Marine Renewable Energy Projects - Current Issues

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1 I. INTRODUCTION The interest in renewable energy in the United States has increased dramatically over the past few years due to the effects of climate change and high energy prices. Traditional sources, such as oil and natural gas, are finite and regulators are looking to alternatives to lessen the country s dependence on foreign supplies and reduce the impacts of climate change. Alternative or renewable energy, now considered to be mainstream in most other parts of the world, includes wind, solar, hydrokinetics (wave, current, and tidal) and ocean thermal energy conversion (OTEC). As interest in renewables has increased, the focus on renewable energy from ocean sources has similarly increased. A comprehensive approach to developing marine renewable energy projects is crucial for the United States as nascent technology is proposed for offshore installation. This paper will introduce ocean renewable energy technology and review the current challenges for the siting, regulating, and implementation of renewable energy projects in the marine environment (see Appendix A for additional resources). The challenges facing the emerging industry in the United States include jurisdictional issues, inconsistent permitting and licensing schemes, limited financial incentives, the pace of research and development, and concerns regarding environmental and human community impacts. The purpose of this document is to provide Symposium participants with background information on marine renewable energy and the challenges this industry faces as participants discuss possible solutions. II. OCEAN RENEWABLE ENERGY SECTORS A. Offshore Wind OFFSHORE WIND turbines harness kinetic energy of moving air over oceans and convert it to electricity. Offshore winds are less turbulent, and tend to flow at higher speeds than onshore winds, allowing turbines to produce more electricity. Wind parks consist of multiple turbines that are microsited to minimize turbulence created by nearby turbines. Until recently, technology limited the installation of offshore wind turbines to water depths of about 30 meters using drilled monopole installation, and at distances no greater than 20 miles from shore for purposes of underwater cabling from sea to shore. While Europe has operated offshore wind projects since 1991 and other countries have embarked on wind energy development projects with specific targets and deadlines, the United States has no current functional marine wind facilities. The U.S. could generate up to 70,000 MW of domestic generating capacity by 2025, with slightly more than 10% of that total potential energy available using current technology in federal waters. Over half of the country s identified offshore wind potential is located off the north Atlantic coastline, and to date there are proposals to develop offshore wind projects off the coasts of Massachusetts, Rhode Island, New York, New Jersey and Delaware. There are also several offshore wind projects proposed for waters off Galveston, Texas. Location within state or federal waters or both presents different regulatory issues for offshore wind projects. For example, a project such as Cape Wind off of Massachusetts located exclusively in federal waters needs to comply with primarily federal law while projects proposed exclusively for state waters, such as those off of Galveston, Texas, will face additional compliance with state law. Projects that may include both federal and state jurisdiction, such as those considered off Rhode Island and New Jersey, present a complicated grouping of both state and federal authorities that need to be addressed. Potential environmental impacts from marine wind power facilities include noise and vibrations from construction and operational activities; alterations to benthic habitats and associated effects on living marine resources; and changes to migration patterns for bats, birds and marine mammals caused by additional light, noise, chemicals, and sediment disturbance. Other potential impacts include interference with other maritime uses such as commercial shipping, fishing and recreational boating; and aesthetic 1

2 impact on existing vistas. B. Hydrokinetic HYDROKINETIC refers to technologies for wave, ocean current and instream tidal energy. Ocean current and in-stream tidal technologies convert energy using submerged turbines. Predictable high tidal frequency makes this method highly desirable to industry, in comparison to less predictable wind and wave sources. Hydrokinetic projects are in early stages of development both nationally and internationally, with a small number of prototypes and demonstration units. These projects capture wave energy by various technologies (e.g., buoys, attenuators, overtopping devices, and terminators) that vary in size, anchoring, spacing, interconnection, array patterns, and depth limitations. Offshore wave energy potential is estimated to be Tera-watts/year given 15% resource