From Coast to Coast: Offshore Wind Energy Expands in the United States

This article was first presented at the American Bar Association Section of International Law 2019 Annual Conference.

Introduction

Last year was a remarkable year for offshore wind development in the United States, with lease sales and projects announced in Massachusetts, Rhode Island, Connecticut, and Virginia, continued progress on offshore wind projects in New York and Maryland, regulatory developments underway in New Jersey, and initial steps taken towards offshore wind development in California.  Globally, the largest markets for offshore wind energy are, in order, the United Kingdom, Germany, China, Denmark, and the Netherlands; there is also potential for offshore wind development in South Korea, Japan, and India.  U.S. Department of Energy (DOE), 2017 Offshore Wind Technologies Market Update (DOE, 2018).  There is still a lot of work to be done to take advantage of the opportunities presented by offshore wind development in the United States, such as reducing carbon emissions, improving energy security by expanding fuel diversity and increasing local energy production, and creating jobs and boosting economic growth in coastal communities.  Federal and state governments must work together to create a strong foundation for offshore wind energy to achieve large-scale deployment in the United States.

2018 Milestones

States create a market for offshore wind energy by establishing goals and targets for deployment and incentivizing or requiring utilities to develop offshore wind energy.  Nearly 30 U.S. states have renewable portfolio standards (RPS) and several have focused more closely on offshore wind.  There were notable state policy milestones in 2018.  New Jersey Governor Phil Murphy expanded the state’s commitment to offshore wind energy from 1,100 MW to 3,500 MW and directed the state’s Board of Public Utilities (BPU) to implement the Offshore Renewable Energy Certificate (OREC) program.  State of New Jersey, Office of Governor Phil Murphy, Executive Order No. 8 (2018).  In September 2018, the state opened a competitive solicitation for bids for the first 1,100 MW of capacity towards that goal and in December 2018, the BPU adopted a final rule to establish the OREC Funding Mechanism, which is an important step towards implementing the OREC program.

There has also been a lot of offshore wind development activity in New England.  Under the 2016 Act to Promote Energy Diversity, Massachusetts requires procurement of 1,600 MW of offshore wind by 2027.  In 2017, the state issued its first request for proposals.  In 2018, the state announced that the 800 MW Vineyard Wind Project had the winning bid.  Massachusetts Governor Charlie Baker also directed the state Department of Energy Resources to study whether an additional 1,600 MW of offshore wind should be legislatively required.

In 2017, Rhode Island Governor Gina Raimondo established a target of 1,000 MW of renewable energy by 2020. It also has a binding requirement of obtaining 38.5 percent renewable energy by 2035. In 2018, Connecticut increased its RPS, requiring 40 percent renewable energy by 2030.  To help Rhode Island and Connecticut meet their goals, the offshore wind project developer Deepwater Wind will develop a 700 MW project known as Revolution Wind, with 400 MW to be delivered to Rhode Island and 300 MW to be delivered to Connecticut.  The corporate ownership of the project has recently changed.  In the fall of 2018, the Danish company Orsted acquired Deepwater Wind.  In early 2019, Orsted entered into a partnership with the New England energy company Eversource, under which Eversource acquired a 50 percent interest in Orsted’s offshore wind assets, which include the Revolution Wind project.

Moving to New York, under its clean energy standard, the state must obtain 50 percent of its electricity from renewable energy by 2030.  Governor Andrew Cuomo previously set a goal of developing 2,400 MW of offshore wind energy.  Progress on the 130 MW South Fork project in development by Orsted and Eversource off of the coast of Long Island continues.  In November 2018, the New York State Research and Development Authority issued a solicitation for 800 MW of new offshore wind capacity and received four bids.  In January 2019, Governor Cuomo proposed raising the ambition of the clean energy standard to 70 percent renewable energy by 2030 and 100 percent carbon-free energy by 2040. He also proposed increasing the offshore wind target to 9,000 MW by 2035.

Further south, Virginia Governor Ralph Northam announced in August 2018 that Dominion Energy and Orsted plan to build a 12 MW offshore wind demonstration project off the coast of Virginia Beach.

Other states continue to make progress on previously announced projects.  Maryland has a target of generating 25 percent of its electricity from renewable energy by 2020.  In 2013, Maryland enacted the Offshore Wind Energy Act, which updated the RPS to include a 2.5 percent carve out for offshore wind energy.  In 2018, the Maryland Energy Administration issued offshore wind business and workforce development grants to local emerging and minority-owned businesses to help them prepare for the development of two offshore wind projects that are being developed by US Wind, Inc. (a 250 MW project) and Skipjack Offshore Energy, LLC (Orsted) (a 120 MW project).  In April 2019, the legislature passed a bill to increase the state’s targets for renewable energy to 50 percent by 2030, which would further incentivize offshore wind development.

