Offshore wind park

Texan wind energy developer poised to construct first U.S. offshore wind turbine, even as policy uncertainty and tricky project financing harries competing projects

With some five gigawatts (GW) of offshore wind energy projects in the works, the long-promised dawn of offshore wind in America could be at hand. And although the most publicized development efforts are centered in the Atlantic Coast and Great Lakes regions, it may actually be the Lone Star State that wins ‘first in the water’ honors.

Coastal Point Energy, a Texas wind development firm, is on pace to purchase and install the first offshore wind turbine in America by the end of 2011, edging out other 'first-mover' rivals in Massachusetts' Nantucket Sound and Ohio's Lake Erie. The company has already secured the necessary permits to construct a three megawatt (MW) "test" turbine by the end of 2011, which the company hopes will be the first stage of a 300 MW wind park located 8.5 miles off the coast of Galveston.

Coastal Point: First in the Water?

In 2008, the U.S. Army Corps of Engineers approved construction by Coastal Point Energy of an offshore meteorological tower at the site of the company's planned Galveston Wind Project. The company has since used the tower to gather over 30 months of wind data, which confirmed the site's "superior" profile for wind power generation, according to the company.

Now, Coastal Point plans to construct a three megawatt test turbine on the same platform, a move covered by the 2008 Corps permit. Herman Schellstede, a principal with Coastal Point Energy, told Offshore Wind Wire in May that the company is in the midst of securing Chinese components to construct a German turbine design. The company plans to complete installation of the test turbine by the end of 2011, which would make it the first offshore turbine in the nation.

Coastal Point is awaiting approval by Austin Energy of a power purchase agreement for a 12 MW first commercial phase of the Galveston project. The company expects a decision on the PPA early this summer.

Ultimately, Coastal Point plans to build a 300 MW wind farm on 12,350 leased acres at the Galveston Wind Project site, although the company must still secure permits for the full project, according to Jayson Hudson, regulatory project manager with the Corps’s Galveston District Regulatory Branch.

The planned project will be built in relatively shallow waters approximately 53 feet in depth facilitating the use of proven offshore wind platform structures, the company says.

Coastal Point holds leases from the state General Land Office for 85,422 acres at five sites, which the company hopes to develop into a total of 2,100 MW. In addition to the 300 MWs planned for Galveston, the company also envisions: the 300 MW Jefferson Wind Project; 500 MW Brazoria Wind Project; 500 MW Corpus Christi Wind Project; and 500 MW Brownsville Wind Project.

Loan Star State Poised to Lead in Offshore Wind?

If Coastal Point Energy is the first to cross the symbolic 'first-in-the-water' mark, the company may have a peculiar quirk of history to thank. When the short-lived Republic of Texas entered the Union in 1845, the state retained claim to all public lands within it's territories, including control of marine territory extending to nine nautical miles (10.3 miles) offshore, rather than the the three nautical miles standard for all other states (excepting the Gulf coast of Florida).

Like oil and gas development, offshore wind projects within 10.3 miles of Texas shores therefore face a streamlined permitting process dealing primarily with energy-friendly state regulators. Texas projects need not secure permits from the Federal Energy Regulatory Commission or the Bureau of Ocean Energy Management, Regulation, and Enforcement, although projects still must secure U.S. Army Corps of Engineers approval and are subject to the 1899 Rivers and Harbors Act.

Coastal Point Energy and other Texas wind developers can avoid the thicket of federal permitting processes that took the much-publicized Cape Wind project in Nantucket Sound a full decade to navigate.

Texas is already far-and-away the U.S. leader in on-shore wind energy capacity, with over 10 GW installed as of May 2011, nearly a quarter of all wind energy installed in the United States, according to the American Wind Energy Association.

Texas combines their unique regulatory environment with a well-established marine energy industry experienced in the construction and maintenance of offshore energy platforms, as well as the relatively shallow Gulf waters, making the Lone Star State a formidable contender to lead in offshore wind markets as well.

Great Lakes, Atlantic Projects Also Advancing, but Federal Policy Uncertainty Plagues Development

Several offshore wind projects are also pressing forward in the Great Lakes and Atlantic Coast regions, although most must navigate a tricky course through state and federal permitting, tricky project financing, and an uncertain future for national renewable energy policy.

Cape Wind project mapAfter more than a decade, the Massachusetts Cape Wind project, long billed as "America's first offshore wind farm," finally secured all necessary federal permits in January and was cleared in April by U.S. Interior Secretary Ken Salazar to begin construction. But the project has only secured a power purchase agreement for half of its planned 468 MW of output, and still must arrange financing for the $2 billion project.

Energy Management Inc., the company behind Cape Wind, had hoped to finance 80% of the project with a help from a Department of Energy (DOE) loan guarantee program for innovative energy technologies, according to the Wall Street Journal.

Those plans were thrown into disarray in May when DOE notified Cape Wind that its application would not be completed by September 30th, the end of the federal fiscal year.

Cape Wind's application is therefore among hundreds of others 'on hold' until uncertainty over the fate of the loan guarantee program's budget is resolved.

As a part of an April budget deal to prevent a government shutdown, Congressional lawmakers agreed to eliminate most new funding for the two DOE loan guarantee programs designed to help renewable and other advanced energy projects secure financing.