use, while tidal and ocean current is estimated to be half that. The Electric Power Research Institute estimates hydrokinetics has the potential to meet 10% of national demand. Both the Federal Energy Regulatory Commission (FERC) and the Department of Interior's Mineral Management Service (MMS) currently have licensing authority over hydrokinetic projects; there are unresolved issues regarding the extent of each agency s authority. On December 20, 2007, FERC issued the nation s first conditional hydrokinetic license to Finavera, a 4-buoy wave energy pilot project off Washington State in the Olympic Coast National Marine Sanctuary. FERC s license included mitigation and monitoring protocols recommended by the National Oceanic and Atmospheric Administration (NOAA). Conditional licenses are intended to enable licensees to begin plan development and engage in agency consultation before construction commences. This allows developers to have a level of government approval necessary to secure financing in early stages of project development, while at the same time maintaining the full process of state and federal authorizations required by federal law. On March 20, 2008, FERC amended the conditional license and authorized Finavera to commence project construction by issuing an Order on Rehearing and Clarification and Amending License. FERC and the state of Oregon signed a Memorandum of Understanding (MOU) for the project effective March 26, Potential impacts from hydrokinetic energy production include lethal and non-lethal impacts to living marine resources and their habitats resulting from contact with turbines, impingement, entanglement, construction and operational noise, and electromagnetic fields; and conflicts with navigation and other coastal/ocean marine-space users, such as fishing, commercial shipping, and recreational boating, especially due to exclusion zones. C. Ocean Thermal Energy Conversion (OTEC) OCEAN THERMAL ENERGY CONVERSION uses difference in temperature between warm ocean surface waters and cold deep ocean waters to produce electricity. If a difference of approximately 40 F exists between warm and cold water, net power can be generated. There are three types of OTEC projects: 1. Closed-cycle warm surface water causes a working fluid (e.g., ammonia, which boils at -28 F at atmospheric pressure) to turn to vapor, driving a turbine attached to a generator and producing electricity. Cold deep water passing through condenser turns the vaporized working fluid back into a liquid, which is recycled through the system. 2. Open-cycle warm surface water itself is the working fluid. The vapor loses its salt and is condensed back to liquid by exposure to cold deep water. The condensed water can be used for drinking water, irrigation or aquaculture. 3. Hybrid systems use parts of both open- and closed-cycle systems. 2

3 NOAA/National Ocean Service (NOS) is the designated lead federal agency for licensing OTEC projects and once had an OTEC program. However, in 1996 NOAA dismantled their OTEC program and repealed their OTEC licensing regulations due to lack of activity and desired government program consolidation. OTEC has been demonstrated technically in test environments with significant government capital, but is commercially unproven, and it is difficult to attract investment capital to develop a nascent technology. To date, no OTEC facility has been constructed, but, as of , there is renewed interest for projects in Hawaii and Puerto Rico. To license OTEC projects in the future, full information needs to be developed on a complete array of factors, such as legal requirements, appropriate siting criteria considering the vulnerability of biological communities, existing marine protected areas, and oceanographic conditions, the effects of air and water emissions including pollutant accumulation and transfer, impacts on other maritime uses, and the extent of monitoring necessary. III. LEGAL ISSUES FOR INCREASED ENERGY DEVELOPMENT IN THE OCEAN A. Jurisdiction and Permitting Challenges In general, marine renewable energy projects are considered on a case-by-case basis, the proposed location and project type determining the various agencies and regulations that apply. To obtain authorization and approval for developing marine renewable energy projects an applicant may need a license or permit from FERC, MMS, the Army Corps of Engineers, Environmental Protection Agency, NOAA and various state environmental and energy agencies, depending upon project location. For many of the alternative energy projects, applicants would also need a U.S. Army Corps of Engineers permit under Section 10 of the Rivers and Harbors Act of 1899 for the placement of structures in the water, as well as a water quality certification pursuant to Section 401 of the Clean Water Act. It is becoming increasingly clear that a better coordinated legal and regulatory framework is necessary. Along with licenses and permits issued by the various agencies, a project must comply with various other applicable laws, such as