Complementing state leadership, the federal government can also help set the stage for the scale up of offshore wind in three ways:  1) by leasing more of the Outer Continental Shelf (OCS) to project developers; 2) by supporting research, development, demonstration, and deployment (RDD&D) of offshore wind technologies; and 3) by providing financial incentives for deployment.

First, while America’s first offshore wind project, the 30 MW Block Island Wind Farm, was developed in Rhode Island state waters, most U.S. offshore wind projects will be developed further offshore in Federal waters.  The political leadership of the U.S. Department of the Interior (DOI) has expressed support for developing offshore energy resources, including both oil and gas as well as offshore wind.  The U.S. Bureau of Ocean Energy Management (BOEM) conducts community outreach and takes public comment before it designates Wind Energy Areas where the OCS may be leased for offshore wind project development.  BOEM has 15 active commercial leases for the Atlantic OCS from its eight competitive lease sales that generated over $473 million in revenue, most of which is from the most recent lease sale.  In December 2018, three project developers bid a total of $405 million to obtain OCS leases:  Equinor Wind US, LLC; Mayflower Wind Energy, LLC, which is a joint venture between EDP Renewables and Shell; and Vineyard Wind, LLC, which is a joint venture between Avangrid Renewables and Copenhagen Infrastructure Partners.  Justin Gerdes, Record-breaking Massachusetts Offshore Wind Auction Reaps $405 Million in Winning Bids (Greentech Media, Dec. 17, 2018).

On the Pacific Coast, however, things have been moving more slowly for offshore wind development.  Many West Coast states have shown leadership on climate policy generally by setting ambitious goals to reduce carbon emissions, establishing market-based mechanisms for the power and transportation sectors, and providing grants and financial incentives for deployment of clean technologies.  At the same time, the OCS is narrower on the West Coast than on the East Coast, which makes offshore wind development more difficult because it will likely require the use of floating foundations.  To date, floating foundations have been used in demonstration projects and in one commercial offshore wind project, which is Equinor’s 30 MW Hywind project in Scotland.  In October 2018, BOEM issued a Call for Information and Nominations to gather data on the number of developers that might be interested in offshore wind projects off the coast of northern and central California.  This is an initial step towards leasing the OCS for offshore wind projects.  There may be some siting complexities related to U.S. Department of Defense military installations in California, but the agencies are working together to resolve any conflicts.

More broadly, the DOI Royalty Policy Committee recommended that BOEM lease land to develop a total of 20 GW of offshore wind, 2 GW of offshore wind each year beginning in 2024, so that a strong domestic supply chain to support the industry could be created in the United States.

Second, with respect to offshore wind RDD&D, two projects under the DOE Advanced Demonstration Project program are continuing, one in the Great Lakes – the Lake Erie Energy Development Corporation Icebreaker project, and one in Maine – the University of Maine Aqua Ventus I.  In February 2019, DOE also announced the availability of $28 million for a new Advanced Research Projects Agency – Energy (ARPA-E) program on floating foundations for offshore wind – it will be called the Aerodynamic Turbines, Lighter and Afloat, with Nautical Technologies and Integrated Servo-control (ATLANTIS) program.  DOE, Department of Energy Announces $28 Million for Offshore Wind Energy (Feb. 1, 2019).  The states are also supporting offshore wind research. In Massachusetts, research project developers are looking at pairing energy storage technology with offshore wind energy.  New York is also partnering with DOE on an Offshore Wind Research Consortium.

Third, one of the strongest drivers of the development of land-based wind energy has been the Production Tax Credit (PTC), which is a federal income tax credit that is based on the number of kilowatt-hours of electricity generated by renewable energy and can be claimed for 10 years.  26 U.S.C. § 45.  Over the last few decades, the PTC has occasionally lapsed prior to renewal, creating boom-and-bust development cycles.  In 2015, Congress established a five-year schedule that phases down the PTC until it expires in 2020.  For the offshore wind industry, the Business Energy Investment Tax Credit (ITC) has been an even more powerful tool.  The ITC is a federal income tax credit for 30 percent of the capital costs to construct a renewable energy project.  26 U.S.C. § 48.  Like the PTC, the ITC for large wind farms is set to phase down and out by 2020, although some small wind turbines that are less than 100 kilowatts may continue to claim the ITC through 2022.  In 2017, Senators Tom Carper (D-DE) and Susan Collins (R-ME) introduced the Incentivizing Offshore Wind Power Act, which would create a dedicated tax credit for offshore wind energy that would be permanent for the first 3,000 MW of new offshore wind energy.  S. 1672, 115th Cong. (2017).  The certainty provided by this type of permanent tax credit would encourage greater investment in offshore wind projects.

