Ocean Energy Policy

Jennifer StatesProgram Manager, Wind and Water Power Technologies

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Today….

Department of EnergyRole of the National Labs

• Alignment for Success– Science and Policy

Framework

Wind and Water Power Program

• Funding industry, national laboratories and academia to address key issues in offshore wind and water power:

– $90M in funding allocated to offshore wind research and test facilities through ARRA and DOE appropriated funds for Fiscal Year (FY) 2009 and FY 2010

• ARRA: Offshore wind component test centers (U Maine, Mass. Wind Technology Test Center)

– DOE announced funding opportunity and joint strategy with DOI “Smart from the Start” (2/11):

• $50.5 million over 5 years, to develop breakthrough offshore wind energy technology and to reduce specific market barriers to its deployment

• A National Offshore Wind Strategy: Creating an Offshore Wind Energy Industry in the United States

– Marine and Hydrokinetic Power• Enabling R&D for environmental and technological improvements: National

Laboratories• Technology projects:

– SnoPud-tidal, OPT-wave, FFP-hydrokinetic , Dehlsen – ocean current• Resource assessments: Georgia Tech, EPRI• National Marine Renewable Energy Centers

– NNMREC (OSU and UW) and HINMREC (UH)

PNNL Marine & Hydro Kinetic (MHK) Research Activities for DOE-EERE-Water Program • Environmental Impacts & Siting - 3 Step Strategy

– “Smart” searchable data base to organize information on an international level and make it broadly accessible (knowledge management system-dubbed Tethys): http://mhk.pnl.gov/wiki/index.php/Tethys_Home

– Risk assessment tools to determine highest priorities in potential environmental effects (environmental risk evaluation system-ERES)

– Resolve significant issues through R&D directed at critical issues and information gaps (EMF, Acoustics, Energy Removal)

• IEA Annex IV - Assessment of Environmental Effects and Monitoring Efforts for Ocean Wave, Tidal, and Current Energy Systems

• MHK Coastal Marine Spatial Planning (CMSP), Regulatory Analysis, Stakeholder Outreach

• Marine Animal Alert System - Integrated passive acoustic systems to detect Southern Resident Killer Whale and allow for real-time operational response

• MHK Reference Model - Aquatic Animals and Habitats/Waterbodies– Develop baseline cost of energy and evaluate key cost component/system reduction pathways

• Evaluation of MHK Biological Performance for Strike/Collision– Develop a computational tool set to estimate exposure rates and severity of

strike/collision for MHK machines

Siting, Permitting, & Operational Challenges of Offshore Wind Development (DOE: FY10 - FY12)

Project Goal: To resolve key environmental and resource issues in order to enable deployment

Program Focus: Environmental Impacts and Siting; 3 Step Strategy(same as MHK)

– Knowledge management system: Tethys– Environmental risk evaluation system: ERES– Resolve significant issues through R&D directed at

critical issues and information gaps• Environmental monitoring technologies: Thermal

image feature extraction for birds• Reference Facility for Offshore Renewable Energy

Industry Impact: Inform design & permitting of offshore wind farms by:

– Identifying important environmental issues, including regulatory & stakeholder concerns

– Producing the science and engineered systems to address and resolve key issues

– Provide the basis for evaluating mitigation options where impacts are likely

– Improve understanding of wind resource and design conditions (including wave)

Principle Power’s floating offshore wind platform design

Addressing Gaps in Knowledge: Investigate Stressor/Receptor Interactions

• Priority laboratory and field experiments:– High level of uncertainty/high risk interactions

• Acoustic output of wind turbines– Modeling sound overwater and underwater

• Acoustic impact of tidal turbines• Electromagnetic fields from underwater cables• Improved information:

– Add into KMS/Tethys– Improve risk estimates though ERES

Alignment for Success: Science and Policy

Market

Planning

• Private investment uncertain (cost, permitting risk)

• Policy uncertainty: boom and bust• Need long term stability to create

market• Mandates for utilities: RPS, FIT• Incentives for generation• Large federal pool unrealized

• NIMBY / NIMO• Multiple resources, uses, values • New technology: unanswered questions• Multiple regulatory/planning/permitting authorities

• Coastal/marine spatial planning• Renewable energy zones/areas• Strategic environmental assessments

Technology• Early phase technologies create

uncertainty: cost, durability, performance, environmental risk

• Lots of potential; uncertain characterization, realization

• Need R,D &D investment• Testing facilities• Demonstration projects• Monitoring technologies• Targeted research

Questions??