environmental review under the National Environmental Policy Act (NEPA). Consultations or permits may also be required under the Endangered Species Act, Magnuson- Stevens Act, Marine Mammal Protection Act, National Marine Sanctuaries Act, the Fish and Wildlife Coordination Act, and the Migratory Bird Treaty. U.S. Coast Guard and Federal Aviation Administration regulations may apply to wind turbines regarding navigation and airspace issues. States may also have review under the Coastal Zone Management Act federal consistency provision. An activity is subject to the consistency provision if it will directly, indirectly, or cumulatively affect any natural resources, land uses, or water uses in the coastal zone. Section 307 of the CZMA requires that federal actions be consistent with enforceable policies of a State s federallyapproved coastal zone management program if they are reasonably likely to affect any land or water use or natural resource of the State s coastal zone. B. Licensing Agencies and Statutory Authority Authority for alternative ocean energy projects is complex. Prior to 2005, there was no clear statement of overall authority, with NOAA under the Department of Commerce, the Department of Interior's Mineral management Service (MMS) and other agencies having some apparent authority. In 1980, discrete authority had been given to NOAA for licensing the construction, ownership, location and commercial operation of OTEC plants under the Ocean Thermal Energy Conversion Act, 42 U.S.C et seq. However, in 1996, in part because no OTEC license applications had been received, and in part to meet the directive that all agencies eliminate or modify obsolete regulations, NOAA repealed the OTEC licensing regulations and eliminated the OTEC office. In 2005, Congress amended Section 8(p) of the Outer Continental Shelf Lands Act, 43 U.S.C et seq, in the Energy Policy Act of 2005 giving the Department of the Interior s Minerals Management Service (MMS) authority to issue a lease, easement, or right of way on the Outer Continental Shelf (OCS) for the production, transportation or transmission of energy from sources other than oil and gas, except for certain protected areas, including national marine sanctuaries. In response, 3

4 MMS has developed and proposed an Alternative Energy and Alternative Use (AEAU) program. In November, 2007, MMS issued its Final Programmatic Environmental Impact Statement for Alternative Energy Development and Production and Alternate Use of Facilities on the Outer Continental Shelf (Final Programmatic EIS). This document, developed in accordance with the National Environmental Policy Act (NEPA), analyzes the environmental impacts of the new AEAU program over the next 5-7 years. The Final Programmatic EIS focuses on wind, wave, and ocean current energy projects, describing the state of the art for these technologies, the environment in which they might be implemented, and the resulting environmental impact. It is important to note that a site-specific NEPA review will still be required for each proposed project. The program (known as the Preferred Alternative in the Final Programmatic EIS) establishes two stages. First, during an interim period between the Final Programmatic EIS and the promulgation of a Final Rule governing AEAU projects, MMS will issue leases, easements, and rights-of-way on a caseby-case basis. In its Record of Decision, MMS will outline an Interim Policy that provides for coordination with other federal and state agencies; additionally, MMS describes a number of Best Management Practices (BMPs) that may be used as initial mitigation measures. In January, 2008, after a public comment period, MMS adopted an Interim Policy that allows limited alternative energy leases for data collection facilities to assess offshore energy resources, or for the purpose of testing alternative energy technology. Second, after a Final Rule is promulgated, MMS will issue leases, easements, and rights-of-way in accordance with a set of comprehensive regulations. MMS proposed new regulations in July, 2008 that would provide for licensing alternative energy and alternate use projects on the OCS. The proposed rule would allow MMS to create a program to grant leases, easements, and rights-of-way (ROW) for alternative energy project activities on the OCS. MMS rule proposes issuance of two types of leases, commercial leases with access rights for commercial development, site assessment and technology testing, and limited leases for site assessment or to test new alternative energy technology. Leases may be obtained through either a competitive or non-competitive process. The commercial lease grants the holder full rights to use the site for full-scale commercial energy production for up to twenty-five years (in addition to a five-year site assessment term), while the limited lease grants only limited rights to activities that support alternative energy but do not result in energy production, such as site and technology assessment and testing. Such limited leases could