Wind turbine manufacturer and project developer Gamesa has suspended its plans for an offshore wind project off Virginia.  Gamesa had sought permits to install a prototype 5 MW turbine and supporting infrastructure about 3 miles offshore in Chesapeake Bay, but ultimately chose a site off the Canary Islands off Africa instead.

What led Gamesa to pull out of the Virginia project – and does it suggest a larger trend? Headquartered in Spain, Gamesa Corporación Tecnologíca, S.A. focuses its business on the design, manufacture, installation and maintenance of wind turbines. With 34 production facilities in Europe, the U.S., China, India and Brazil, Gamesa has produced turbines totaling over 24,100 MW of installed capacity, deployed primarily at onshore sites.

Gamesa is a fairly large player in the international terrestrial wind market, with 2011 consolidated revenues in excess of 3 billion euro ($3.81 billion) and a net profit of 51 million euro ($64.8 million).

In early 2011, Gamesa subsidiary Gamesa Energy USA, LLC and Virginia-based Huntington Ingalls Newport News Shipbuilding proposed to install and operate a single 5 MW offshore wind turbine generator prototype, off Virginia’s Eastern Shore near the southern tip of the Delmarva Peninsula. The project was designed to test and demonstrate Gamesa’s G11X wind turbine generator, which would have been installed on a steel monopole tower about 3 miles southwest of Cape Charles Harbor.

In January 2012, Gamesa submitted a Virginia Standard Joint Permit Application (145-page PDF) for a coordinated project review by a variety of federal, state, and local agencies. In its application, Gamesa touted the project’s benefits, principally the value of providing a research and development platform for the development of larger, fully marinized turbine generators. Gamesa also pointed to local economic benefits: direct jobs from the project, plus indirect benefits ranging from economic activity providing services to project workers and even tourism related spending.

Gamesa also noted that the project would provide renewable electricity to the mainland electric transmission grid (albeit on a small scale, given the 5 MW nameplate capacity), and would serve as an example for other Mid Atlantic communities as to how renewable offshore energy might benefit their communities. Gamesa targeted installation in the third quarter of 2013 with commissioning and in-service capability by September 2013, making it a candidate to be the first operating offshore wind project in U.S. waters.

The project appeared to have political support and regulatory momentum; on March 27, having received no objections from the public, the Virginia Marine Resources Commission unanimously approved Gamesa’s request. The project was proudly touted by Gov. Bob McDonnell as supporting his goal to make Virginia the energy capital of the East Coast.

Despite this approval, Gamesa announced on May 7 that it had selected a site off Arinaga Quay near Gran Canaria in the Canary Islands for its G11X prototype. In its statement, Gamesa noted that this decision “freezes the offshore prototype project in Virginia” and that “the prospects for the U.S. offshore market and its regulatory conditions in this segment so far do not justify the next step, the installation of a prototype in the U.S.”

Reading between the lines, factors likely included uncertainty over the future direction of federal energy policy, including whether the production tax credit and other incentives for offshore wind development will be extended. Another factor left unmentioned may be the boom in shale gas availability in the U.S., and the resulting projections of lower-cost electricity in the U.S. from natural gas-fired power plants. Gamesa may also have preferred doing business in territory controlled by its home nation of Spain.

Is Gamesa’s decision part of a larger trend of multinational developers favoring European sites over U.S. sites? Gamesa’s statement says that it chose the Canary Islands site over Virginia through a rational decision-making process focused on regional and country-specific market conditions. These factors may not be specific to Gamesa; other developers appear to be making similar choices.

The sheer numbers are suggestive: by the end of 2011, ten European countries had 1,371 offshore wind turbines installed and grid connected, totaling 3,813 MW across 53 wind farms; by contrast, the U.S. still has no operating commercial offshore wind project. Gamesa’s Virginia project would have been more of a demonstration project than a pure commercial play, but there are signs that even demonstration projects are choosing European sites over U.S. waters. At least one other European offshore wind developer – Statoil – recently suggested that state-level support for a deepwater floating demonstration project proposed in Maine was insufficient and that its project would need further financial support at the federal level to develop offshore wind off the U.S. Atlantic coast.

