Offshore Wind Seminar Liveblog

    View Authors September 2010

    Please join Squire, Sanders & Dempsey L.L.P., DNV, and Ecology and Environment, Inc. as we liveblog our Offshore Wind Seminar beginning at 9 a.m. ET. We will be bringing you the best commentary from the event including the special presentation by Jacques Beaudry-Losique – Deputy Assistant Secretary for Renewable Energy of the US Department of Energy's (DOE) Office of Energy Efficiency and Renewable Energy (EERE).

    AllianceBernstein opens Offshore Wind Seminar with overview of policy, technical challenges for offshore wind projects
    States focusing on offshore wind incentives while EPA represents a 'bright spot'
    Navigating the Environmental, Regulatory and Maritime Issues of Offshore Wind Projects
    Offshore wind developments are long-term commitments with unique design and operational risks, panelists say
    Euro/US Financing Models Differ for Offshore Wind Projects as Marketplace Assesses Appetite for Deals
    DOE Official Outlines Agency's Views on Offshore Wind Developments

    10:02 a.m.

    AllianceBernstein opens Offshore Wind Seminar with overview of policy, technical challenges for offshore wind projects

    Thomas Socha, vice president at AllianceBernstein, reinforced the delicate intersection of offshore wind projects and public policy considerations during the Squire Sanders offshore wind seminar.

    As opposed to countries like Denmark, Spain, Germany, and, increasingly, the United Kingdom, the United States does not offer a fully integrated approach to offshore wind projects that pairs federal incentives for developers with coordinated infrastructure for demand centers, he said. But the very existence of the event -- more than 100 energy investors and analysts turned out for Socha's brief presentation -- suggests that if lawmakers aren't already beginning to realize that inaction isn't a good option, they will be very soon.

    "An integrated approach is absolutely key, and it has worked elsewhere in the world. ... What we need now is consistent, centralized and coordinated federal authority to organize these wind projects," Socha said.

    "On top of that, we need incentive programs that don't cause boom-and-bust cycles," he added. He questioned how one can reasonably invest in offshore wind facilities when the incentives to do so may go away in a few years.

    Tongue planted firmly in cheek, he dubbed "not on my beach" as the new "not in my backyard" to reflect a point of view consistent across many proponents of wind projects: They want to consume the benefits without having the facilities near their communities. But an audience participant pointed out that public polling data reflect surprising support for offshore wind projects in many of the communities where they would be most viable.

    However, the minority is a vocal one, Socha pointed out, and the mainstream press is probably guilty of some sensationalizing about how visible offshore wind projects would be to ordinary citizens.

    He also raised some pointed questions: Should offshore projects be designed to compete with onshore projects that have incentives already in place? How can ancillary markets for wind power be designed to prevent brown-outs? As offshore projects are more expensive than onshore ones, are the costs currently worth the benefits?

    11:07 a.m.

    States focusing on offshore wind incentives while EPA represents a 'bright spot'

    The precise relationship between public policy matters and renewable energy projects such as offshore wind development can't be fully examined in one morning. Members of the first panel of the Square Sanders Offshore Wind Seminar, however, laid a foundation for such a discussion.

    Participants from New York, Maryland and New Jersey offered insights on their respective state incentives meant to turn offshore wind developments from hypothetical scenarios into real infrastructure.

    James T. Gallagher, senior director of energy policy for the New York City Economic Development Corp., began by mapping out the State of New York’s wind turbine sites – both current and proposed – against the backdrop of New York City’s current needs.  For instance, Gallagher noted that the power bill for the New York City government alone tops $1 billion annually.  With that in mind, he outlined the efforts of the Long Island – New York City Offshore Wind Project to develop an initial 350-megawatt site 13 miles offshore near the Rockaway Peninsula that could be expanded to 700 megawatts. Gallagher added that the RFP for this project is expected to come in October with proposals due in the spring.

    Power purchase agreements were also under the microscope. "Having a power purchase agreement in place is absolutely key," said Ross Tyler, director of clean energy for the Maryland Energy Administration. "We believe if you buy the output, then the projects will get built."

    Tyler also detailed his administration's efforts to provide greater transparency into the factors that inform offshore wind development. An information-sharing initiative seeks to map the state's offshore oceanic geography and make the information publicly available online. This, he said, is meant to coordinate decision-making and support among stakeholders.

    Scott Jennings, president of PSEG in New Jersey, a project developer, reinforced the need for long-term commitments from states, which reflect the long-term nature of offshore wind farms, to drive those developments.

    He also said the state has designed a stress test of sorts to evaluate the environmental and economic returns of proposed developments. These tests seek to answer the question: "Do the environmental benefits of offshore wind projects offset their higher costs?" Another state initiative, he said, focuses on making the employment benefits of wind projects visible and real to state constituents.