be renewed after five years but could not be converted into a commercial lease. After an initial environmental review, the rules would allow companies to obtain a lease and be given rights to the site for site assessment activities. The proposed construction and operational plans must then undergo additional environmental review before construction may commence. The proposed rule establishes a process for MMS to monitor the project through the lease period and also a process for decommissioning the site if the project comes to termination. MMS will also issue ROWs and rights of use and easement (RUE) grants to support various alternative energy activities. Another authority is that of the Federal Energy Regulatory Commission (FERC); there are questions about the extent of FERC s authority compared to MMS for marine renewable energy projects. FERC is the principal federal agency for issuing licenses for all non-federal hydroelectric projects under the Federal Power Act, 16 U.S.C. 791a, et seq. To date, FERC has granted one license, to Finavera Renewables Ocean Energy, Ltd. for the Makah Bay Wave Energy Project, located about 1.9 nautical miles off the Washington coast in the Olympic Coast National Marine Sanctuary. FERC has also issued forty 3-year hydrokinetic preliminary permits, and is considering 16 pending preliminary permits. IV. INTEGRATION, COMMUNITY AND FINANCIAL ISSUES A. Integration to the Grid Connecting to existing power grids pose challenges for a marine renewable energy industry. First, the electricity must be cabled to shore so proximity to shore stations is important; the laying of the cables may present their own environmental/siting issues as well. In addition, by their nature, renewable resources such as wind, wave, and tidal are intermittent and do not always provide electricity as needed. The variable nature of renewable energies and resulting inconsistent energy supply necessitate more 4

5 accurate supply and production predictions than other energy sources producing a more consistent supply. Moreover, renewable energy generators must meet grid voltage, frequency, and waveform purity requirements, and must be able to quickly isolate faulty equipment from the rest of the grid. Transmission upgrades are necessary in order to utilize renewable energy sources, yet how these upgrades are paid for can affect how energy companies are positioned in the future. Currently, companies who invest in a transmission upgrade can ultimately be at a competitive disadvantage when another company competes with them utilizing the upgraded system. Canada and several U.S. states are discussing creating an upgraded transmission backbone and distributing the cost among all users to eliminate such competitive disadvantages. Denmark handled this issue by granting open and guaranteed access to the grid, requiring Transmission System Operators to finance, construct, connect and operate the infrastructure to integrate renewables into the exiting power grid. B. Human Dimension/Community Challenges Marine renewable energy projects potentially impact local coastal communities near the project. Issues raised by siting near shore marine renewables include aesthetics or viewshed concerns, and related impacts on coastal property values. The most notable example of these concerns has been expressed by opponents of the Cape Wind wind project, proposed within Nantucket Shoals, off of Cape Cod, Massachusetts, where aesthetic concerns raised by the specter of tall wind turbines visible from the shore has galvanized both opposition to and support for the project. Another key community issue is the potential effects (both short- and long-term) that a renewable energy site will have on existing uses such as shipping, fishing, and navigation. The economic impacts to a coastal community are also a major concern, for it is unknown whether a project will provide a boom and bust employment situation, increase or harm tourism and recreation opportunities for the local community, and otherwise successfully integrate into existing communities. A Danish study on Denmark's two largest offshore wind farms used nearly a decade of data on both pre- and post-construction effects of these projects on the surrounding environment and communities. The report showed that there were virtually no negative impacts on birds, seals or fish. Neighboring coastal communities on a whole supported and positively reacted to the turbines once they were constructed and in view. While communities in the U.S. may react differently, the Danish study may provide useful information for stakeholders and regulators to consider. Two New England states are working to address the larger coastal community planning issues posed by siting renewable energy projects in the ocean. Following the conclusions of the Massachusetts Ocean Management Task Force in 2004 calling for a comprehensive approach to coastal and ocean management, the legislature passed the Massachusetts Oceans Act in The Act requires the Secretary of Energy and Environmental Affairs