What should policymakers do if they want to see the development of offshore wind projects in U.S. waters? Are developers playing each side of the Atlantic Ocean off against the other? As the European Union is wracked by financial troubles, would it be reasonable for the U.S. to engage in a bidding war of subsidies against European nations? If Europe lands all the demonstration projects, will the U.S. save money – or miss a key opportunity for economic development?

The game is not over, but it looks like this round goes to Europe – for now.

Todd J. Griset practices energy law with Preti Flaherty Beliveau & Pachios in Maine. He also writes a blog on offshore wind, renewable energy and policy issues.

The project is designed to connect offshore wind projects along the Atlantic seaboard, removing the need for each project to built a separate connection to the grid.

“The first-of-its-kind Atlantic Wind Connection is an encouraging sign of significant industry interest in developing the infrastructure to support offshore wind development,” said Deputy Interior Secretary David Hayes. “It’s the type of project that will spur innovation that will help us stand-up a clean energy economy to power communities up and down the east coast.”

Hayes announced the project along with BOEM Director Tommy Beaudreau. BOEM regulations require the agency to determine if there is any competition for a particular plot or project. If there is none — as in this situation — the permitting process becomes dramatically more streamlined.

“Our next step will be to evaluate the potential environmental impacts of issuing a renewable energy right-of-way grant for this project,” Beaudreau said.

The first phase of the proposed transmission project would run from New York City to Virginia Beach. In a press release, the company applauded the BOEM permitting process.

As the spring season hits North America, some coastal states’ legislatures are wrapping up their work for the session – and at least one proposed state offshore wind program did not receive legislative approval before legislators returned home for the summer.

Despite the support of the state’s House of Delegates, Maryland Gov. Martin O’Malley’s Offshore Wind Energy Act failed to receive a key vote by the Senate Finance Committee before the legislature adjourned.

This is not the first time that a major Maryland offshore wind bill has died in a legislative committee without being enacted by the General Assembly. The story of Gov. O’Malley’s repeated efforts to encourage the enactment of offshore wind legislation may hold lessons for future efforts in Maryland as well as in other states.

Gov. O’Malley floated his first offshore wind proposal in 2011. House Bill 1054, the Maryland Offshore Wind Energy Act of 2011, required developers to compete before the Maryland Public Service Commission for long-term contracts with the state’s four investor-owned electric companies.

In O’Malley’s 2011 vision, private developers would construct 400 to 600 MW of offshore wind capacity, located at least 10 nautical miles offshore Maryland or within nearby federal waters. Because these contracts would likely have been costlier to ratepayers than the status quo, especially in early years, the 2011 bill would have imposed a special charge on customers to equitably divide the cost of offshore wind.

However, the extent of those costs was a subject of key concern to the General Assembly. Estimates of the average monthly increase in residential bills ranged between $2.16 and $8.70, and some legislators questioned whether Maryland would benefit from economic development as a result of the bill. After being referred to the Senate Finance Committee, the 2011 bill died without a full vote of either legislative chamber.

In January 2012, Gov. O’Malley tried again, unveiling his revised plan for offshore wind development off Maryland. That bill, the Maryland Offshore Wind Energy Act of 2012, was filed in the House of Delegates as House Bill 441 and in the Senate as Senate Bill 237.

Based on the criticisms of last year’s proposal, the 2012 act took a different approach. Instead of requiring utilities to enter into long-term contracts for offshore wind, O’Malley’s 2012 bill featured a renewable portfolio standard for offshore wind. The bill required utilities to source 2.5% of the electricity they serve from offshore wind, starting in 2017. Utilities would have been free to satisfy this standard in several ways, buying offshore wind renewable energy credits (ORECs) from project developers or developing qualifying projects themselves.

