BALTIMORE – Interior Secretary Ken Salazar announced today that leases for offshore wind development off of Maryland, Virginia, New Jersey and Delaware would be issued by the end of 2012 after an environmental review resulted in a finding of no significant environmental impact.

The announcement followed President Obama’s call for additional clean energy development in his State of the Union address last week.

“When it comes to powering our nation’s homes, businesses and economy, we need to take an all-of-the-above approach to safely and responsibly developing our domestic energy resources,” Secretary Salazar said. “Offshore wind holds incredible potential for our country, and we’re moving full-steam ahead to accelerate the siting, leasing and construction of new projects.”

Under the National Environmental Policy Act (NEPA), the Bureau of Ocean Energy Management (BOEM) first had to conduct an environmental assessment of the proposed lease sites. This recently completed assessment found that there would be no significant environmental and socioeconomic impacts from issuing wind energy leases in the previously designated Outer Continental Shelf (OCS) lease areas off the mid-Atlantic Coast.

According to OWW contributor and wind energy expert Todd Griset, the finding of no significant impact (FONSI) will allow BOEM to move forward with the leasing process without preparing a more intensive and time consuming environmental impact statement. However, the assessment does not permit construction or cover any specific projects.

BOEM has received several responses to a Request for Interest issued in 2010 for lease areas off of Maryland, New Jersey and Virginia, and lease blocks in these areas will be awarded based on an auction held sometime this year. BOEM received only one response to the RFI for the lease blocks off of Delaware, and will issue a non-competitive lease to that developer sometime this year, presuming that the developer is still interested.

Overall, the announcement was met with excitement by industry observers.

“Today’s announcement gives us hope that the United States will now be able to develop our enormous offshore wind resources more quickly – and deliver the enormous economic, environmental and public health benefits that come with them.” said Kit Kennedy, Clean Energy Counsel for the NRDC.

“This is a critical step in the establishment of the U.S. offshore wind industry, which will create thousands of high skilled jobs and allow for billions of dollars in investment.” added Jim Lanard, President of the Offshore Wind Development Coalition.

NRG Energy announced this week that it is “putting active development of offshore wind projects on hold for the near term.” This is a significant shift for NRG’s subsidiary Bluewater Wind and the projects it has been developing, and may have broader implications for the US offshore wind market. NRG Energy is a Fortune 250 wholesale power generation company, owning a diverse portfolio of nearly 26 gigawatts of electric generating capacity. NRG’s assets include major holdings of generating plants fueled by natural gas, coal, oil, and nuclear power, along with some terrestrial wind. NRG also has a growing solar business, owning the 21-megawtt Blythe project (California’s largest solar photovoltaic project since 2009) and investing in other projects like the Ivanpah Solar Electric Generating System along with Google and BrightSource Energy.

Bluewater Wind, which NRG acquired in 2009, has been pursuing at least four offshore wind projects.  Of these, the Mid-Atlantic Wind Park off Delaware made the most progress.  This 450-megawatt commercial-scale project would have been located in federal waters over 13 statute miles offshore Delaware.  Bluewater also won rights to develop a New Jersey offshore wind project, and proposed additional projects off Maryland and Massachusetts.

Since its inception in 2006, Bluewater Wind’s Delaware project achieved key milestones, such as signing power purchase agreements to sell part of the project’s output to utilities. Bluewater Wind signed a 25-year contract with utility Delmarva Power for up to 200 megawatts of power from the project.  That deal was approved by the Delaware Public Service Commission in 2008, and provided a base energy price of 9.9 cents per kilowatt-hour; combined with a statutory bonus for offshore wind renewable energy credits, the effective price per kWh in 2012 might have been closer to 14 cents.  While this price is at the low end of recent offshore wind pricing, having a contract meant a greater level of certainty about project revenues after startup.

With this week’s announcement, Bluewater Wind is putting its active development of offshore wind projects on hold, and plans to terminate its power purchase agreement with Delmarva.  In announcing this reversal, NRG described a shift in the outlook for offshore wind between NRG’s 2009 acquisition of Bluewater Wind and the present.  Two years ago, NRG believed the Delaware project would receive a loan guarantee from the Department of Energy.

Now, NRG points to a different outlook.  According to NRG’s press release, the end of funding for the loan guarantee program coupled with the incipient end of the renewable energy production tax credit and investment tax credits “have rendered the Delaware project both unfinanceable and financially untenable for the present.”

NRG also pointed to its inability to secure an investment partner for the project.  NRG described how it approached more than two dozen prospective investors, but was unable to find a partner “despite the attractiveness of the PPA”.

Several other events in recent months may also have affected Bluewater’s decision.  The town of Bethany Beach, Delaware, rejected NRG Bluewater’s plan to bring undersea cables from the project ashore in town. Bluewater Wind faced repeated deadlines 2011 under the Delmarva power purchase agreement, requiring Bluewater to put up project security if it wished to continue with the project.  Those deadlines were extended for reasons including uncertainty over federal incentive programs, but likely placed the Bluewater project under increased internal scrutiny by NRG.

