Offshore Wind Energy Traversing Regulatory And Financial Currents

Source: By Ken Silverstein, Contributor, Forbes • Posted: Thursday, July 10, 2014

What’s the future of offshore wind energy both globally and in the United States now that the United Kingdom has approved a mega-deal there that should start construction in 2016 and begin producing electricity by 2020?

While such electricity generation has lots of potential, the reality is that it is expensive to build compared to other types of energy production. But offshore wind deals have generally succeeded inEurope, which has committed itself to reducing greenhouse gases and which has set a price on carbon. Meantime, the landmass there is built out, making it more feasible to go offshore.

The United States, by contrast, has long-considered offshore wind generation but it has yet to start building any such facilities, although that could change this year with the potential construction of Cape Wind off the coast of Cape Cod, Massachusetts. Here in this country, there has not only been a regulatory quagmire that developers must traverse but there is also a host of competing fuels that are more economical, including land-based wind deals that are half the cost.

“It’s more challenging in the United States because natural gas prices are lower and because terrestrial wind energy prices are also declining, making it hard for offshore wind to compete,” says Peter Asmus, principal with Navigant Consulting in San Francisco, in an interview. “The Obama administration’s recent executive order to cut carbon emissions helps but it is not enough to push it over the hump.”

The US Department of Energy would like to have 54,000 megawatts of offshore wind by 2030. Those scenarios include development along Atlantic, Pacific, and Gulf coasts as well as in Great Lakes and Hawaiian waters, the agency says.

Regulatory obstacles are one issue. The financial and technical barricades are another. On the regulatory front, Cape Wind has languished for about a decade. And while it has survived every legal hurdle, more of them keep getting tossed in its path. If it keeps upright, the project could break ground this year.

On the financial and technical front, there’s Google ’s high profile concept that would have created an undersea backbone spanning 380 miles from New Jersey to Virginia. The so-called Atlantic Wind Connection, however, has been been scaled back to focus just on New Jersey. But at $1.8 billion, the state is discovering that there are less expensive way to generate power, namely with natural gas plants.

Meantime, NRG Energy has indefinitely delayed its wind deal off the Delaware coast until it can find dependable investment partners. Spanish wind developer Gamesa Corp. has also suspended its plans to build off the Virginia coastline, citing the need for financing at a time when the fate of production tax credits given to wind developers is set to expire.

While the United States may not be ideal territory for offshore wind energy pursuits, the global markets may present better opportunities. China, in fact, is growing its offshore wind market, while Japan, Korea and Taiwan are in the early stages of development. India, too, is making forays. Europe, though, is the international role model:

Its offshore wind deals account for 10 percent of its annual wind energy installations, says the European Wind Energy Association. The goal, it adds, is to increase those levels from 6,000 megawatts today to 40,000 by 2020 and 150,000 megawatts by 2030, or 14 percent of the EU’s electricity demand — considered by some experts to be impractical given the today’s cost.

Siemens and Vestas supply most of the offshore wind turbines in Europe, which is happening in the North Sea, Baltic Sea and the Irish Sea. The “London Array” is considered the biggest offshore wind project, located in the Irish Sea off the coast of the UK. It consist of 175 turbines that generate 630 MW of electricity, owned by DONG Energy, E.ON and the United Arab Emirates’ Masdar.

Still, some utilities are nixing their offshore wind farms in the UK, including one by Scottish Power that has financial concerns and others by Germany’s RWE and British-owned Centrica. The former, though, says it could reconsider down-the-line if conditions would look more favorable.

“In the European Union, there is a consensus that offshore wind is part of this mix,” says Navigant’s Asmus. “It will happen there but not as fast as people would hope. The reason that it has a better chance there is that they have carbon constraints and they have a shared infrastructure. And, they don’t have enough land, so they have to go offshore.”

The possibilities for offshore wind energy are huge. But the challenges confronting such development are even greater. Those hurdles could eventually be crossed if the whole international community places a price on carbon — moves that would lead to better turbines, lower overall costs and greater reliability.