In response to cost concerns, the 2012 Maryland offshore wind bill featured both a lower estimated cost – $1.50–2.00 on an average residential consumer’s monthly bill – as well as a cost-containment mechanism. Under the initial 2012 proposal, the Maryland Public Service Commission would suspend the program if it projected cost increases of more than $2 a month.

Polling suggested strong public support for the measure, along with the support of organized groups ranging from environmental advocates to labor unions. The bill also received significant support in the House of Delegates, but not in the Senate. Although the Senate held a public hearing on the SB 237 on February 14, the Senate bill never moved through the legislative committee process.

Meanwhile, the House held hearings on HB 441; the House bill was then amended to cap cost increases at $1.50 per month for residential customers (or 1.5% for commercial and industrial customers), and finally passed the House as amended with strong support in late March by a vote of 88-47.

At that point, the bill was referred to the Senate, which in turn referred it to the Senate Finance Committee on April 5 – where the bill stalled without a vote, and ultimately died last week without approval of both legislative chambers of the Maryland General Assembly.

So what happened in the Maryland Senate Finance Committee? The committee is formed of eleven senators, so six favorable votes were needed for the bill to pass through to the full Senate for a vote. Committee Chairman Senator Thomas Middleton had indicated that he would not hold a vote on the bill unless it had the firm support of a majority of committee members. At the beginning of April, with just two weeks left prior to adjournment, sources reported that the committee was one vote short of passage.

Despite significant lobbying and grassroots protests (at one point over 400 activists circled the Capitol building to show support for the bill), in the end supporters could not convert any of the three Republicans and three Democrats dissenting on the committee. Some observers quickly pointed to “petty power politics in Annapolis” to explain some of these votes, including opposition by one Democratic senator who has repeatedly sparred with Governor O’Malley throughout this session and did not receive the governor’s endorsement for a U.S. Senate race.

Whatever reasons led the Senate Finance Committee not to take action on Maryland’s 2012 offshore wind bill, the result is that it may be some time before the Maryland General Assembly takes the issue up again. The General Assembly meets for only 90 days each year, and the next session will not start until January of 2013. Gov. O’Malley is part way through his second term in office, and will be term-limited in 2014. That leaves just two more years for the legislature to enact his offshore wind vision while he remains in office.

In the meantime, Maryland’s offshore wind resource remains undeveloped and uncapitalized. Will the third time be the charm for offshore wind legislation in Maryland?

Todd J. Griset practices energy law with Preti Flaherty Beliveau & Pachios in Maine. He also writes a blog on offshore wind, renewable energy and policy issues.

The deal is for 27.5 percent of Cape Wind’s output, according to the report.

Initially reluctant, NStar officials agreed to purchase Cape Wind power in exchange for the state’s approval of a proposed merger with Northeast Utilities.

“We know that it will take a diversified approach using all available renewable resources to meet the state’s climate change goals,’’ NStar spokeswoman Caroline Pretyman said.

Maryland Rally for Offshore Wind

Maryland activists surrounded the Statehouse and cheered Gov. Martin O’Malley’s call for offshore wind, the Washington Post reported today.

The governor’s offshore wind legislation was approved by the House of Delegates and is now in front of the Senate Finance Committee.

“It’s very, very important that you talk with [lawmakers] and that you ask them to support wind power now,” O’Malley said.

Earlier this week, Virginia Gov. Bob McDonnell announced that the state’s Marine Resources Commission had approved a single five-megawatt offshore wind turbine for the lower section of the Chesapeake Bay.

One year ago this week, the same commission had approved scientific studies to examine the feasibility of such a project.

The move is being hailed by the governor as a game-changer that will upend the decade-long race for the first U.S. offshore wind project. Construction on the turbine is scheduled to be completed before the end of 2013.

