Maryland offshore wind plan likely to pass, but will it be built?

By Aaron C. Davis, The Washington Post
Posted Feb. 05, 2013, at 6:19 a.m.

After years of trying, Maryland Gov. Martin O’Malley is poised to win approval from state lawmakers in the coming weeks for a field of towering windmills in the Atlantic Ocean.

But the tortured process of garnering support has left O’Malley, a Democrat, with a project so small — one able to generate just half the energy of a single power plant — that developers and banks probably won’t take the financial risk, experts predict.

That would leave Maryland in the same position as several other states, including Virginia, whose plans for offshore wind projects have been stalled by bureaucratic, financial and legal challenges. So far, not a single wind farm has been built in the Atlantic, although at least six have been proposed.

At the end of January, the Maine Public Utilities Commission voted 2-1 to allow Statoil North America to move ahead with plans for an offshore wind energy pilot project in federal waters off the coast of Maine.

In Maryland, developers say they don’t think they could get necessary financing because the project would be too costly, given its reduced size and the scaled-back subsidy from Maryland households.

Peter Mandelstam, a leading offshore wind developer, said that despite O’Malley’s commitment, the finances of the governor’s plan “may make it difficult or, in a worse-case scenario, impossible to build a project off the coast of Maryland.”

Nationally, offshore wind energy has for years drawn widespread support among environmentalists and others who argue that it is a sustainable alternative to coal and gas. But it has proven enormously difficult to get the nascent wind industry up and going.

In Virginia, the state legislature in 2010 established an offshore wind development authority, but no subsidy program. The federal government expects to soon auction off an area about 27 miles off of Virginia Beach for turbines. But without billions in tax incentives or a subsidy to get the project rolling, regulators expect it will be a decade before a project comes to fruition.

O’Malley has rejected dire predictions that Maryland’s offshore wind project never will be built and has continued to push for the legislation.

But in announcing his third attempt to pass offshore wind legislation late last month, he acknowledged the difficulties that remain to turn his vision into a reality.

“There’s a saying in the Quran that everything is possible in God’s time, but nothing is for sure,” he said in response to a question about whether the project could begin in 2017, as his bill allows.

To win support from some lawmakers, O’Malley has embraced a financing model involving renewable energy credits that is unproven in the risky realm of offshore wind. To win over others, he has limited the cost of the subsidy to about $1.50 a month per household. The subsidy will amount to $2.5 billion over 20 years.

Developers and industry analysts say those and other concessions will make the project reliant on further federal tax incentives or help from other states to make the project profitable.

O’Malley’s initial plan, introduced just weeks after he was decisively re-elected in 2010, drained some of the early momentum from the start of his second term when lawmakers declined to even bring it to a vote.

Analysts said at the time that the governor’s proposed subsidy to the industry would have cost ratepayers twice as much as his staff had suggested to lawmakers.

Coming from O’Malley, who first won the governor’s office on a promise to lower residents’ electricity bills, the rate hike was seen as a reversal. Lawmakers also grew skeptical after learning O’Malley’s former chief of staff was involved in one of eight bids to become the developer and get the subsidy.

To assuage concerns raised by utilities, O’Malley jettisoned a revenue model that banks rely on to fund nearly all onland U.S. wind energy projects: a process that requires energy providers to purchase wind energy at a price set high enough for developers to turn a profit.

Maryland instead would insert itself in the process of buying and selling renewable energy credits, a subsidy method largely untested on such a large scale.

In addition, to secure what might be crucial votes from a handful of black lawmakers, the governor added millions in costs to help minority businesses gain a foothold in the industry.

At a news conference O’Malley called last month to announce his latest legislation, the governor painted a picture of a field of giant windmills, each as tall as the Washington Monument, rising 10 miles off the coast of Ocean City.

The site of the windmills — the tips of which might barely be seen from shore — would become a bustling construction site, employing more than 800 people. When built, he said, it would be like a gleaming beacon for the state’s fight against climate change.

But when pressed by reporters, O’Malley acknowledged that he is now less idealistic that offshore wind development could begin as quickly as he hoped.

The governor also said that, given the apparent need for the industry to develop big projects that can gain cost advantages with size, he no longer was certain any state on its own could succeed in spurring development of offshore wind energy.

“I don’t believe any one state can do this by itself,” O’Malley said. “Quite frankly, it will be very difficult” for a developer to meet the constraints set out in Maryland’s bill, he said.

Still, before the bill’s first hearing Tuesday, O’Malley cast in grand terms the need for the subsidy and for the state to take a risk on green energy. He said the science of climate change shows it will be necessary for human survival.

“I do know this,” O’Malley said. “If we do nothing, large chunks of Maryland will be under water in the foreseeable future. There will be drought, there will be famine and human pain, suffering and displacement — that’s the one thing we really do know for sure; 98.99 percent of all scientists agree.”

Massachusetts approved a wind project off the coast of Cape Cod in 2010, but the development has been fiercely opposed by some residents and remains tied up in lawsuits. Delaware, Rhode Island and New Jersey also have approved state incentives.

In Delaware, a contract that Mandelstam won fell through last year when his company could not secure financing. Rhode Island hopes to complete a demonstration project by next year. In New Jersey, a small project slated as a precursor to a 1,000-megawatt wind farm also remains tied up in regulatory issues.

O’Malley’s new bill is modeled after the one approved in New Jersey.

Abigail Hopper, O’Malley’s energy adviser, said many of the ambiguities that have led to years of delays in New Jersey have been addressed, so Maryland should be able to move quickly.

Yet Hopper readily acknowledges that she and others in O’Malley’s administration also keep an eye on Capitol Hill, hoping a plan pushed by Sen. Tom Carper, D-Del., could cut out some of the guesswork that so far has made private investment in offshore wind a risky business. Carper’s plan would cement the industry’s current 30 percent tax break until the first offshore wind farms are built.

“We need to provide the certainty to get these projects started,” Carper said. “After that, the industry is on its own.”

 

http://bangordailynews.com/2013/02/05/business/maryland-offshore-wind-plan-likely-to-pass-but-will-it-be-built/ printed on September 21, 2014