The Dark before the Dawn

Last week’s offshore wind conference hosted by the American Wind Energy Association (AWEA) brought together over 800 attendees, including industry leaders, policy makers, investors, consulting firms, manufacturers, environmental organizations, and other wind energy enthusiasts. The conference celebrated the achievements of the offshore wind industry over the last year, but also stressed the importance of extending federal tax credits and creating long-term, clear and stable policy to attract investors. In his Wednesday morning presentation, Bryce Martin, managing director of D.E. Shaw & Company, spoke to the uncertainty of the U.S. support schemes, cautioning the audience with reserved optimism, that it “is darkest before the dawn.”

Tom Kiernan, Chief Executive Officer at AWEA, and Secretary of Interior Sally Jewell, both who addressed the audience at the conference’s opening, likewise expressed optimism and confidence regarding the progress made over the last year from the first lease auction for commercial wind energy development in federal waters to the deployment of the first demonstration floating turbine off the coast of Maine. Yet Kiernan also stressed the need for a stable tax policy framework, adding that wind lobbyists are working hard on Capitol Hill to push for an extension of the production and investment tax credits. Similarly, Green Giraffe Energy Bankers, an international specialist advisory boutique focused on the renewable energy sector, reiterated that offshore wind project costs are a heavy weight for a company to bear—not only are stronger off-take mechanisms critical for attracting investors, but also tax credits are crucial for lowering costs. Nicolas Gourvitch of Green Giraffe added that the uncertainty has been deadly for the industry’s growth.

And while policy uncertainty has delayed and even driven away offshore wind developers, industry leaders remain optimistic:

1. Maryland and New Jersey both have incorporated offshore wind carve-outs into their renewable portfolio standards.
2. Several offshore projects are in the final stages of permitting, design, and approval. Cape Wind, for example, has power purchase agreements for 77% of its energy and is fully permitted at the state and federal level.  Deepwater Wind expects to have permits in hand by the first quarter of 2014 for its 30MW project in state waters off Block Island. Additionally, it recently secured the first commercial wind energy leases from the Bureau of Ocean Energy Management (BOEM), acquiring nearly 165,000 acres offshore Rhode Island and Massachusetts for wind development in federal waters with shallow waters and high capacity factors.  The company hopes to have 200-300MW on-line by 2018.
3. Secretary Jewell announced at the conference that BOEM would be holding additional auctions for wind energy leasing areas for Maryland, New Jersey, and Massachusetts in early 2014. In addition, in 2014, the U.S. Department of Energy will be selecting up to three demonstration projects to advance to commercial operation by 2017; each project will be eligible for up to $47 million in funding over four years.

To move offshore wind forward, Kiernan delivered four key points for making the business case for offshore wind: Offshore wind is critical for diversifying our county’s energy portfolio; it helps to suppress prices and will lower costs for consumers; it delivers power during hours of peak energy use; and it reduces transmission congestion and costs. An array of state and federal policy support is vital to realize the benefits of offshore wind development. In the words of Emily Dickinson, “Not knowing when the dawn will come, I open every door.”