Wind Farm Alternatives For Offshore Fishing on Long Island - Part 1

Transcription

1 Long Island s Offshore Wind Farm David Tobias Project Evaluation

2 Tobias 1 Executive Summary In order to meet New York s goal of having 25% of its energy produced from renewable sources, the Long Island Power Authority (LIPA) has proposed a 100MW offshore wind farm. Composed of turbines, the energy from the wind farm would help to add critically needed energy for Long Island s growing demand. The desire for wind power on Long Island has been spurred on by the terrorist attacks of September 11, 2001 which has led to a desire for energy independence and less need to import foreign oil. The project is currently in the proposal phase when LIPA is decided which developer it will choose to construct and operate the wind farm. The offshore wind farm would be the first of its kind in North America and if it is successful, there could be a massive movement toward offshore wind farms around the United States. The lack of similar projects leads to some difficulties in determining how long the process of environmental studies and regulatory permitting will take. If the project is completed on schedule it would be a signal to other developers and power companies that the idea is feasible and economically sound. However, it would be best to wait for the final decisions to be made by LIPA before issuing a judgment on the project because many aspects of the design, financing, construction, and placement of the wind farm are left to the developer s discretion.

3 Tobias 2 Table of Contents Offshore Wind Power Energy in New York and on Long Island LIPA Proposal Project Costs and Revenues Financial Analysis Impacts of the Wind Farm Future Status and Suggestions References

4 Tobias 3 Offshore Wind Power Wind is a form of solar energy, created by the uneven heating of the earth's surface by the sun, and the earth's rotation. It is a renewable resource, nonpolluting, and abundant in many areas of the world [1]. Wind has been harnessed as an energy source for thousands of years, to propel boats, help in irrigation projects, pump water from the ground, and grind grain. Within the last several decades, wind has been used to generate electricity. There have been two main periods of intense interest in wind energy in the United States [2]. The first period was during the energy crisis of the 1970s when the price of imported oil rose dramatically. With the fear that the prices would remain high, researchers began to seriously investigate the potential of renewable energy sources such as solar, hydroelectric, geothermal, biomass, and wind [3] Wind power was studied in great depth due to the availability of wind and the relative ease with which the energy can be extracted and turned into electricity. The use of offshore locations can even improve upon the general characteristics of wind energy because winds over the ocean frequently reach higher speeds, are less turbulent, and there are no landforms that block access. Unfortunately, there is a rather expensive cost of transporting the electricity, typically by cable, from the offshore site to the onshore power grid where it can then be distributed to consumers [4]. Offshore wind farms have become most common in Europe, which is being led by Denmark, the Netherlands, and the United Kingdom. Denmark plans to generate 40% of its electricity from wind plants, mostly offshore, by The technological advances and experiences of constructing offshore wind farms have allowed them to become more competitive economically with fossil fuels and land-based wind farms. The expectation is that the costs will drop by approximately 50% over the course of the next ten years [4].

5 Tobias 4 Despite these advances in Europe, the offshore wind resource has remained untapped in the United States, largely due to the size of the United States compared to the small European countries where land is very limited. Studies have been conducted analyzing the potential for wind power in the United States lead to the creation of a Wind Resource Map for the United States, shown in Figure 1. Many of the sites rated highly on the resource map have been targets for the placement of wind farms, both land-based and offshore. One interesting area is near Cape Cod, Massachusetts which is the site for a proposed offshore wind farm. Long Island is another location where a proposal was made for an offshore wind farm. Figure 1: Wind energy resource map of the United States [5]

