The United States is on the precipice of developing a robust offshore wind (“OSW”) industry. This article reviews recent developments on the federal and state level that have made it so.
The Trump administration, while demonstrating a clear preference for fossil fuels, has continued the past precedents of permitting offshore wind farms. To date, the Bureau of Ocean Energy Management (“BOEM”) at the Department of the Interior has approved 16 commercial wind leases, and more sales in wind energy areas (“WEAs”) along the Atlantic Coast are expected later this year. A major auction was conducted on December 14, 2018, for three leases off the coast of Massachusetts, resulting in a total auction price of $405 million. Even BOEM found this to be a “bonanza.” The winners were Equinor (former Statoil), Vineyard Wind (Copenhagen and Avangrid renewables), and Mayflower (Shell and EDP Renewables). The West Coast and Hawaii are considering floating wind platforms.
The first commercial OSW farm has been in operation for over one year in state waters without any hiccups in providing clean reliable energy to the residents of Block Island, Rhode Island. European developers are partnering with U.S. companies to share their expertise in OSW development, and the production tax credit was left intact in the 2017 tax reform legislation.
These are all positive signs for the U.S. OSW market. In addition, the price of both wind and solar is declining and becoming more competitive with natural gas.
This article reviews some of the legal hurdles an offshore wind farm developer has to clear, and suggests some ways to shorten the journey. The article also reviews new state policies recently enacted or announced to support renewable energy and OSW.
Federal Laws, Policies, and Tax Incentives
On the federal level, a developer first has to secure a lease on the Outer Continental Shelf (“OCS”) from BOEM. This is actually the simplest part of the process because BOEM has done a good job laying out the areas for wind energy development along both the Atlantic and Pacific seaboards and has broad authority over the leasing process pursuant to the Energy Policy Act of 2005. The sales receipts from BOEM auctions of OCS leases have ranged from $448,000 to $135 million, the latter for the Massachusetts sales noted above.
After winning the bid for a lease sale on the OCS, a developer has to submit a Site Assessment Plan (“SAP”) and a Construction and Operations Plan (“COP”) to BOEM for review and approval under the National Environmental Policy Act and other related environmental protection laws. 30 C.F.R. 582.600 et seq.
The developer next has to cross the Rubicon of finding the right U.S.-built vessels to bring the heavy equipment out to the wind farm. The United States lacks certain heavy-lift vessels, or, when available, they are not located near the Atlantic or Pacific Coasts. Compliance with the Jones Act, while challenging, can be accomplished through a mix of U.S. and foreign-flag vessels. For example, foreign-flag vessels can transport the turbines from Europe to an offshore wind farm without violating the Jones Act. This model was successfully used at the Deepwater Wind farm in Rhode Island state waters.
Once the wind farm is constructed on the OCS, the energy has to be brought to shore via a cable crossing state waters and connecting onshore to the grid. This is subject to state and other federal regulation, including potentially the U.S. Army Corps of Engineers, state departments of environmental protection, and state corporation commissions if ratepayers are involved.
After that, the developer must find a purchaser for the wind. As noted above, the price of wind is coming down, making it more competitive with fossil fuel sources. The wind itself can be purchased by utilities, state agencies, or private entities using either virtual or real power purchase agreements.
Tax Credits and Research Grants
The cost of offshore wind can be decreased as a result of federal tax credits and grants. The federal production tax credit (“PTC”) was renewed in 2015, and extended until 2020. The Internal Revenue Service on May 5, 2016, issued Notice 2016-31, which provided a generous interpretation of the PTC-enabling companies to use the credit, provided construction has begun sometime during the four-year period. For example, if construction begins on a facility on January 15, 2016, and the facility is placed in service by December 31, 2020, the facility will be considered to have met the IRS prior rulings for continuous service. However, the 2015 extension of the PTC also phased out the credit over the ensuing four years so that by January 1, 2020, the amount of the tax credit is reduced from 100 percent to 40 percent. The PTC was under attack during deliberations on the latest tax reform bill, but was ultimately left in place.
Federal grants can also support OSW development. These grants are administered by the Department of Energy
(“DOE”). In the past 10 years, the DOE has awarded a total of $190 million in grants to 73 OSW demonstration projects. In May 2016, the DOE transferred some of the grant funds from some earlier recipients to others, depending
on the DOE’s assessment of how far along the individual projects were. The Virginia Offshore Wind Technology Advancement Project (“VOWTAP”), for example, lost out
on this process because they could not confidently state that their project would come on line before 2020. Winners included Fishermen’s Energy Atlantic City Wind Farm, Lake Erie Energy Development Corporation’s Icebreaker Project, and the University of Maine’s New England Aqua Ventus I Project. The latter project may be in jeopardy as a result of Governor LePage’s 2018 moratorium on new wind permits in Maine, challenged in court by the Maine Renewable Energy Association. And, VOWTAP has been renamed the Coastal Virginia Offshore Wind (“CVOW”) Project as a result of Dominion Energy’s alliance with Ørsted.
