NRG Bluewater Wind President Peter Mandelstam used the proceeds from the 2001 sale of a wind project he built in Montana to found Bluewater Wind and focus on ocean wind.
“I stopped doing on-land projects,” Mandelstam said, “because I could see the market was crowded, all the best sites were going to be taken up and the transmission was a challenge.” By contrast, he said, “The three-word pitch for offshore wind in the United States is proximity to load.”
“More than 55 million people live along the Eastern Seaboard between North Carolina and Boston,” he said. There is also a wide, shallow continental shelf that makes construction of wind farms far out to sea, beyond the sight of significant opposition, relatively less difficult and costly.
“Those 55 million people have difficulty getting power at any price,” Mandelstam said. But there are, he explained, rich wind resources adjacent to some of the nation’s highest-priced utility districts. Offshore wind-generated electricity would be “a terrific deal for ratepayers, given the incredibly high and ever-increasing prices.”
Mandelstam and Cape Wind’s Jim Gordon pioneered U.S. offshore wind. A decade later, Cape Wind may be on the verge of freeing itself from regulatory snares in Nantucket Sound off Cape Cod, and Bluewater Wind’s proposed Mid-Atlantic installation off Delaware has a power purchase agreement and anticipates its initial federal lease soon.
The Obama administration has done much to reverse what Mandelstam called a “reactive” U.S. energy policy that has inhibited development. Under the Smart from the Start program, DOE’s Offshore Wind Initiative will invest $43 million in 41 projects across 20 states over the next five years.
Among the winners of recent DOE awards, under its National Offshore Wind Energy Grid Interconnection Study, was an ABB-led consortium that includes AWS Truepower, Duke Energy, the National Renewable Energy Laboratory (NREL), and the University of Pittsburgh.
John Daniel, an ABB Power Systems Senior Principle Consultant, said his team will “identify and remove market barriers to building transmission for offshore projects.”
ABB’s experience in the European offshore wind business makes it a natural choice to lead, Daniel said. AWS Truepower brings forecasting expertise. Duke offers a utility’s perspective. NREL did the definitive onshore transmission integration studies. And the University of Pittsburgh brings ties to manufacturing.
They will, Daniel said, consider issues such as: 1) AC versus high-voltage DC; 2) radial transmission systems versus a grid versus a backbone system that feeds into select onshore substations; 3) needed advances in technology; 4) operational methods that maximize efficiency; and 5) the impact of offshore wind on the land-based grid system.
The study, according to ABB, will provide the data necessary for a roadmap to deploying of 54 gigawatts of offshore wind capacity over the next two decades.
Federal policy and planning could be the determining factor. In the U.S., a lack of consistent policy, Mandelstam said, “on the regulatory [side] and on the tax side,” has made offshore wind development “very challenging.”
German Chancellor Angela Merkel’s decision, following Fukushima, to abandon nuclear development was possible because early offshore wind projects developed under a stable, long-term federal feed-in tariff program proved the engineering practicality, and because Germany’s comprehensive RAVE research program proved both the North Sea’s resource potential and the wind industry’s technology are ready to join other renewables in meeting German electricity demand.
DOE loan guarantees did not support offshore wind, Mandelstam explained, because they required faster-paced progress than the technology allows. As a result, “There are no banks in the world willing to finance offshore wind in the United States,” whereas at least nine European ocean wind projects have found bank support.
The federal Production Tax Credit (PTC), U.S. wind’s historically crucial incentive that is now threatened by current budget negotiations, has been inadequate to support the development of offshore wind. While onshore wind projects can be developed in a protracted time line, even the streamlining of offshore development made possible by DOE’s newest initiatives doesn’t truncate the process enough to attract financial institutions.
“What really focuses a banker’s attention is the prospect of closing a deal within six months,” Mandelstam said. Offshore wind’s opportunity costs discourage institutions from providing the billion-dollar financing needed for ocean wind projects.
The PTC is paid according to yearly production over the first ten years of a project’s life. Offshore developers need, Mandelstam said, the option of an Investment Tax Credit (ITC) that rewards investment.
Financial institutions, Mandelstam continued, are not yet confident that offshore wind -- including the resource, the turbine technology, the operations and maintenance process, the transmission infrastructure and the many other elements -- can be relied on to produce consistently for 10 years. There are “fifty issues the banks are worried about,” Mandelstam said, though “all of those technology risks have been eliminated.”
A policy that gives onshore developers a PTC and offshore developers an ITC, combined with the DOE’s goals and programs, will spur wind’s growth. “I believe in planning and policy,” Mandelstam said. Sound planning and stable, long-term policies and incentives have driven the installation of over 1,000 megawatts of capacity in Europe, where 8,000 megawatts more are planned.
The same thing can happen in the U.S., because offshore wind is not a partisan issue, according to Mandelstam. “We have complete unity of purpose in terms of labor and business, environmentalists, Democrats and Republicans,” he said. “This is something both political parties can agree on.”