Other entities had expressed skepticism about the project’s viability.  For example, the Delaware Municipal Electric Corporation had agreed to buy part of the output of the Bluewater Delaware offshore wind project, but in September 2011 DEMEC entered into a contract with Duke Energy Renewables to purchase power from a Pennsylvania terrestrial wind project.  To explain this hedge, DEMEC noted “the increasingly unlikely chances the Bluewater Wind project will be built anytime soon”, and pointed to “increasing federal uncertainty about offshore wind subsidies”.  DEMEC’s choice now appears prescient.

Beyond what this week’s announcement means for Bluewater and its projects, NRG’s decision may be a sign of how uncertainty impacts the entire United States offshore wind industry.  NRG may have had other factors in mind, such as a need to focus on its growing solar play or another element of its portfolio, but uncertainty was the principal explanation offered for the decision to suspend offshore wind operations.  If so, other offshore wind projects may find themselves in a similar position to Bluewater, with the siting process well underway and power purchase agreements in place for part of the project’s output – but with financing difficult to complete given the uncertainty.

The challenges posed by the end of the Department of Energy loan guarantee program and the impending end of the renewable tax credits are not unique to Bluewater, nor to its Delaware project.  Uncertainty surrounding the future of incentives and support for offshore wind is likely to affect other projects as well. How these forces impact each project may vary, but most currently-proposed projects rely on one or more incentives facing uncertain futures.

Meanwhile, interest is rising in deepwater floating offshore wind in waters off Maine. A subsidiary of Norwegian energy company Statoil has asked the federal Bureau of Ocean Energy Management for a lease for a site over 12 miles off Maine, near the midcoast town of Boothbay Harbor and Monhegan Island. If granted the lease, Statoil intends to develop a pilot project using its Hywind floating turbine model. Statoil also hopes to benefit from a competitive process run by the Maine Public Utilities Commission to select and fund one or more deepwater floating pilot projects.

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.

“Our people have worked hard and we’ve made a considerable financial investment in the wind park, but that effort cannot overcome the difficult and unfortunate realities of the current market,” said David Crane, NRG’s president and CEO. ”We’re not giving up, but at this moment we can’t rationally justify further investment in this project without the prospect that it can move forward within a reasonable timeframe.”

The company said it would close its Bluewater office but maintain “development rights and [continue] to seek development partners and equity investors.”

“Many large U.S. cities are located on or near the East Coast, giving them close access to the power generated by offshore wind farms,” said Willett Kempton, a professor at the school. “But if we begin to seriously exploit the offshore resource, transmission upgrades may be needed.  And even before that point, new transmission systems may be desirable to help make the most of the offshore wind resource.”

Environmental Voters Focus on Offshore WInd

The Maryland League of Conservation Voters will focus on supporting Gov. Martin O’Malley’s offshore wind development plan, the Washington Post reported last week.

Uncertainty has its costs.  Clinical studies confirm what we all know intuitively: uncertainty about what may happen in the future makes it harder for us not only to make plans but also to achieve them.

Uncertainty can impact offshore wind projects in several ways.  Developers face uncertainty over regulatory regimes, the availability of leases for sites, and whether they will find counterparties for long-term power purchase agreements.

Utilities and electricity consumers interested in buying power from offshore wind projects face similar uncertainties.  Will a given offshore wind project actually be built?  When a utility enters into a contract to buy power from an offshore wind project, the utility typically has the right to expect that it will actually be able to take delivery of that power to serve its customers.  Despite the reality of European offshore wind, the fact that the first American offshore wind project has yet to be constructed makes some potential purchasers uncertain as to whether US projects will be built.

For example, consider Block Island off Rhode Island.  The island – not connected to the mainland by electricity cables – is looking for a better solution to its energy needs than the expensive diesel generators that have served it for years.  An offshore wind pilot project by Deepwater Wind has been proposed as part of a possible solution.  As the town of New Shoreham plans for its energy future, questions have arisen over whether Block Island should expect to be able to tap into the power produced by the offshore wind pilot project.  Some islanders oppose the Block Island offshore wind project, while others more open to the concept are skeptical that the project will ultimately be constructed.  Uncertainty about the Block Island project is thus leading to the consideration of alternatives, such as an underwater cable to import power from the mainland.

As recently reported in the Wilmington News Journal, uncertainty also surrounds a possible offshore wind project off Delaware.  Faced with a 2012 state deadline to procure renewable power, the Delaware Municipal Electric Corporation (DEMEC) entered into a contract with offshore wind developer Bluewater Wind to buy part of the output of its proposed offshore wind project.  While DEMEC’s contract is for a much smaller share of the Bluewater Wind project’s output than that purchased by Delmarva Power in 2008, DEMEC nevertheless needs to buy renewable power to comply with Delaware’s renewable portfolio standard.  Now, faced with what DEMEC has called “the increasingly unlikely chances the Bluewater Wind project will be built anytime soon”, DEMEC has entered into a contract with Duke Energy Renewables to purchase all power produced by a 69 megawatt land-based wind facility to be built in Pennsylvania.  DEMEC pointed to “increasing federal uncertainty about offshore wind subsidies” to explain its decision to hedge its offshore wind contract with terrestrial wind.  While DEMEC’s move does not mean it will not gladly pay for the Bluewater Wind project’s output if and when it is built, the utility’s perceived need to hedge its offshore wind contract with terrestrial wind highlights the uncertainty surrounding offshore wind in the U.S.

