While the U.S. wind industry has become a major player in global markets with traditional terrestrial power generation applications, efforts to move offshore – where wind resources are far superior but logistics are more challenging – have been hampered by a lack of regulatory support at both federal and state levels.

The American Wind Energy Association (AWEA) sponsored a conference last week in Atlantic City, New Jersey, attracting roughly 1,500 attendees from around the globe, with heavy representation from European turbine manufacturers such as Vestas, Gamesa, REPower and Siemens, firms that dominate sales in today’s major offshore markets such as the United Kingdom and Denmark.

The conference started off with a bang and a bit of ceremony with U.S. Department of the Interior Secretary Ken Salazar signing a 28-year lease for the first offshore wind project in the U.S., to be located off the coast of Cape Cod, Massachusetts.

The Cape Wind project, which will rely upon 130 3.6 MW wind turbines provided by Siemens, will grow from a first phase of 182 MW up to 468 MW at full build out. The project took 8 years to gain final approvals, and drew staunch opposition from wealthy citizens residing on Cape Cod, including the infamous Kennedy family.

In a passionate speech, Salazar pointed out that taking eight years to permit an offshore wind project was unacceptable. He promised that by the end of 2010, the federal government hopes “to identify places where offshore wind makes sense.” He suggested that this approach — which has been utilized by European countries such as Denmark — could help reduce the length of future permitting battles as environmental reviews could be expedited up-front, “so developer proposals will have a better chance.”

Atlantic City was selected as the venue for this premier conference because New Jersey Governor Chris Christie signed the Offshore Wind Economic Development Act into law on July 19, 2010. The Act will provide $100 million in tax credits for offshore wind developments in the Atlantic Ocean that connect to the New Jersey grid.

Special “offshore renewable energy credits” (ORECs) help make projects more economic, with a “Clean Energy Manufacturing Fund” offering additional grants and loans based on local job creation. At present, three of the five “interim leases” offered for offshore wind projects in the U.S. have been secured off the New Jersey Coast, representing 1.4 GW of capacity.
Several other U.S. states have set up special incentives for offshore wind projects:

    • Rhode Island has a special 15% by 2019 set-aside for offshore wind, with the so-called “Deep Water” offshore project currently under development.
    • New York has released two RFPs: one for 120-500 MW of freshwater offshore wind on Lake Erie and Lake Ontario; and a second saltwater RFP for 350-700 MW off the coast of Long Island.
    • Virginia offers a unique incentive approach, allowing each MW of offshore wind development to count as the equivalent of 3 MW when complying with the state’s Renewable Portfolio Standard.
    • Even more generous is Delaware, which offers a 3.5 times multiplier on RECs from offshore wind (which increases to a 4.2 multiplier if 50% of turbine components are manufactured in-state).
    • Maine has a special deepwater offshore program focused on 30 MW of pioneering projects that validate new foundation and installation technologies.
    • Since Ohio does not have sufficient wind resources to meet its 12.5% by 2025 RPS, the state is looking to develop 20 MW of freshwater offshore wind on Lake Erie, a total that could grow to 1 GW by 2020.

Despite the hype and headlines, there was also some sobering news at the conference. The National Renewable Energy Laboratory projects that including the current PTC and other available federal incentives, the cost for offshore wind is still over 22 cents/kWh. An estimate from Europe was even higher – 26 cents/kWh.

Given the high costs of offshore wind, the rationale for policy support is increasingly focused on economic development. One study by Siemens showed that offshore wind provides 22 jobs per MW in Europe, which compares to approximately 7 jobs per MW for onshore wind there. Jobs in the U.S. are much lower, according to the study, with just 2 jobs per MW for onshore wind, the key difference being Europe’s market features 90% local content, while the U.S. is closer to 50%. Rather than manufacturing being the key to maximizing jobs on land-based wind projects, it is ongoing maintenance that provides 70% of employment benefits for offshore wind over the long term.

The U.S. Department of Energy estimates that 54 GW of offshore wind could be included in the 300 GW required to meet 20% of the U.S. electricity needs in 2030.

Despite the hype and hope, Europe is way out in front of the U.S. in this clean energy sector. At present, 17 offshore wind projects are under actual construction in Europe totaling more than 3.5 GW. The projected growth rate for 2010 is 75% when compared to 2009, with 1 GW expected to come on-line by the end of the year. Though the U.K. is now by far and away the market leader, Germany – in spite of its very limited coastline – may soon move into second place.

To get a sense of scale of this opportunity consider that one off-shore wind project proposed in the U.K. would total 9 GW alone, and would represent the fifth largest infrastructure project in the world. All told, 5 GW of offshore wind are currently under development in the U.K. with a goal of 33 GW of offshore wind development by 2020, an investment of $150 billion.

Source: Pike Research.

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