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Greater Federal, State Roles Sought to Help Develop Offshore Wind Potential

More than two years after the Interior Department launched an initiative to speed up and simplify its permitting process, there are still no commercial-scale wind projects up and running in federal waters.

In late 2010, the department began its work, partly to meet the Obama administration’s goal of multiplying renewable-energy projects on public lands and in federal waters and partly to respond to stakeholder complaints that the existing regulatory process created too much red tape.

In a speech Tuesday to the Offshore Wind Power USA Conference, Interior Secretary Ken Salazar touted his department’s progress in approving solar, wind and geothermal projects “and transitioning from planning to commercial leasing for offshore wind.”

The United States was already playing catch-up to European countries such as the United Kingdom and Denmark that have successfully harnessed the wind off their shores since 1991. Offshore wind projects can cost at least double their onshore counterparts, and the federal government lacked a coherent permitting process until President Barack Obama took office.

Energy legislation passed in 2005 and 2007 offered financial backing that some developers thought they could use to start building a domestic industry, and the promise of a national cap-and-trade program made the stronger, more consistent wind several miles off U.S. coastlines more attractive for exploitation.

Interior’s offshore energy agency, the Bureau of Ocean Energy Management, has issued commercial leases for two projects off the coasts of Massachusetts and Delaware, and more facilities are in development near Rhode Island and New Jersey.

But the Cape Wind project in Massachusetts has faced years of delays due to the not-in-my-backyard stance held by some residents and concerns about its impact on the commercial fishing industry.

And Bluewater Wind, the company behind the Delaware proposal, has put those plans on hold while it searches for more investors — a tough job when tax benefits are routinely on the brink of extinction and loan guarantees have become verboten in Washington.

While regulatory streamlining at the executive branch level may remove one obstacle to realizing the industry’s potential, inconsistent tax and grant policies and the need for state government buy-in remain challenges for the resource.

“Congress needs to create a vision of expanding our energy policy to include the development of offshore wind,” said Bob Mitchell, CEO of the Atlantic Wind Connection subsea transmission project.

The tax arguments are not new for a clean-energy resource. Onshore wind proponents lobbied hard for an extension of their prized production tax credit during the fiscal-cliff negotiations at the end of 2012. The agreement included a one-year patch for the investment tax credit — which is more beneficial to offshore wind developers because of their projects’ larger size — in addition to a modification allowing companies to claim the benefits once they begin construction, rather than when they start generating electricity.

Sen. Thomas R. Carper, D-Del., has led the charge in Congress to give prospective developers greater tax certainty. He has proposed leaving the 30 percent investment credit in place for the first 3,000 megawatts of offshore wind power produced, giving developers five years to get a facility into the water. That model is intended to offer certainty for developers and an expiration date for budget hawks.

“This is a way that allows not even having to go year-to-year to the tax-writing committees,” said Jim Lanard, president of the Offshore Wind Development Coalition.

Carper, who is expected to reintroduce the legislation with Maine Republican Susan Collins as early as this week, says the significance of tax policy to growing the industry isn’t likely to change anytime soon, given historically low natural gas prices that have edged utilities away from coal but prevented most from committing more forcefully to renewables.

“If the price of natural gas stays low, then the tax policy and providing certainty and predictability becomes all the more important,” he said.

The Energy Department also is working to propel projects beyond the research-and- development stage, leading a competitive demonstration program that will fund up to three finalists to advance their wind farms to the commercial stage by 2017.

The federal government alone can’t persuade developers to commit to the long lead times and high capital costs associated with offshore wind farms. States play an integral role in creating markets for the power, and a few are moving closer to making that happen.

New Jersey passed a law in 2010 to spur the creation of a renewable-energy certificate program requiring a percentage of the power sold within the state to be derived from offshore wind. The state could be poised to accept bids for utility-scale wind farms later this year.

Legislation that would subsidize wind projects off the Maryland coast by requiring utilities to purchase offshore energy credits — and later charging ratepayers up to $1.50 per month — is winding its way through the state legislature after failing twice before.

“The states have to be comfortable that this policy works for the residents of that state, and that evaluation is almost always going to be made on economic development, job creation and manufacturing opportunities for the state,” Lanard said.

But the effort must go beyond states for the industry to take hold in the United States, said John Cohen, vice president of government affairs at Alstom, an energy generation and infrastructure conglomerate. Stakeholders in the public and private sectors must coordinate to create a large regional market that would fully realize the potential of offshore wind as a power source, he said.

“One of the challenges here is the market to really draw in the full potential of economic development is bigger than any one state,” Cohen said.

The recession, low natural gas prices and reduced power demand have all contributed to the industry’s slow crawl to commercial viability, said Frank Maisano, an energy specialist at Bracewell & Giuliani. But given the support for offshore wind among government officials and the public, he says the nascent industry can overcome the obstacles.

“Projects will have to be done in incremental steps,” Maisano said. “It was unrealistic to have a grand plan of hurrying it up.”

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