to develop a comprehensive ocean management plan, incorporating stakeholder input and utilizing an Ocean Advisory Commission which includes an expert in offshore renewable energy, and an Ocean Science Advisory Council. The final plan is due by December 31, 2009, and is anticipated to guide siting of renewable energy projects in Massachusetts waters. To support a goal of obtaining 15% (1.3 million MW-h-per year) of state energy requirements from wind energy resources by 2015, Rhode Island has embarked on a similar comprehensive planning process. The RI Coastal Resources Management Council (CRMC), the state s coastal zone management agency, is developing the Ocean Special Area Management Plan (Ocean SAMP) which will define use zones for Rhode Island s offshore waters through a research and planning process that integrates the best available science with open public input and involvement. The Ocean SAMP will be completed by June To prepare for the future development of an offshore wind farm, the Rhode Island Office of Energy Resources issued a request for proposals in 2008, selecting Deepwater Wind in October, Once the Ocean SAMP is adopted by CRMC, and subsequently by NOAA, the permitting and review process will commence with the selected developer. 5

6 C. Financing and Economic Challenges As an emerging industry, marine renewable energy developers require investment in addition to a predictable regulatory environment in order to develop their products and the market for them. An array of financial vehicles is available to support marine renewable. Many of these have been utilized in other countries in concert with regulations and production goals to support industry development (see Appendix B). Federal and state governments have created public funds, loan guarantees, tax credits and incentives and have set aside earmarked funds for specific renewable energy uses. Federal tax incentives may, however, be too restrictive, applying only to limited offshore projects and too limited to support rapid research and development needs. Other financing mechanisms utilized by some states include renewable energy credits (RECs), renewable portfolio standards (RPS), feed-in-tariffs and offsets. RECs are a tradable unit that represents one megawatt-hour of electricity generated from an eligible renewable energy resource. RECs have been used in Texas for terrestrial wind projects. RECs may enhance public participation in renewable energy projects by permitting the purchase of individual REC units. However, the value of RECs varies across the states and participation is voluntary (both Rhode Island and Massachusetts authorize RECs for offshore energy projects). Some states have also established renewable portfolio standards (RPS) that require electric utilities to generate a certain amount of electricity from renewable sources. The RPSs require a certain percentage of a utility s power plant capacity or generation to come from renewable sources by a given date However, each state has its own standard, although neighboring states may cooperate and form regional RPSs. For example, Rhode Island s RPS requires electricity providers in the state to supply an annually increasing percentage of their electricity sales from renewable resources with an end goal of 16% by the end of This RPS can be fulfilled by either purchasing the required amount through RECs that are supplied through the New England Power Pool Generation Information System or through an alternative payment to the state s Renewable Energy Development Fund. There is no national RPS in place. However, in April 2007, the National Commission on Energy Policy (NCEP) called for a federal RPS aimed at increasing the share of electricity generated by renewable resources nationwide to at least 15 percent by A national RPS could level the playing field by creating consistent, uniform rules and by allowing utilities to purchase standardized RECs and otherwise pursue the development of renewable resources anywhere they are cost competitive. Another option is feed-in-tariffs, where electric utilities are obligated to purchase electricity from renewable energy companies at above market rates set by the government, providing long-term certainty to renewable energy builders and investors. To date the U.S. has only proposed a feed-in-tariff system, but internationally, more than forty-five nations have successfully employed feed-in-tariff programs, including Germany and Denmark. Germany introduced the Renewable Energy Law to promote the development of renewable energy projects, through a system of feed-in tariffs with the objective to increase the amount of renewable energies in the German power supply to 12.5% by Under the German system, anyone generating electricity from solar PV, wind or hydro is guaranteed a payment of four times the market rate for 20 years. The system encourages development in renewables by reducing the payback times on such investments to less than ten years and provides certainty of long-term demand to make it worthwhile investing