RGGI-like cooperation needed for offshore wind power to take off

Just as several states in the Northeast joined together to form the Regional Greenhouse Gas Initiative (RGGI), a new report suggests a similar “RGGI-like” effort is needed on offshore wind generation.

Given that the much-ballyhooed Cape Wind project might never be built off the shore of Massachusetts, a new report has identified serious shortcomings in the offshore wind power development efforts in the Northeast.

“Offshore wind will only become cost competitive and reach its true potential if the states in the Northeast region act together to help create a market for the technology,” according to the just-released report from the Clean Energy Group and Navigant Consulting. The current, go-it alone, single-state policy approach has failed,” according to the report.

The report calls the states of Maine, Massachusetts, New Hampshire, Connecticut, New Jersey, New York, and Rhode Island to start by setting up a regional policy group to cooperate on offshore wind issues ranging from financing to transmission.

“While hopeful, this paper does not minimize the challenges. It notes that offshore wind is currently an expensive power resource, much as solar PV technology was twenty years ago,” according to the report. A combination of policy measures, business models and incentives have helped breathe life into solar, PV the report authors note.

Offshore wind targets, transmission and financing needed

The report calls for a regional, offshore wind target, coordinated policy incentives, financing and procurement mechanism.

Some individual states have announced offshore wind targets, according to the Navigant report.

New Jersey has established an offshore wind target of 1,100 MW by 2021, and Maryland has passed legislation requiring that up to 2.5% of the state’s energy needs be met by offshore wind beginning in 2017. Also, Massachusetts has set a goal of developing 2,000 MW of offshore wind by 2020, and Maine has set goals of 300 MW of offshore wind by 2020 and 5,000 MW by 2030.

On the transmission front, states “should developed joint public funding of regional transmission and interconnection facilities associated with regional offshore wind projects,” according to the report.

Undersea cables, offshore substations, and interconnection facilities comprise a significant share of the total capital costs for an offshore wind project.

A simple solution would be for developers of offshore wind generation to also develop and finance the transmission, Navigant said in the report. However, such a move could place “an extraordinary burden on the individual developer,” Navigant said in the report.

A couple of agencies in the United Kingdom have set up an Offshore Transmission regime, enabling the agencies to regulate and license transmission projects.

“As transmission facilities represent a substantial component of the overall project costs, relieving the offshore wind developer of these costs would reduce the amount that they would otherwise need to finance,” according to the Navigant report.

Various means of financial assistance could be pursued. This could include everything from government loan guarantees to tax breaks and low-interest loans to development of so-called “Green Bank” for the offshore wind industry.

Nascent offshore wind energy faces hurdles

“The Cape Wind project in Massachusetts illustrates that it is all too easy to stall projects and undermine a single state’s offshore wind policy,” according to the report. “It might be that no effort, either single-state or through multiple states, could have overcome the intense and well-funded opposition there. But the termination of Cape Wind’s two power-purchase contracts with Massachusetts utilities—regardless of the ultimate cause of the project’s apparent demise— underscores the need for a new approach to finance and support offshore wind projects that could have a greater chance of success.

Early efforts to develop offshore wind in the Northeast have faced a number of complications, according to the report. They include:

• In Maine, the state’s effort to reopen bidding for a pilot offshore wind project, after a proposal had already been approved for a power purchase agreement (PPA), created major issues with offshore wind development.

• The stalled Fishermen’s Energy Atlantic City Project in New Jersey shows how single-state driven policy supports may not be robust or definitive enough to drive strong market development.

Deepwater Wind’s Block Island project in Rhode Island shows it’s possible to create small-scale demonstration projects, but not at utility scale.

• The Long Island Power Authority (LIPA) process in New York shows how inconsistent policy pronouncements can cause market disruption.

The report goes on to say that each state has its own offshore wind policy. Developers are hesitant to invest in a regulatory environment with “different, conflicting and confusing market signals,’ the report said.

In addition, state laws have not cooperated to finance offshore wind projects, as compared to European governments that have integrated programs to support projects and companies in this emerging field.

As a result there is no pipeline of projects beyond the initial demonstration projects now struggling to come into the marketplace – “and the projects that are proposed cost too much, in part because of the high cost of financing,” according to the Navigant report.

The Clean Energy Group is a non-profit advocacy organization. Navigant is a global professional services firm with much experience in energy and environmental issues.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.