It remains to be seen whether the Trump budget continues to support financial assistance to OSW projects in 2019–2020. Fortunately, in 2018, the DOE awarded $18.5 million to the New York State Energy and Research Development Authority (“NYSERDA”) to conduct research to lower the cost of OSW. These funds were matched by New York State so that a total of $40 million is now available for research that states and other groups can petition for.
State Competition and Cooperation for OSW Farms
The sale of offshore wind into the grid is greatly facilitated by state laws and policies that encourage or require the use of renewable energy. Several states have adopted, or are in the process of adopting, such policies. For example, New Jersey and Maryland both enacted legislation establishing a system of ocean renewable energy credits, or ORECs, to support the cost of development and reduce the burden on ratepayers, but the trajectory for implementation has varied greatly in each state.
Former New Jersey Governor Chris Christie of New Jersey signed the Offshore Wind Economic Development Act (“OWEDA”) into law in 2010, but took no steps to implement it. N.J.S.A. 48:3-87.2 et seq. Incoming New Jersey Governor Phil Murphy signed an executive order on January 31, 2018, directing the NJ Bureau of Public Utilities (“BPU”) to implement OWEDA to meet the new state goal of 3500 MW of OSW by 2030. N.J. Exec. Order No. 8. Two areas for OSW are currently leased off the coast of New Jersey—one belonging to Ørsted (formerly DONG Energy) and one to US Wind (a subsidiary of the Italian renewable energy firm Renexia). On September 17, 2018, the NJ BPU issued a solicitation for 1100 megawatts of offshore wind to help meet the state’s goal of 3500 megawatts by 2030. Responses were due December 28, 2018.
In the case of Maryland, on April 9, 2013, then-Governor Martin O’Malley signed into law the Maryland Offshore Wind Energy Act of 2013. The Maryland law requires electricity suppliers to purchase ORECs and creates a “carve-out” for offshore wind energy in Maryland’s Renewable Energy Portfolio Standard for up to 2.5 percent of total retail sales. In response to a survey taken of Maryland residents in 2012, the law specifies a maximum price for residential and nonresidential electric customers. In February 2016, the Public Service Commission (“PSC”) of Maryland opened the window for applications for a 180-day period. Two projects off the coast of Maryland and Delaware succeeded in winning PSC approval with accompanying ORECs on May 11, 2017—one belonging to US Wind and one to Deepwater Wind. Each project has to spend a percentage of costs in Maryland, commit to building a steel fabrication facility, provide funds for port infrastructure upgrades, and have minority business participation in the project.
Governor Baker of Massachusetts signed An Act to Promote Energy Diversity in 2016 to launch OSW. Utilities in the state are required to solicit 1600 MW of “cost-effective” OSW. Three bids were received by December 2017—one from Deepwater Wind, one from Ørsted, and one from Vineyard Wind (CIP/Avangrid). In the meantime, the state decided to select a project to bring hydroelectricity from Canada, but this project is under scrutiny at this writing because of the lack of a permit for a pipeline to transmit the power that would have run through the White Mountains of New Hampshire. This leaves an opportunity for OSW to be selected for this or a future competition. In fact, on December 14, 2018, BOEM awarded three new lease sales to auction winners Vineyard Wind, Equinor, and Mayflower at the bonanza price of $135 million per lease sale—the highest auction prices for offshore wind leases off the United States. Vineyard Wind is currently in the process of securing the necessary permits for bringing wind to Massachusetts and Rhode Island customers.
Other states have created a favorable environment for offshore wind by adopting renewable energy goals. For example, New York Governor Andrew Cuomo has established a goal of generating 50 percent of the state’s electricity from renewable energy by 2030, which includes up to 2400 MW of OSW. New York developed a master plan that provides a “comprehensive state roadmap for advancing development of offshore wind in a cost-effective and responsible manner.” N.Y. State Energy Research & Dev. Auth., New York State Offshore Wind Master Plan (2017). New York has also asked BOEM to identify and lease at least four new WEAs within a study area off the coast of New York and New Jersey, and expects to issue solicitations in 2018 and 2019 to develop at least 800 MW of OSW. New York will also invest $15 million in workforce development and infrastructure grants, and is working with BOEM to identify new WEAs off Long Island.
