All posts tagged 'offshore wind'

Offshore Wind: Will New Jersey Take the Opportunity to Lead?

February 7, 2013 16:30
by Marshall McLean

Is New Jersey placing the cart before the horse when it comes to the establishment of rules regulating the State’s Offshore Renewable Energy Certificates?  Instead of spending time analyzing how to mitigate the risks of possible state appropriation of OREC funds, let’s build a project already!

In August of 2010, New Jersey Governor Chris Christie signed the Offshore Wind Economic Development Act to “spur economic growth in the Garden State through the development of renewable energy resources and the creation of green jobs.”

The legislation, which established the creation of an offshore wind renewable energy certificate program (OREC), is the Country’s first attempt to make financial assistance and tax credits available for businesses that construct manufacturing, assemblage and water access facilities to support the development of qualified offshore wind projects.

This of course was exciting news in 2010.  Since that time however, the wind industry has experienced tremendous growing pains as a result of a multitude of contributing factors including a glut of cheap natural gas developed through fracking technology, a severe recession, and - perhaps most influentially - the uncertainty of the renewal of the industry’s most valuable Federal incentive: the Production Tax Credit (PTC). 

This uncertainty had a tremendously negative impact on wind development in the United States.  But sun has started to rise: the PTC has been renewed, the Atlantic Wind Connection has continued to move forward with the proposed construction of an offshore transmission backbone in the Atlantic Ocean, and a majority of the general public strongly supports the development of offshore wind.  New Jersey once again finds itself at the vestibule of change, possibly leading the way towards the creation of an offshore wind industry in America, whose footholds are based firmly in the Garden State.

Yet despite this opportunity and the general sense of optimism, offshore wind continues to face political and bureaucratic headwinds in New Jersey.  Since Governor Christie signed the law in 2010, the New Jersey Board of Public Utilities (BPU) has struggled to adopt rules governing how offshore wind developers earn revenue from the electricity that their turbines produce.  It unfortunately appears that minimal progress has been made in determining how the OREC funding mechanism will work, and how projects that are “shovel ready” will be able to demonstrate that they are “qualified offshore wind projects”. Many would argue that this delay could frustrate the goals of the State’s Energy Master Plan which has set the ambitious goal to develop 1,100 megawatts of offshore wind capacity by 2020.

While the BPU’s need to get things right is laudable, the question remains whether the delay will threaten New Jersey’s ability to become the Country’s leader in offshore wind.  Maryland, Delaware, Maine and Massachusetts have all made aggressive steps to become the geographic center of the East Coast’s offshore wind industry.  The delay is also problematic when taken in the context of the PTC, which will only be available to projects that begin construction in 2013.  Continued delay would threaten a developer’s ability to realize the tax benefits of the PTC, potentially derailing any hope for construction of a windfarm off the New Jersey coast.

Fishermen’s Energy has petitioned the BPU for approval of its Atlantic City offshore wind project.  This pilot project, which has received all of its New Jersey Department of Environmental Protection (DEP) approvals, will be a 25 megawatt project to be located 2.8 miles from Atlantic City.  In addition, Fishermen’s was recently selected by the US Department of Energy (DOE) to receive up to $4 million to complete the engineering, site evaluation, and planning phase of its project and, upon completion of this phase, the Cape May-based company will be eligible to complete for an additional $47 million in grants for follow-on design, fabrication, and deployment phases to achieve commercial operation by 2017.  In short, Fishermen’s Energy is ready to go.

So the question is: why can’t the BPU establish a pilot OREC program for this particular project, which is vastly smaller in size than any of the three other proposed windfarms off the shores of New Jersey? 

While interested parties continue to debate the overall net economic benefits to ratepayers for these offshore wind projects, what seems to be missing from the conversation is the common sense analysis of (i) the game-changing long term economic and social advantages that a “first of its kind” industry such as offshore wind could have on the New Jersey economy; and (ii) the outrage that all of us New Jerseyans would share if those jobs and benefits were diverted to a state such as Maryland.  Offshore wind will happen here on the East Coast, the question is who will lead the charge?