    "There will be groups that only see the negatives ... and opposition from some corners of the state." Marketing the job-creation benefits of projects can help counter some of these risks.

    Nils Mellquist, senior research analysts at DB Climate Change Advisors, brought the institutional investor perspective. He said his team has been monitoring the goings-on in Washington for the past 18 months and are proponents of feed-in tariffs, which are meant to stimulate renewable-energy development and move the energy sector toward grid parity by requiring utilities to purchase wholesale electricity under a fixed-price contract. He noted that Germany has used this policy mechanism to effectively grow its renewable energy sector.

    In August, the Federal Energy Regulatory Commission issued a new ruling to address how states treat these pieces of policy, and they have received increasing attention among industry insiders since then.

    Ultimately, he said, and in spite of criticism of policy inaction in the Senate, the Environmental Protection Agency is equipped to issue meaningful regulations to nudge offshore wind projects forward -- he referred to these expectations as a "bright spot" in the current debate over public policy and offshore wind energy.

    12:21 p.m.

    Navigating the Environmental, Regulatory and Maritime Issues of Offshore Wind Projects  

    With so much focus on the environment, the subject of offshore shipbuilding and the maritime industry sometimes gets lost in the shuffle of other issues facing offshore wind projects. But as lawmakers as well as the general public grow more interested in turning wind power into a reality, perhaps it should. How will offshore developments happen without the resources necessary to do the literal heavy lifting?

    The second panel during the Squire Sanders Offshore Wind Seminar focused on questions like this, presented against the backdrop of key environmental concerns and the fallout from the Deepwater Horizon situation.

    Megan Higgins, offshore wind farm project manager for Ecology and Environment, Inc., started by outlining the types of issues and related impact studies that should be undertaken to reduce uncertainties and concerns about the impact of an offshore project.  She noted the particular hurdles created for the Cape Wind project by overlooked avian issues as something that could have been avoided, stressing that both onshore and offshore impacts must be closely examined.

    Further addressing the need for the best possible data, Aileen Kennedy, director of permitting for Deepwater Wind, explained the concept of constraints mapping which involved graphically depicting both environmental and ocean limits around an offshore project.  She also reinforced the need for developers to keep regulators as well as the general public informed of their intentions to advocate for or build new facilities, which can not only speed up regulatory requirements but also educate a community about the developments as well. She also said offshore wind developments involve new technologies that weren't online for onshore wind development, and that specialist consulting firms can help developers sort through the newest of the new technologies.

    Because it's unreasonable to expect every developer to have their own vessels to ship the turbine components miles offshore, the industry will need to consider other options, said Douglas R. Burnett, partner at Squire, Sanders & Dempsey and a panel participant. He drew a comparison to the telecommunications industry. When faced with a similar challenge in developing infrastructure offshore, telcos banded together and negotiated contracts with specialist shipping companies that were more equipped to meet their needs. Burnett said this industry cooperation allowed them access to the shipping without having to develop a core competency in shipbuilding -- and the offshore wind industry should consider following suit.

    Elsewhere, multiple pieces of proposed legislation conspire to create a great deal of uncertainty regarding the Jones Act, a law that regulates which types of ships can dock within the U.S. for purposes of commerce. Sen. John McCain (R--AZ) wants to abolish the Jones Act entirely, while a competing bill that has already passed the House seeks to update it.

    2:34 p.m.

    Offshore wind developments are long-term commitments with unique design and operational risks, panelists say

    In a panel about the design, installation and operation of offshore wind power developments, Steve Dayney, CEO of REpower USA Corp., moderated and provided some useful (and quotable) numbers: he forecasted the demand for offshore wind turbines in Europe at 10,000 during the next 10 years, and he observed that the average turbine will run continuously for 15 years. These numbers present considerable challenges.

    "We need engineering that solves problems we never knew existed," he said, adding that the industry needs to address those hurdles while struggling with how to produce enough products to meet demand.

    He also said that his company is on track to install its first six-gigawatt wind turbines off the coasts of Scotland and Germany in 2012.

    Gemma Smith, consultant to DNV Renewables, said her role in the industry is unusual: thinking of all the things that can possibly go wrong, and advising developers on strategies to minimize those risks.

    Offshore wind developments and offshore oil facilities have some things in common. Both necessitate working with chemical inventories in a harsh marine environment. Both involve heavy machinery like boats, helicopters, and cranes. And both include unmanned facilities.