Uncertainty about U.S. offshore wind may not be a barrier to its ultimate development, but these examples demonstrate how uncertainty affects the choices people make.  Time will tell whether offshore wind will power consumers lives in Rhode Island and Delaware in the near future.  In the meantime, many eyes will be watching the sea for a sign of what the future will bring.

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.

By Sept. 23 NRG Energy must decide whether it wants to exit the contract or put forward $2.75 million. The company would get the money back when the planned offshore wind farm near Delaware is operational, according to the report. The deadline was pushed back from an initial June date because of uncertainty in federal incentive programs.

Delmarva spokeswoman Bridget Shelton told the News Journal that utility officials had discussed the issue with NRG, but “details of these discussions are confidential.”

Offshore Wind Webinar Scheduled For Tomorrow

The Clean Energy States Alliance, the Department of Energy and the US Offshore Wind Collaborative will hold a webinar tomorrow on the “role and needs of private investors in offshore wind finance.”

The researchers studied an offshore wind farm near the Dutch North Sea coast.

“At most, a few bird species will avoid such a wind farm. It turns out that a wind farm also provides a new natural habitat for organisms living on the sea bed such as mussels, anemones and crabs, thereby contributing to increased biodiversity,” said Professor Han Lindeboom, of Wageningen University and Research Centre. “For fish and marine mammals, it provides an oasis of calm in a relatively busy coastal area.”

NRG Bluewater Wind Looking For New Cable Site

NRG Bluewater Wind is looking for a new site to bury underground power lines from its planned offshore wind farm, the Wilmington News Journal reported late last month.

The company had proposed bringing the cables ashore in Bethany Beach but the town rejected the idea.

“We accepted their decision and are looking at other sites,” company spokesman David Gaier said. He declined to identify other potential sites, according to the report.

The company had offered to fund $85,000 worth of independent studies on the impact of bringing the cables to shore.

“I do not believe that NRG Bluewater has been dealing with the town in good faith,” Bethany Beach Vice Mayor Jack Gordon said. “The townspeople cannot tolerate having this issue hanging over their heads for any longer.”

Belgian Grid Operator Invests In Atlantic Wind Connection

Belgian Transmission System Operator Elia has acquired a 10 percent stake in the first phase of the Atlantic Wind Connection and a 5 percent stake in the four other planned segments, Renew Grid reported.

AWC is planning to develop an undersea transmission backbone to connect offshore wind projects from New York to southern Virginia.

Grist Attacks Koch Brothers

In an opinion piece published last week, online magazine Grist sharply criticized the Koch brothers — inheritors of a oil and gas-based fortune — for their fight against offshore wind.

The article described the brothers as “everyone’s favorite climate-hating, fossil-fuel-loving industrialist villains” and said that an organization acting as a front for the family has released a “parade of misinformation” regarding offshore wind in New Jersey.

The EA covers wind energy areas near New Jersey, Delaware, Maryland and Virginia. If BOEMRE determines no significant impact for the wind energy area near Delaware — after a 30 day public comment period — the agency will sign a lease with Bluewater, according to the report.

“This is another important concrete step forward,” said NRG Bluewater President Peter Mandelstam.

BOEMRE Reduces Maryland Offshore Wind Area

Federal regulators have reduced the offshore wind development area near Maryland from 206 square nautical miles to 94 square nautical miles, the Baltimore Sun reported yesterday.

The reduction was made because of concerns about shipping safety, according to the report. Maryland officials said that it would not impact the state’s offshore wind plans.

“It’s still more than enough space, we think, to do what we were hoping to do,” said Ian Hines, spokesman for the Maryland Energy Administration.

The agency announced today that it is seeking public comment on a draft Environmental Assessment for the offshore Wind Energy Areas.

“America’s offshore wind resources offer great potential for helping power the Eastern seaboard and spurring new jobs and innovation,” Interior Secretary Ken Salazar said.  “With today’s announcement, we are taking another step toward ensuring that renewable development along the Atlantic Outer Continental Shelf becomes a reality.”

The Environmental Assessment covers the potential environmental and socioeconomic effects offshore wind development.

“We welcome stakeholder input throughout the renewable energy leasing process and invite public comments on this draft EA,” BOEMRE Director Michae Bromwich said. “If leases are issued in these geographic areas, we will conduct a thorough environmental analysis of each proposed commercial project.  We will continue to work with our state renewable energy task forces to advance renewable energy development carefully and responsibly.”

New Jersey Activists Say Christie Policies Hurt Renewable Energy

New Jersey environmental activists believe that Gov. Chris Christie’s energy policy is discouraging renewable energy development in the state, the Asbury Park Press reported on Saturday.

“These cuts will cost the state green jobs,” said New Jersey Sierra Club Director Jeff Tittle. “It sends the wrong message to companies that develop and promote clean energy. The message is to go to some other state.”