Opportunities and Challenges

While the offshore wind resource along the coasts of the United States is substantial, the costs of developing offshore wind facilities present a challenge.  As we have seen with the deployment of land-based wind and solar energy, increasing deployment often leads to learning-by-doing, performance improvements, supply chain efficiencies, and cost reductions.  In the case of offshore wind, original equipment manufacturers like Siemens Gamesa, Senvion, and General Electric are now developing larger turbines with a capacity of 10 MW and greater.  DOE, 2017 Offshore Wind Technologies Market Update (DOE, 2018).  Developers like EDF Renewables, Vatenfall, and Equinor also continue to innovate with new foundations, including both fixed-bottom and floating foundations.  Id.  In countries that have experienced greater deployment of offshore wind energy, such as the United Kingdom, offshore wind costs have decreased; in fact, in some jurisdictions, such as Germany and the Netherlands, offshore wind energy is able to compete on a non-subsidized basis with other forms of energy.  Id.  In March 2019, Bloomberg New Energy Finance (BNEF) concluded that the Levelized Cost of Energy per megawatt-hour for offshore wind fell 56 percent since 2010.  BNEF, Battery Power’s Latest Plunge in Costs Threatens Coal, Gas (Mar. 26, 2019).

In 2016, DOE and DOI published the National Offshore Wind Strategy, which highlights three priority areas of focus:  1) reducing costs and risks, including through improved site characterization, technology development, and supply chain improvements; 2) focusing on effective stewardship to manage environmental concerns; and 3) expanding public understanding of the costs and benefits of offshore wind, including of offshore transmission infrastructure.  DOE and DOI, National Offshore Wind Strategy: Facilitating the Development of the Offshore Wind Industry in the United States (DOE, 2016).

On the first point, it would be easier for private sector developers to obtain financing for offshore wind projects if there were more publicly available data about the physical conditions at a given site that could provide greater certainty about the wind resource and the characteristics of the seafloor.  In addition, larger and more efficient turbines with improved subsea foundations could reduce overall capital costs.  So, too, could specialized infrastructure for offshore wind such as fabrication facilities for the foundations as well as expanded port facilities.  In October 2018, Congress enacted America’s Water Infrastructure Act, which directs the Secretary of the Army to conduct a study to identify at least three ports and harbors that could be innovative ports for offshore wind development.  Pub. L. No. 115-270 (2018).  The Secretary’s report will also identify Federal and state actions that could help overcome any existing barriers to the use of these ports and harbors for offshore wind development.

There is also a need for vessels that are compliant with the Merchant Marine Act of 1920 (the “Jones Act”) for offshore wind facility installation, operation, and maintenance.  Under the Jones Act, passengers and goods may not be transported between points in the United States except in vessels built in, owned, and operated by U.S. citizens.  46 U.S.C. § 861.  To a certain extent, there is a “chicken-and-egg” problem, because the U.S. offshore wind industry must reach a certain scale in order to support specialized domestic infrastructure such as fabrication facilities, ports, and vessels.

On the second point, it would improve the efficiency of the regulatory process if federal agency review, such as from the U.S. Army Corps of Engineers, BOEM, the U.S. Coast Guard, the U.S. Department of Defense, the U.S. National Oceanic and Atmospheric Administration (NOAA), and the National Park Service, followed more predictable timelines.  It would also be helpful if there were better data on the impact of offshore wind development on other human activities, such as fishing and radar systems, as well as on local wildlife, including marine mammals, migratory birds, and other sensitive species.  To that end, in March 2019, NOAA Fisheries, BOEM, and the Responsible Offshore Development Alliance entered into a Memorandum of Understanding to collaborate on siting and development of offshore wind projects in the Atlantic Ocean, including developing a regional research and monitoring framework.  Field data on environmental impacts from the first generation of offshore wind projects in the United States will help inform the environmental analysis of future offshore wind project proposals.  There is also a role for offshore wind project developers to play in sharing and adhering to best practices regarding sensitive species and habitats, such as the March 2019 Best Management Practices for North Atlantic Right Whales During Offshore Energy Construction and Operations Along the U.S. East Coast developed by the Conservation Law Foundation, the National Wildlife Federation, and the Natural Resources Defense Council.

Finally, electricity generated by offshore wind energy will need to be integrated into local electricity grids.  One option would be to develop offshore High Voltage Direct Current (HVDC) transmission lines that could better connect offshore wind farms to population load centers.  Since the upfront capital cost of offshore wind projects remains higher than some other resources, greater public understanding of the benefits of offshore wind will likely be required to expand deployment of this resource.

Conclusion

Offshore wind energy development has made great strides since the first 30 MW demonstration project, Block Island Wind Farm, came online in Rhode Island state waters in 2016.  This is because despite partisan gridlock in many areas, there is bipartisan support for addressing legal, regulatory and policy challenges that could slow deployment of offshore wind energy.  Policymakers are willing to work across the aisle because of the multiple benefits provided by offshore wind projects, including carbon-free electricity generation, increased energy security through expanded fuel diversity and local electricity generation, and economic growth and jobs in coastal communities.  In the near-term, Congress and the Administration should continue to work together to facilitate the development of additional offshore wind projects and offshore HVDC transmission lines.