In an official announcement, McDonnell’s office noted that the target date “would be before other offshore wind energy projects are slated to be built in other parts of the country. “

The turbine is being developed by Gamesa Energy USA and Huntingon Ingalls Newport News Shipbuilding and will be connected to the grid. The project could be a significant boost for the prospects of an offshore wind manufacturing center in the Newport News area of Virginia.

So, where is the excitement?

“I don’t think it really signals anything,” said Beth Kemler, Virginia State Director for the decidedly pro-offshore wind Chesapeake Climate Action Network. “This turbine has been in the works for years, this is just the announcement that a state agency approved construction at the site.”

Kemler suggested that McDonnell might be more excited about developing an offshore wind manufacturing base than about developing large-scale projects.

“We would hope to see this much enthusiasm for deploying utility scale offshore wind,” she said.

The lack of enthusiasm was not limited to Kemler. Congressman Rob Wittman represents Newport News and his district runs along the Chesapeake Bay. He has been a supporter of offshore wind development, telling Offshore Wind Wire last year that it is an “important component” of the country’s energy future. His office, however, declined several opportunities to comment on the new turbine.

The project might be seen as too small to generate much excitement. Offshore wind industry observers might have heard too many promises of construction next year, whichever year that happens to be.

But this project looks different. Gamesa has the resources to make the project a reality. The turbine has backing from a Republican governor, removing the possibility that this becomes a partisan point of contention.

Importantly, no anti-offshore wind group has emerged in southern Virginia. Perhaps because of the size of the project, but more likely because of the economic opportunity that this industry represents.

“This wind turbine prototype will bring jobs, jobs and more jobs, and it positions Virginia to be a leader in clean energy technology,” said Doug Domenech, Virginia’s Secretary of Natural Resources.

For a decade the offshore wind industry has labored under the fact that there are no projects in U.S. waters. After the first project is in the water, it will be easier to build the second. And what if that first project is a single turbine? Kemler, who is yearning for utility scale offshore wind near Virginia, acknowledged that a single turbine is a step in the right direction.

“Anything that helps move the momentum forward for offshore wind in U.S. waters is a good thing,” she said. “Anything that helps make this more real for Americans – the public or legislators – is a good thing.”

Renewable energy advocates have said the tax credit is crucial to keep the industry moving and to allow the emergence of an offshore wind industry.

The amendment required 60 votes in the Senate. Yesterday it was defeated when the Senate voted 49-49 on the issue. Here is how the Senate voted:

By State:

Under current law, the PTC for offshore wind expires at the end of 2012.

The vote on the amendment was 49-49 but required 60 votes to pass.

Industry observers were disappointed by the vote. American Wind Energy Association CEO Denise Bode said “tens of thousands of American jobs are being put in peril by partisan gridlock.”

Oceana senior campaign director Jacqueline Savitz called the tax credit ”essential to … help our offshore wind industry catch up.”

“Rather than jump-starting this important energy source, today’s vote will instead choke the industry, slowing its development and delaying the many benefits it can provide,” Savitz said in a statement.

 The utility filed documents with federal regulators arguing that right-of-way permission should not be granted until the project is approved by regional grid operators and the Bureau of Ocean Energy Management awards offshore wind leases.

Atlantic Wind Connection CEO Robert Mitchell told the paper that he was not surprised by the filing and that it likely represented Dominion’s desire to develop offshore wind infrastructure on their own. AWC officials have long argued that their project will deliver enormous economies of scale to the industry — as opposed to each project building its own transmission line.

Maryland GOP Tries To Block Offshore Wind Advocates

Republican state lawmakers in Maryland attempted to block two Public Service Commission nominees because they lobbied in favor of offshore wind last year, Southern Maryland Online reported.

“I don’t believe these two nominees can be objective enough to protect ratepayers,” State Sen. E.J. Pipkin said. “They were the governor’s two chief leaders in [offshore wind] proposals before us last year.”

According to the text of the plan, temporary production tax credits have ”created an uncertain investment climate, undermined the effectiveness of our tax expenditures and hindered the development of a clean energy sector in the United States.”