On the very date of the publication of this blog, the Telecommunications and Utilities Committee of the New Jersey Assembly has proposed an amendment to bill A-1384 in order to reclassify Fishermen’s project as a pilot project, a designation that Fishermen’s has received from the DEP, but which (as of the date of this blog) has no relevance to the BPU and its implementation of the rules governing the OREC funding mechanism.  While it is too early to predict the likelihood of success of this amendment, what is clear is that certain key members of the Legislature, including the amendment’s sponsor Upendra Chivukula (D-Somerset), are equally as anxious Fishermen’s and the general public to keep things moving in the right direction.

Developing 25MW of wind will not provide Fishermen’s with an unfair competitive advantage.  If anything, learning from Fishermen’s and the OREC Legislation’s inevitable shortcomings will provide the other major offshore wind developers with the opportunity to solidify financing structures and calculate pricing models.  It will also allow for ratepayers to see, first hand, how offshore wind will impact their monthly electricity bills.  Establishing a quick pilot OREC program for Fishermen’s makes logical sense, and this is good business for New Jersey.

Yes, the OREC program should certainly be very well thought out, discussed and debated. However, as we see with any innovative legislation, mostly notably New Jersey’s Solar Act (which recently was amended to address some unintended statutory consequences), it is nearly impossible for the BPU to get this 100% right the first time.  Thus, let Fishermen’s “test the waters” and lead us out of the channel slowly.

Climate Change | Wind Energy

Cape Wind Approval Signals (Regulatory) Tide is Turning for U.S. Offshore Wind Development

April 29, 2010 12:53

Several European countries already have offshore wind farms, including Denmark, Ireland, the Netherlands, Sweden, and the United Kingdom.  Earlier this year, China completed the installation of its Shanghai Donghai Bridge offshore wind farm project, which has a total installed capacity of 102 MW (enough to power 200,000 Shanghai homes) and is the first large scale offshore wind farm constructed outside Europe.  As for the United States, the Department of Interior (DOI) had issued a report last April which noted (in part) that 28 of the contiguous states have a coastal boundary (including the Great Lakes), 78% percent of the electricity demand in the United States is from the coastal states, and offshore wind has the potential to meet a large proportion of that demand.  As analyzed by the National Renewable Energy Lab, over 1,000 gigawatts (GW) of wind potential exists off the Atlantic Coast and over 900 GW of wind potential exists off the Pacific Coast.  Despite the great potential for offshore wind in the United States, not one offshore wind project has been approved for construction in the United States…until now.  On Wednesday, April 28, 2010, Secretary Salazar approved the Cape Wind project to be constructed on the intercontinental shelf off of Massachusetts.  The regulatory tide is turning… 

Approval of the Cape Wind offshore wind project despite contentious opposition by certain groups provides regulatory support for offshore wind and provides some guidance for several other offshore projects that have been proposed in the last few years.  The development of wind projects in the United States, which are (by all accounts) capital-intensive, has been hampered by concerns about the financial markets, the overall economic downturn, regulatory uncertainty as to the future role for renewables in energy policy, and environmental issues.  While Congress has yet to pass comprehensive climate and energy legislation, the approval of the Cape Wind project signals that large scale renewable energy development can play a role in economic recovery and in energy independence and that opposition by those who believe offshore wind farms are unsightly will not prevail when other factors align in favor of the development.  