in new projects. Denmark created a feed-in-tariff which required companies to buy power produced from renewable resources at a rate equal to seventy to eighty-five percent of the consumer retail price. Denmark also established long-term financing to reduce the risks associated with larger renewable energy projects. Focusing more on incentives than preferential rates, the United Kingdom s current national financial incentive for renewable electricity is the Renewables Obligation (RO). Introduced in 2002, the RO requires electricity suppliers in the UK to obtain a specified and increasing amount of their electricity from renewable sources. The predicted 14% of total electricity from renewable sources by 2020 falls short of the European Union s 20 % by 2020 renewable energy target. In an effort to increase this number, the UK is examining alternative financial incentives for renewable energies, including strengthening the RO with an increased obligation and extended end date, or introducing a new scheme of feed-in-tariffs. 6

7 V. CONCLUSION The regulatory framework in the United States governing ocean and tidal energy projects is still developing. As our desire for increased supplies of renewable energy increase, so does the need to have a clear, comprehensive system for developing, financing, and evaluating marine renewable energy projects. Technologies in this growing industry are still evolving, and any regulatory framework needs to be flexible enough to accommodate new innovations. Other countries experiences can provide valuable insight into how a regulatory, financial and energy plan can be designed, and the ongoing planning processes in states like Massachusetts and Rhode Island will be valuable case studies in developing comprehensive ocean plans. The prompt development of an appropriate legal framework and suitable financial incentives will provide a transparent process that will benefit community stakeholders, the emerging industry and regulators. 7

8 APPENDIX A RESOURCES ON MARINE RENEWABLE ENERGY PROJECTS For additional resources, see Resources link at 8

9 APPENDIX B INTERNATIONAL RENEWABLE ENERGY FIGURES Country Total Renewable Energy Capacity Renewable energy Target Incentives Regulations Germany U.S.A. Spain India China Denmark Italy France UK 14% total energy 6.8 Quadrillion Btu. 7% total energy 20% total energy 12.6 GW 8% total energy 37 GW 8% total energy 26% total energy 16% total energy 12% total energy 2% total energy 27% renewable energy by 2020 No federal target. 29 states have targets. 12% renewable energy by GW total by GW additional capacity by 2020 Feed-in tariff, renewable energy sources given grid connection priority Federal production tax credit (PTC), Systems benefit charges (SBC), net metering, Renewable portfolio standards (RPS)(some states) Feed-in tariff Incentives left up to states. Some have feed-in tariff. Others still developing incentives. Subsidies to investors, producers, and users of renewable energy. punish and reward system (fines for not meeting obligations) 29% by 2010 Feed-in tariff, tax exemptions to families (wind turbine cooperatives) 25% total energy by % total energy by % total energy RPS (uses renewable energy credits (REC), green certificates. Feed-in tariff, and tendering system, tax credits RPS (uses renewable energy credits (REC)) Renewable Energy Sources Act (EEG) grid operators obligated to buy renewable energy at minimum price. (operators share costs) Federal (MMS, FERC, NOAA and others). State by state. Renewable energy plan create attractive framework for private investors based on stability and profitability. Renewable energy policy left up to states to implement. States are encouraged to make distributors pay renewable energy fee. Public cost-sharing to develop projects. Government sets targets and develops plans. Systematic public planning (zoning) regulations. Already met Kyoto goal of 18% renewable energy Fixed amounts of electricity from renewable sources must be fed into grid by distributors Energy Act of 2005: Increase use of renewables and grid access. Renewable Obligation (RO) (higher costs for 9

10 Portugal 21% total energy by 2010 Expects to generate 31% of all energy from renewable source by Has already met its 2010 renewable energy targets. No federal target. 9 states have targets Hydro provides 58% of electricity production. Canada Other renewables provide 3-4% of electricity production. NOTE: Total worldwide capacity = 240 GW Feed-in tariff, tendering system, tax incentives, municipalities in which a wind farm is located are given money to minimize local opposition Feed-in tariff (Ontario and Prince Edward Island), government incentive to wind energy companies (1 cent per kilowatt hour produced), tax incentive for renewable energy equipment. renewables). Building codes require certain buildings to install solar systems or other renewable energy source. Environmental impact evaluation required. Regulations to create nation-wide 5 % renewable fuels standard in development. [Province by Province] 10