refining, disposing, and mining fuels (never mind the environmental remediation and human health issues that run along side) weigh the scales heavily in favor of renewable energy sources. Wind is affirmatively cost-intensive on the front end-- construction, permitting, etc.. But it costs next to nothing to operate and maintain. Non-renewable resources are just too expensive in the long view.

The problem with Pickens' analysis is that he is looking at the rate of return over a very short time frame. To my mind, the future of our planet and our quality of life deserve an analysis that incorporates more than just a five year return on investment.

That being the case, we do need to find ways to streamline the regulatory process by encouraging MOU's or other types of efficiencies between state and federal regulatory processes. Moreover, we must find a way, without totally compromising public stakeholder participation, to limit the NIMBY challenges.

Engineers in Europe and their US counterparts can and have resolved the mechanical concerns. The big obstacle is regulatory. Make a more efficient and reliable process, and the investors will come. Make a more efficient and reliable regulatory process and we will be able to transform these offshore wind projects into what Europe already has: an offshore wind industry.