6 Tobias 5 Energy in New York and on Long Island The United States as a whole generates nearly 52% of its electricity from coal, 20 % from oil and gas, 20% from nuclear power, and the rest from a combination of hydroelectric and other energy sources [6]. Due to the heavy dependence on fossil fuels, as the domestic resources of coal, oil, and gas decrease, more imports of foreign oil and gas are required to make up the difference. This is especially true in New York, which is 85% dependent on foreign oil, compared to 62% for the nation [7]. Historically, jumps in the prices of imported oil and gas have led the United States to search for alternative energy sources. Until about 1980, the most prevalent alternative energy choice was nuclear power and its success can be seen by the large percentage of electricity still produced by from nuclear power plants. Billed as a resource that would be too cheap to meter, it was thought that nuclear energy would completely replace fossil fuels for energy production. Unfortunately, the incident at the Three Mile Island nuclear facility in Pennsylvania brought a dark cloud over the nuclear power industry in the United States. As a result, when an attempt was made to construct a nuclear plant on Long Island from the 1960s through the 1980s, public disapproval eventually led the plant to be shut down just prior to becoming operational. In order to pay off debts, the local power company, the Long Island Lighting Company (LILCO), raised rates to the highest in the nation [8]. Following September 11, 2001 there were movements to shut down nuclear power plants in New York due to the fear of a nuclear catastrophe if a plant was attacked by terrorists. This has essentially squashed the hopes of reinvigorating the nuclear power industry in the United States. Therefore, other alternative energies, particularly wind power, have become a leading choice as the energy source of the future. One of the primary advantages of renewable energy sources is that they will never run out. Wind energy in particular is a free resource and no matter how much is used today, there will always

7 Tobias 6 be a supply in the future. In contrast to conventional fossil fuel power plants, wind energy is clean, non-polluting, and do not emit greenhouse gases. Therefore, the use of wind energy eliminates many of the externalities associated with fossil fuels by eliminating the trade deficit associated with importing foreign oil, the health and environmental costs of pollution, and the opportunity cost of depleting resources. Economic analyses have also shown that per dollar invested, wind energy provides more jobs than any other energy technology, reaching a level more than five times that of coal or nuclear power [9]. Wind energy is a very abundant resource in the United States. The wind resource map shown in Figure 1 characterizes different areas of the country based upon their wind power density by establishing classes, 1 to 7, to identify different levels of average annual wind speed. Good wind resources are generally considered to be class 3 and above, at least 13 miles per hour. One example of the potential of wind energy is that if the wind energy class 4 and above of North Dakota were fully harnessed, there would be enough energy to supply 36% of the electricity required by the lower 48 states [9]. While wind energy is a more environmentally friendly resource compared to fossil fuels, there are still impacts from wind farms. The main concerns focus on the effects of the noise produced by the turbines, the visual impact, and how the presence of the turbines may disturb the habitats of birds and other wildlife. In the case of offshore wind farms, the effect on fish, shipping, and local industries like fishing have also been seen as receiving negative impacts. However, most of these problems have been dealt with by technological advances and by studying where the wind farm should be sited. The effects on wildlife are still not well understood although studies on avian impacts show that the presence of wind farms is usually not statistically significant for the bird populations.

8 Tobias 7 LIPA Proposal In April 2002, the Long Island Power Authority announced its intentions to develop a 100MW wind farm off the south shore of Long Island capable of supplying power to 30,000 homes by the time of its commissioning in The announcement coincided with the release of a preliminary assessment of Long Island s offshore wind energy potential. LIPA has proposed the construction of a wind farm off the south shore of Long Island. The area is approximately three miles from shore and it displays characteristics of class 3, 4, 5 and 6 power densities. Generally, the higher wind speeds occur further away from the coast, as shown in Figure 2. Figure 2: Wind resource map of Long Island offshore waters at a 213 ft (65 m) hub height [10] The offshore potential is much more likely to take hold because land-based options would face stiff competition for land usage. LIPA s Phase 1 assessment found a 314 square mile area which

9 Tobias 8 fit the criteria of being beyond the state 3 mile territorial limit, less than 100 feet of water depth, and having an average wind speed of 18 miles per hour at the projected turbine hub height of 65 meters. LIPA s Phase 2 assessment determined the best location within the Phase 1 area based upon the technical feasibility within the desired timeframe, a low level of environmental impact, reasonable opportunity for public acceptance, minimized construction costs, and the ability to efficiently deliver the electricity to Long Island s transmission system. The final siting area is 52 square miles and is located 2.5 to 5.5 nautical miles offshore and the actual project will probably encompass only 5 square miles. The final 100MW project, based on the existing wind speed calculations, will be able to produce 300,000 megawatt-hours per year [11]