Rhode Island had the foresight in 2010 to adopt an Ocean Special Area Management Plan (“SAMP”) for state waters. The SAMP identified sites for offshore renewable energy, thereby facilitating the siting of the Deepwater Wind farm off the coast of Block Island. The fact that Block Island did not have its own source of electricity and endured high costs also helped the Deepwater Wind project, which became operational by the end of 2016—the first OSW farm in the United States to achieve this distinction—and a model for others to follow. In addition, Rhode Island Governor Raimondo directed her energy team in February 2018 to work with the state’s utilities to issue a procurement for up to 400 MW of affordable clean energy by the summer of 2018 and a request for procurement was announced on September 11, 2018.
Developers are certainly paying close attention to state laws encouraging and incentivizing offshore wind farms and are flocking to their shores over those of other states. In addition, the welcome door to foreign developers to participate in these projects has been a boon to reducing the costs of OSW. U.S. companies are certainly benefiting from their expertise.
What Do Consumers Think?
No one has taken a national survey of public opinion, but it seems to this observer that the reaction would be mixed. Maryland did take a survey of its residents and, as a result, capped the rates that offshore wind developers could charge consumers. Some residents of the Maryland Eastern Shore objected to seeing wind turbines off their coast and their Representative Andy Harris introduced an appropriations rider to ban them inside of 24 miles.
Residents of Cape Cod, Massachusetts, objected to an OSW farm because it would interfere with their view. This “NIMBY” syndrome virtually sank the Cape Wind project. On the other hand, current Massachusetts policy seems to be more favorable. See the discussion above on new Massachusetts legislation and the bonanza awards of three offshore wind leases to three companies.
In the case of Virginia, the price of electricity has traditionally been low, making it more challenging to have ratepayers assume the burden of paying more for offshore wind. But new Virginia legislation supported by Governor Northam may encourage the State Corporation Commission (“SCC”) to approve the latest OSW pilot project, now called “CVOW” as being in the “public interest.” This project is managed by Dominion with assistance from its main contractor, Ørsted. On November 2, 2018, the SCC approved the CVOW demonstration project of two turbines based on the dictates of the new state law.
All states considering OSW are weighing the benefits in new state jobs and clean energy with the costs to consumers from the price of OSW.
What Can the U.S. and States Do to Develop and Encourage OSW?
Having laid out some of the challenges, the author feels obliged to identify some incentives for encouraging OSW development in the United States. The following is her wish list of positive incentives:
- Create a national renewable energy policy, including a five-year leasing plan for offshore wind, highlighting the economic benefits and job creation of offshore wind. A recent report from the American Jobs Project, for example, highlighted the potential for 14,000 offshore wind-related jobs in Virginia. The national wind association AWEA touts 100,000 jobs created for all wind projects in the United States.
- Establish a one-stop permitting shop in the federal government, modeled on the Ocean Thermal Energy Conversion Act of 1980 (Pub. L. No. 96-320), to avoid other agencies second-guessing BOEM’s decisions. The Trump administration proposal for one-stop permitting for infrastructure projects may be another model.
- Create a model law that states can use to promote OSW farms and a model power purchase agreement for OSW.
- Maintain the PTC until renewable energy, including OSW, achieves price parity with the cost of fossil fuels.
- Encourage states to cooperate across borders to enable them to share the costs and benefits of OSW. New York, Massachusetts, and Rhode Island are forming a regional alliance now with the assistance of the Clean Energy States Alliance. The NYSERDA R&D Consortium is an excellent model to use for cross-state cooperation on research for OSW technologies and impediments.
- Educate the public on the benefits of clean energy, including OSW, through a program of state grants managed by the Department of Energy, and promote a tourist industry for visits to view offshore wind farms.
- Continue to encourage experienced European OSW developers to lend their experience to U.S. developers.
- Provide loan guarantees for new ship construction and grants for innovative research on OSW. Encourage U.S. shipyards to build Jones Act-qualified vessels for support vessels and perhaps one day larger heavy-lift vessels.
- Continue to support the Federal Energy Regulatory Commission’s present path of supporting the transmission of renewable energy into the power grid and working cooperatively with states to allow OSW developers to bid power into the grid.
In summary, the winds of change are blowing favorably for new OSW farms in state and federal waters. As soon as these farms begin to produce clean, reliable, and cost-efficient energy, consumers will begin to demand them and may even welcome them in their view shed.
This article was first published January 23, 2019, in the ABA Section of Environment, Energy, and Resources.
©2019 by the American Bar Association. Reprinted with permission. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.