Consultants Want More Details From Fishermen’s Energy Project

Consultants hired by the state of New Jersey to review the Fishermen’s Energy offshore wind farm, slated for state waters near Atlantic City, have said the project needs to provide more details, Philly.com reported today.

The consultants did not recommend rejecting the project. Their primary criticism was not, in fact, directly related to the project itself, according to the report. In its recommendation to the New Jersey Board of Public Utilities, the consultant said the company needed to  provide more information about potential negative job impact due to increased electric rates.

“Net benefits of the project were not demonstrated because key underlying assumptions of applicants’ cost-benefit analysis were not adequately substantiated,” the consultants said.

Wind industry advocates are working overtime to convince Congress to renew expiring tax credits. The incentives are unquestionably important, but less attention is paid to scenarios in which the lobbying is unsuccessful.

Would the offshore wind industry still emerge without the expiring tax credits?

The federal production tax credit (PTC) has provided incentives for wind power (offshore and land) since it was authorized by the Energy Policy Act of 1992.

The PTC provides a 2.1 cent per kilowatt-hour corporate income tax credit for electricity generated by qualified energy projects, available during the first 10 years of a project’s operation. The PTC was most recently extended under the American Recovery and Reinvestment Act of 2009, but is set to expire at the end of 2012.

Despite intense lobbying, Congress has failed to extend the tax credits past 2012, and many in the industry are operating under the assumption that nothing will happen until after the November elections. Indeed, many participants at the recent Offshore Wind Power USA conference in Boston seemed resigned to the fact that projects would be put on hold.

Last week, a bipartisan group of twelve Senators wrote to their respective Senate party leaders, stating that “Congress must quickly work to reauthorize the wind production tax credit before our wind capabilities are damaged.”

The American Wind Energy Association has called for a long-term extension in order to give developers and financers certainty, as most wind projects operate under an extended developmental timeline.

The only time that the PTC was allowed to lapse since its inception was 2004 (it was reinstated in 2005). Wind energy production ramped up in 2003 in anticipation of the expiration and then dropped off dramatically in 2004 before rebounding in 2005. Coincidentally, that year also featured a hotly contested presidential election involving a polarizing incumbent.

In 2012, Congress is being met with a near universal call from the industry to extend the tax credit. That unanimity, however, has not yet resulted in an extension. So perhaps it’s time to ask, can the North American offshore wind industry succeed without federal tax credits?

The projects that attain financing without the promise of a tax credit could be stronger in the long-term. The industry could build on the foundation of these small, but independently viable, projects.

Last week at the Boston conference, Bryan Martin (of Deepwater Wind backer D.E. Shaw) suggested that the North American offshore wind industry will have the greatest likelihood of success if it starts small and builds its way up. He praised the idea of economically viable test projects that gradually increase to scale.

Fittingly, DE Shaw has invested heavily in this strategy as co-owners of Deepwater Wind, which is developing the planned Block Island Wind Farm off of Rhode Island.

Deepwater plans to begin construction of the $205 million, 30-megawatt Block Island project in 2013 or 2014, and has already put in an order to purchase five 6MW turbines from Siemens.

According to Martin, the privately financed project will fill an immediate need by lowering energy prices on Block Island (which currently uses diesel generators). Deepwater then plans to expand with a second project, if financially viable, of 750 to 1,000MW which could service larger energy markets in New York and New England.

“If you serve high enough price markets, then the tax credit will be a relatively small part of your revenue stream,” Martin said.

Both Martin and Deepwater CEO William Moore are fond of saying that “good projects always get financed.”

Offshore wind developers and financers would likely prefer to see both an extension of the PTC and a revival of the Investment Tax Credit, but they may have to face the reality of living with neither.

It seems like a foregone conclusion that the uncertainty surrounding the federal tax incentives will result in fewer projects being financed and built in the near future.

The silver lining may be that the projects that are built will provide a sturdier foundation on which to gradually build this evolving industry without the help of unpredictable government subsidies.