10 Tobias 9 Project Costs and Revenues Financial Analysis This section provides the information used in studying the Long Island offshore wind farm project. It is comprised of cost breakdowns taken from similar projects in Europe, as well as research on some of the fundamental costs involved in all offshore wind farms and some landbased systems as well. By then scaling these costs and applying them to the particular project that LIPA has planned allows for an approximation of the costs associated with the project. This analysis does not examine major variations on LIPA s plan to determine a best plan, but it does look at the main factors that will determine profitability. Table 1: Criteria used for the base case cash flow model

11 Tobias 10 Figure 3: Graph of the net cash flows and discounted net cash flows over the life of the project.

12 Tobias 11

13 Tobias 12 The approximations presented in Table 1 represent the base case for the project and yield a net present value of $1.74 million as seen in Figure 4. A base case allows for sensitivity analysis to be performed. The sensitivity analysis allows the developer to understand which aspects of the project have the greatest effect on its net present value. The analysis, displayed in Figure 5, shows that the project is most sensitive to the large components of construction like turbine cost and installation, expectations about the risk of the project represented by the discount rate, and the components of revenue shown as the price of electricity and the amount of energy produced. Another method of testing the model of costs and revenue is to develop scenarios and see the effect on the projects net present values. This was used in Table 2. Figure 4: Sensitivity analysis of the basic cost and revenue parameters Table 2: Scenarios involving pessimistic and optimistic conditions

14 Tobias 13 Impacts of the Wind Farm The demand for electricity on Long Island has grown tremendously during the 1990s and early 2000s. In order to meet the growing demand LIPA has constructed several oil and gas electric generation plants on Long Island. However, this will not be enough to continue to meet future demand. LIPA views the harnessing of wind energy as playing a critical in the future of Long Island. The wind farm is also part of a statewide initiative to have renewable energy sources supply 25% of the state s electricity by 2013 [17]. The installation of the wind turbines rather than fossil fuel plants will prevent the production pollutants and greenhouse gases. The fully operational wind farm will eliminate 663,000 pounds of nitrogen oxides, 1,668,000 pounds of sulfur dioxide, and 454,200,000 pounds of carbon dioxide each year [11]. Perhaps the most important benefit on the project would be a growing sense of energy independence, particularly if the use of wind energy increases dramatically. The movement to be less dependent on imported foreign oil is a powerful benefit that can not be disputed and seems to be very important in the eyes of LIPA as well as the local, state, and federal governments. Some of the other benefits that the LIPA study has suggested are the employment opportunities associated with the construction of the wind farm and then its operational lifetime. As the first wind farm in the United States, the turbines could possibly draw more tourists to the area. Also, since it is placed away from main commercial fishing areas, the effect on recreational fishing can be tremendous. By sinking the foundations of the turbines into the seabed, the structures can serve as artificial reefs attracting fish and a wide array of marine life. Due to the nature of the project, there are several risks and uncertainties involved in its completion. Perhaps most importantly, no offshore wind farms have been constructed yet in

15 Tobias 14 North America. Therefore, there is no real model to see how long a regulatory and permitting process might take. LIPA tried to account for this problem by deciding that the wind farm should be sited at least 3 miles from the shore. This would be beyond the state territorial limit, allowing much less permitting to be required. While some people on Long Island have claimed that this is being done to limit environmental oversight and oversight of other parts of the construction process, however it would hopefully make the process less confusing and less complex for the company that wins the bid to build the wind farm. Another major source of uncertainty seems to be the heavy reliance on future technological advances. Most of the offshore wind farms constructed in Europe have been built at shallow depths, typically less than 50 feet. The LIPA proposal has allowed for construction in up to 100 feet of water which depends heavily on major technological advances in the next five years [11]. An added uncertainty stems from the fact that most of the currently operating offshore wind farms in Europe have only been in use for about ten years at the longest and it is unclear if they may begin to break down in the second half of their proposed lifetimes. These older wind farms also tend to have a much lower capacity and many fewer turbines [12]. The reliance on future technology also has a significant financial impact because much of the assessment of the wind energy potential is contingent on a reduction in the cost of produced electricity from wind energy of about 40-50%. There is also a degree of risk involved in the construction of the wind farm. If studies of the seabed and other critical issues are even slightly inaccurate, it could cause massive increases in the costs to install the wind farms. Potentially, it could also extend the time needed to install the turbines as well. LIPA s studies tried to deal with this issue by using other companies to perform detailed analyses to determine the best possible site for the wind farm.