    Risks – from forgettable inconveniences to major catastrophes – often involve a complex mix of poor industrial design, structural failure, operational issues, human error or environmental factors beyond human control, Smith said, such as ship collisions, blade failure and difficulty inspecting facilities. Furthermore, Dayney added, each wind turbine is constantly monitored for hundreds of potential problems. Another panelist, Morten Andersen, senior engineer at DNV Renewables, said that another key operational consideration is how profoundly difficult offshore facilities are to inspect and repair.

    That portion of the discussion clearly reinforced the theme that these developments are enormous, long-term commitments that come with significant upkeep.

    Dayney also added that he thinks the industry in Europe is about a decade ahead of its US counterpart. While this might seem to be cause for concern, the optimistic take is that US developers can avoid many of the problems that have vexed their European counterparts for many years.

    3:51 p.m.

    Euro/US Financing Models Differ for Offshore Wind Projects as Marketplace Assesses Appetite for Deals

    There are plenty of fish in the sea, as the axiom goes. Similarly, for active investors there seem to be plenty of deals on the market.

    This, said some panelists during the fourth session of the Squire Sanders Offshore Wind Seminar, is an important perspective to keep in mind when evaluating the appetite for wind-development projects among investors.

    Moreover, US financing models differ from those in Europe, which is significantly ahead in of the United States in offshore wind developments. Seminar moderator Thomas Rottner, managing partner of Platina Partners, led an informative discussion on these dynamics.

    “Why do a complicated, risky deal when there are others that might mean less trouble?” questioned Steve Jones, principal engineer at DNV Renewables. He pointed out that equipment lifespan is a key question investors are considering, as is the speed with which these important pieces of infrastructure can be completed. Banks, who don't want to dedicate resources to see developments through if they lag behind schedule, are apt to decide not to do the deal in the first place.

    However, those with more of a long-term view, such as large construction companies and turbine manufacturers, are taking some risks with financing, he said.

    James E. Morgan III, partner at Squire Sanders, pointed out that project finance is typically structured as non-recourse financing, which presents unique challenges in the context of offshore wind projects as it relies primarily on the cash flow of the given project. Until recently, he said, the only entities capable of financing offshore wind projects were the utilities, which did so from their balance sheets. But lenders are now finding creative ways to successfully complete the financing of offshore wind projects on a non-recourse basis.

    The European financing model is significantly different from that in the United States. But could it work for the US market? That’s an interesting question that involves a lot of moving parts, and the markets might begin to answer the question shortly. Siobhan Smyth, global managing director and head of renewable project and export finance for HSBC, said the bank is looking to take on construction risk related to offshore wind projects.

    "Yes, we're conservative, but I think that is a pretty big step," she said.

    European lenders have traditionally been comfortable with a longer-term commitment to the sector, whereas US lenders have been more focused on short-term gains. Given the long-term nature of offshore wind developments emphasized in previous panels, this trend shouldn't be too surprising. Smyth also said that the bond market remains reluctant to take risks related to offshore wind developments, but that government support for the sector could help turn that corner.

    Mitchell S. Thompson, also a partner at Squire Sanders, told the audience about four different major tax incentives, from credits to grants. He noted that many of these opportunities require construction to be commenced by the end of 2010.

    And as both onshore and offshore wind developments are subject to the same tax provisions, he posed an interesting question: "Would it be good policy to separate the two?" Perhaps it would be, as offshore developments cost significantly more than onshore, yet the current tax code doesn't consider that difference.

    4:39 p.m.

    DOE Official Outlines Agency's Views on Offshore Wind Developments

    Jacques Beaudry-Losique concluded the Squire Sanders Offshore Wind Seminar by outlining his agency's strategy for overseeing the sector and doing its part to help spur development.

    Beaudry-Losique, deputy assistant secretary for renewable energy at the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy, asserted a collectivist approach is crucial in giving various industry decision-makers, from investors to innovators and manufacturers, the latitude they need to make offshore wind developments happen in the United States.

    "This has to be a national effort," he said. "We need to play a catalyst role, to organize what other agencies do."

    Cooperation and collaboration between numerous government agencies, as well as establishing public-private partnerships, are two key components required to nurture offshore wind developments.

    Those collaborative efforts with other agencies are already underway, he said, and gave roughly a dozen examples that ranged from the permitting and siting necessary for developments to the manufacturing capabilities and infrastructure required to make them happen.

    He also said the agency would support offshore deployment "in diverse geographic locations," a sign that regulators may be open to nontraditional sites if they make economic and environmental sense. The DOE also favors the development of more “ruggedized” designs for offshore wind turbines to reduce maintenance requirements. Beaudry-Losique explained that the development of offshore wind projects will allow for far more innovative and aggressive designs because you can’t generally view or see the turbines.

    "These are complex undertakings, but the potential resources are too promising to ignore," he said.