The Republican-controlled House Energy and Water Appropriations Subcommittee released a fiscal year 2012 budget proposal on June 1st that would virtually eliminate the two loan guarantee programs. The proposed budget would provide just $160 million of the $1.06 billion requested by the Obama Administration.

The Cape Wind developers will now have to turn to a more traditional -- and costly -- project finance route, securing a mix of financing from commercial banks, foreign export credit agencies, and bond markets. Barclays Capital, the project's financial adviser, is already seeking equity investment partners.

Federal budget uncertainty may have also derailed a Delaware project that once appeared poised to contend with Cape Wind to be the first in Atlantic waters.

NRG Bluewater Wind, which plans a 200 MW wind farm located 13 miles off the Delaware coast, announced on May 30th that it would delay construction of a meteorological tower at the project site, blaming the uncertain federal policy environment for renewable energy development.

The budget troubles plaguing the DOE loan guarantee programs as well as continued uncertainty about the long-term fate of the federal production tax credit for wind energy, has “injected considerable uncertainty into the financing for and viability of all U.S. offshore wind projects,” Dave Gaier, NRG spokesman, told The Daily Record in an email.

“But we remain committed to the project and are just slowing down our momentum until we have a clearer picture of the future,” Gaier wrote.

Bluewater has a 25-year power purchase contract with Delmarva Power, provided it begins producing power by 2016.

The long-term prospects of offshore wind energy development could be boosted by the Atlantic Wind Connection, a $6 billion plan to build a high-voltage, long-distance transmission 'backbone' linking offshore mid-Atlantic wind farms stretching from Virginia to New Jersey.

Atlantic Wind Connection schematicThe project, led by Trans-Elect Development Corp. and Atlantic Grid Development and financially backed by Google, Good Energies, and Marubeni Corp., plans to bury high-voltage direct-current cables 22 miles off the coast, linking wind farms with 6,000-7,000 megawatts of capacity. Power would come ashore at four coastal intertie locations, providing access to the power markets serving the major population centers of the mid-Atlantic corridor, from Washington DC to New York City.

The Federal Energy Regulatory Commission recently approved an above-market 12.59 percent rate of return on equity as an incentive to buoy development of the Atlantic Wind Connection, although the project is just beginning the long process of securing federal permits, performing environmental assessments, and winning approval from the PJM Interconnection, the mid-Atlantic regional grid operator.

Finally, the relatively calm waters of the Great Lakes region could soon be home to a number of wind energy projects as well.

Perhaps the most likely to begin generating power first is the Cleveland-based Lake Erie Energy Development Corporation (LEEDCo). The private, non-profit economic development corporation, expects to begin construction of a 20-30MW pilot project by next year and aims to have the turbines operational by late 2013.

LEEDCo Lake Erie wind farm graphicThe project will see five-to-seven turbines rise in Lake Erie waters seven miles northwest of Cleveland's Browns Stadium. LEEDCo secured a lease option from the State of Ohio in 2011 giving the venture exclusive rights to develop the proposed site.

Ultimately, LEEDCo hopes the project will lead the way for 1,000 MW of wind power in Ohio's Lake Erie waters and help establish Northeast Ohio as "the regional hub of Great Lakes offshore wind."

After Ohio, New York may be the next state to bring offshore wind to the Great Lakes. There, the public-private Great Lakes Offshore Wind Power Project, led by the New York Power Authority (NYPA), is pursuing the development of 120 to 500 MWs of wind energy in Lake Erie or Lake Ontario.

The NYPA issued a request for proposals in December 2009, with five developers responded with plans by June 2010. According to Today's Energy Solutions (TES), a winning developer was to be selected in January 2011, though none has been named so far.

TES reports that the NY project may have been stalled by opposition from seven shoreline counties and multiple communities that have issued resolutions opposing the Great Lakes Offshore Wind project, citing potentially high costs to ratepayers and NIMBY concerns over "unsightly" visual impacts of the project.

Meanwhile, on February 11th, the government of Ontario declared a moratorium on all offshore wind energy development in the Great Lakes waters of the Canadian province.

The government said more research was needed to determine the health and environmental impacts of wind projects developed in the fresh waters of the lakes region.

"So far all offshore wind development has taken place in salt water," explains Jonathan Rose, press secretary for the Minister of the Environment John Wilkinson. "That is very different than fresh water like [Lake Ontario], which is, obviously, a source of drinking water for millions of Ontarians."

The Ontario government plans to watch the environmental reviews for projects planned in the U.S. as well as studies of the the only operational freshwater turbine in the world, located in Sweden's Lake Vanern, the CBC reports.

This is the second Ontario moratorium in recent years. In 2008, the government lifted the first moratorium imposed two years earlier, allowing project development in the province's Lake Erie, Huron and Ontario waters.

"They said it was full steam ahead at the time," says John Kourtoff, CEO of Trillium Power Wind, which plans to build a 420 MW wind farm off Ontario's Prince Edward county, adding his company has conducted 104 studies that are complete or "90 per cent complete" on environmental and health effects, including avian, aquatic and water impacts

Now, project developers in Ontario have once again seen the rug pulled out from under them by the latest moratorium. That may leave wind developers there longing for the warmer waters and friendlier regulatory climes of Texas' Gulf Coast…