16 Tobias 15 The method by which the project is financed could also play a critical role in its development and construction. New York has passed legislation that set aside close to $200 million for renewable energy projects throughout the state. However, based on my research it remains unclear how this particular government funding or potentially other funding might be used to help finance renewable energy projects. In recent press releases from LIPA, they have stressed the necessity to increase Long Island s energy production and the past few years have seen frequent construction of projects that use fossil fuels for energy. There is also part of a national movement to alleviate the dependence of the United States on imported foreign oil, particularly from the Middle East. This means that the government should probably help to fund the offshore wind farm project in order to jumpstart the technology. LIPA, in its reports, has said that the companies offering proposals must be responsible for developing their own financing but it remains to be seen how that will actually be accomplished. A further factor that could affect the project is the price that LIPA will be willing to pay to purchase energy and the cost to produce the energy. Currently, LIPA is expecting the price of producing wind energy to be reduced greatly, from their current estimates of $.06-$.09 per kilowatt-hour to $.04-$.06 per kilowatt-hour. This could have a tremendous impact because if LIPA predicts that the prices will fall greatly they may set that as the price they are willing to pay, but any of the other risks and uncertainties associated with the project could force the company that builds the wind farm to charge a much higher rate to cover their own costs The risks associated with natural disasters could also have a great impact on the costs of the project. If during construction, hurricanes hit Long Island, it could increase costs and during the life of the wind farm, similar incidents could increase the operating and maintenance costs, possibly making the project prohibitive to keep on line. The siting studies addressed this issue by

17 Tobias 16 examining the paths of hurricanes to determine the place least likely to be hit by a major hurricane. The results of this attempt are shown in Figure 6. Other ideas considered in the siting study are the location of commercial shipping lanes, in Figure 7, avoiding cables and pipelines, in Figure 8, and remaining outside the suggested buffer area for birds on Long Island, Figure 9. Figure 5: Tropical storm and hurricane tracks, Figure 6: Commercial fishing lanes from New York Harbor

18 Tobias 17 Figure 7: Cables and pipelines near the proposed wind farm site Figure 8: Avian buffer areas

19 Tobias 18 The risks and uncertainties mentioned above could be contentious issues as the process of designing and constructing the wind farm proceeds. Other aspects of the project that may have a negative effect are the visual impact of the wind farm and the possible dangers to wildlife. Approximately three miles from shore, the proposed wind farm will not have a very large visual impact. As can be seen in Figure 10, the turbines themselves are relatively small on the horizon. Also, from experience gained in Europe, techniques such as paint schemes and the layout of the wind farm itself have been able to reduce the visual profile. Further, the lands directly north of the wind farm are primarily publicly owned beaches in the form of local, state, and national parks. Therefore, any potential effect on property values is almost entirely negated. Figure 9: Photosimulation of the view from Jones Beach to the offshore wind turbines The danger to wildlife, especially birds, has become a key issue in the future development of wind energy in the United States. Numerous studies have been conducted and none have shown a significant impact of wind farms on avian populations. LIPA commissioned a study that looked at the possible effects on different types of birds and in most cases the analysis showed a lack of ecological significance. The most important aspects are the study were

20 Tobias 19 the impact of the initial phase of construction and its short term results as the turbines are constructed and examining the long term effects of the operational turbines. In most cases the presence of the turbines is able to deter birds from approaching the wind farm. New designs for the turbine towers have eliminated the presence of nesting sites so there is even less incentive for birds to venture into wind farms. The long term effects are still not entirely predictable due to the varying nature of the proposed site near Long Island and the other sites that have been studied around the world [18]. Another major critique of the wind farm comes from critics of wind energy itself. They believe that market should determine what energy sources are used and they feel that the government assistance being given to renewable energies such as the right to use five year MACRS depreciation and a $.015 per kwh production tax credit. These opponents of renewable energy argue that until source like the wind become inherently competitive with fossil fuels, they should not be used. The common counter argument is that the fossil fuel industry is so entrenched in American society through the presence of a well-established infrastructure and government lobbying organizations that government assistance of renewable energies will allow them to become more competitive at a much faster rate since it will encourage innovations.