The process for the Cape Wind project began in 2001, when Cape Wind Associates, LLC, submitted an application to the United States Army Corps of Engineers (the Corps) for a permit to construct an offshore wind power facility in Nantucket Sound.  Public review and opposition followed.  According to the DOI, the proposed Cape Wind project is expected to meet 75% of the electricity demand for Cape Cod, Martha’s Vineyard, and Nantucket combined and cut carbon dioxide emissions from traditional power plants by 700,000 tons per year.  The Cape Wind facility will occupy a 25-square-mile section of Nantucket Sound and produce enough energy to serve more than 200,000 homes in Massachusetts.  The maximum energy output of Cape Wind is 468 MW, with an average anticipated output of 182 MW.  The project includes a 66.5-mile buried submarine transmission cable system, an electric service platform, and two 115-kV lines connecting to the mainland power grid.

Success begets success.  And so, even though the United States is not the first country to approve the construction of an offshore wind farm, this is very encouraging for wind energy developers, the construction industry, and financial investors who were waiting to see whether the 9-year old Cape Wind proposal would pass regulatory - and especially environmental - muster and then survive the aesthetic opposition raised by some.       

Climate Change | Renewable Energy | Solar Energy

Wind Projects and Insurance - CAPE WIND Approval Makes This Even More Important

April 29, 2010 05:29
by J. Wylie Donald

Movie production or distribution is not something I get to do every day.  Or even at all.  But this opportunity is proving hard to pass up.  What happens when a windmill fails?  Let’s watch what happened in Denmark in February 2008.  http://www.windaction.org/videos/14294.  Can you get insurance for this?  And what about other problems that wind farm owners and operators might face? 

This is not of obscure interest.  Last night Interior Secretary Salazar made a decision on whether the Cape Wind wind farm project in Nantucket Sound can move forward:  he approved it.  Proponents assert this is the harbinger of a $270 billion industry and can be the source of 75% of the energy needed by Cape Cod, Nantucket and Martha’s Vineyard.  Critics point to desecration of Native American sites and rituals, as well as the destruction of unique and beautiful views.  (It seems hard to believe that nine years have passed since the project was announced. But that is due process. In the end the Secretary’s decision coincided with the views of Mass Audubon, the NRDC, the Conservation Law Foundation, the governors of Maryland, New Jersey, Massachusetts, Rhode Island, Delaware and New York, national policy and national opinion polls.).

But let’s return to our exploding wind turbine.  It goes without saying that there must be insurance for these projects.  The key is in identifying the risks and recognizing what can be insured, what requires indemnification or hold harmless agreements, and what risks must be minimized because they cannot be eliminated or transferred.  This is no more than the usual risk management paradigm.

A failed wind turbine is an obvious risk and we can be confident that our Danish wind entrepreneurs procured property insurance.  The description accompanying the video identifies high winds during a storm and a failed braking mechanism as the cause of the calamity. Two technicians barely managed to escape. Debris was hurled 500 meters. While the cause of the loss might seem obvious (high winds and covered), one can be sure the applicable policy was reviewed closely to ensure a "wear and tear" exclusion was not applicable or an anti-concurrent causation clause did not apply. Less certain is the scope of business interruption insurance available.  While certainly the output of one turbine is now absent, is that enough to trigger business interruption coverage, which often requires a “necessary interruption” of one’s business?  Perhaps more significantly, who bears the risk if the wind does not blow, or the design is not as efficient or productive as anticipated.  Similarly, what are the implications for promises of startup by a certain date or contractual obligations to deliver a certain quantity of power or that certain tax credits will be available. 

Another side of the operation is liability exposure.  Are individuals or property likely to be injured by a failure?  What is the kind of injury?  Again, it is highly unlikely the Danes did not obtain coverage for an individual or vehicle injured or damaged by the failing structure (whether it was the turbine, the blades or the mast).  Other issues are not so obvious.  In England claims have been asserted that infrasonic waves are dangerous.  Low frequency noise complaints or “strobe effects” are claimed to cause injury.  We may expect assertions of loss of property values when windmills disturb high-priced views.  Will a general liability policy pick up these claims? 

The decision on Cape Wind is laudable and necessary for wind energy to become a robust contributor to the nation’s energy mix.  Coverage needs to keep up.

Wind Energy | Weather


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