21 Tobias 20 Future Status and Suggestions The project is still in its very early phases and LIPA just finished receiving proposals from developers on May 1, LIPA s goal is to award the project to a developer in September 2003 and have the wind farm operation by the end of I believe there is a very bright future for offshore wind energy in the United States. Many Americans have become more concerned about the environmental consequences of the continued use of fossil fuels. The critical problem is determining how much people really want a more environmentally friendly energy source and the tradeoff with potentially higher electricity rates. Also, as efforts to construct an offshore wind farm in Massachusetts have stalled, the LIPA project may serve as the model for the rest of the United States [17]. In this respect LIPA is taking the proper approach in only wanting to build a 100MW wind farm rather than going for a vast wind farm. In the past, Long Island s energy companies have disregarded public opinion with disastrous results. It seems that LIPA has learned from these mistakes and is starting off with a smaller scale project to test the level of public support. LIPA has also maintained consultation with citizens groups and environmental groups in order to avoid alienating potential adversaries. The level of support from the government, in the form of the production tax credit and depreciation methods, will be critical in maintaining the project s economic feasibility. I would propose that other utility companies interested in offshore wind energy should LIPA s lead, particularly in the location chosen for the wind farm. Placing the wind farms off the coast of public beaches will eliminate a lot of the not in my backyard and not in my beach view complaints that many people have about many projects.

22 Tobias 21 References 1. Thresher, Robert W. and Susan M. Hock. "Wind Systems for Electrical Power Production." Mechanical Engineering. August 1994: Rogers, A.L., J.F. Manwell, and J.G. McGowan. A Year 2000 Summary of Offshore Wind Development in the United States. Energy Conversion and Management. Vol. 44 (2003) U.S. Department of Energy. Energy Efficiency and Renewable Energy Pelc, Robin and Rod M. Fujita. Renewable Energy from the Ocean. Marine Policy. Vol. 26 (2002) National Wind Technology Center. Wind Resource Energy Information Administration. Electric Power Annual 2000 Volume 1. August New York State Energy Research and Development Authority. Patterns and Trends New York States Energy Profiles: December Fagin, Dan. Newsday Lights Out at Shoreham U.S. Department of Energy Wind Energy Program. Quick Facts About Wind Energy AWS Scientific, Inc. Long Island s Offshore Wind Energy Development Potential: A Preliminary Assessment. April 2002.

23 Tobias AWS Scientific, Inc. Long Island s Offshore Wind Energy Development Potential: Phase 2 Siting Assessment. January 21, Ackermann, Thomas and Lennart Soder. An Overview of Wind Energy-Status Renewable and Sustainable Energy Reviews vol.6 (2002) Henderson, Andrew, Colin Morgan, and Bernie Smith. Concerted Action on Offshore Wind Energy in Europe. British Wind Energy Association Conference Milborrow, D. Wind Energy Technology The State of the Art. Proceedings of the Institute of Mechanical Engineerrs. Vol 216 Part A: Journal of Power and Energy Cockerill, T.T. et al. Combined Technical and Economic Evaluation of the Northern European Offshore Wind Resource. Journal of Wind Engineering and Industrial Aerodynamics. Vol 89 (2001) U.S. Department of Energy. Financial Incentives for Business Investments in Renewable Energy McGinty, Tom. LIPA Seeking Developers for Windmill Farm Newsday. January 23, Curry and Kerlinger, L.L.C. Desktop Avian Risk Assessment for the Long Island Power Authority Offshore Wind Energy Project. November