Contact Information

Jennifer StatesProgram Manager, Wind & Water PowerPNNL - Marine Sciences Laboratoryjennifer.states@pnnl.gov360-582-2529

World Offshore Market Evolution

• Europe: 2,946 MW offshore wind in 45 projects in 9 countries

• Europe in 2010: – 308 new offshore turbines installed – worth ~ €2.6 billion– EU turbine manufacturers

accounted for 75% of offshore installations

• Europe 2011 & beyond: additional 50 GW planned or under development

– Offshore sector could employee 230,000 people in UK by 2050 (Carbon Trust analysis)

• China: 142.5 MW installed, 2 GW authorized

– Plan to increase production to 5 GW by 2015 and 30 GW by 2020

Figure credit: NREL

Follow the Leader…UK Marine Energy Landscape• UK leads global ocean energy development:

– 23% of all wave & 27% of tidal developments– 1GW of offshore wind installed in the UK, making it the world’s biggest

offshore wind energy generator

• 30% of UK electricity will need to come from renewables within the decade to meet renewable targets and greenhouse gas reductions

• Renewable energy has attracted £15 ($24.8) billion in investment over the last decade, with at least £100 ($160) billion projected by 2020. Over 1,000 businesses working in the renewables sector

• Renewable Energy Strategy to transform Britain into a low carbon, sustainable economy

– Provides financial support, improvements in planning rules for new projects and transmission, better grid connections, supply chain growth, European Emissions Trading Scheme

– Identified need to invest £15 ($24.8) billion to create new offshore transmission network for wind, wave and tidal generators

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UK Policy Framework• The UK has created an environment where investors are assured of

long term stability and support for the renewables sector; including access to financial and political support

– Renewable Obligation Certificate (ROCs) System: • Obligation for energy suppliers to derive portion of electricity from

renewables• Prime funding mechanism creates guaranteed market and long term

predictability for investors (ROCs extended to at least 2037)– Crown Estate Rounds: Offshore zones identified for the “planning

and tendering” of the right to build wind, wave, and tidal projects.• 32GW of offshore wind in British waters and 6.5GW in Scottish

territorial waters. Up to 50 year leases.• 1.2GW of wave and tidal capacity identified for leasing in Scotland’s

Pentland Firth and waters around Orkney– Feed-in Tariffs for distributed generation

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UK R&D Investments

• Government R&D investments: Over the last decade the UK Government has invested £60 ($96) million in supporting the development of the marine energy sector

– £60 million plan to upgrade ports announced last year by UK Government– £10 million Saltire Prize offered by the Scottish Government to stimulate

commercial wave and tidal technology

• Marine Energy Action Plan provides a blueprint for growth; supported by the Marine Industries Strategic Framework

– Anticipates that the sector will be attracting £4 ($6.4) billion of investment every year by 2050

– RenewablesUK research shows that by 2030 the marine energy sector could be worth £1 ($1.6) billion annually

• Test centers: – European Marine Energy Center (EMEC) in Orkneys for wave and tidal– Wave Hub in Cornwall: grid connected, wave array demonstration– National Renewable Energy Center (Narec) in Blyth, Northumberland:

grid connected offshore wind test site

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Planning: Data Gathering• Strategic Environmental Assessments – SEA

– SEA used by many European governments, Canada and New Zealand for MHK and offshore wind (some east coast states have commenced a similar process for offshore wind).

– Upfront knowledge of what marine resource may be at risk in certain location can serve to reduce permitting timelines, and reduce risk for projects.

– Strong public interest in knowing what marine resources may be at risk from development of offshore wind/MHK

– Used primarily by national governments to determine where ocean energy development should occur; process similar to CMSP

– Provides baseline assessment data for offshore wind & MHK, ~micrositing

•  COWRIE (Collaborative Offshore Wind Research Into The Environment) – Set up by UK Crown Estate in advance of offshore wind development to carryout

key research that supports OW siting, permitting and development.– Funded by pooling deposits from offshore wind developers – upfront contribution

for each of three existing leasing rounds – in the order of £ 300K to £ 500K –developers also pay Crown Estate annual leasing fees if they are granted lease.

– To date, COWRIE has provided some of the best offshore wind environmental research in the world.

– COWRIE recently disbanded and duties taken over by UK National Environmental Research Council.

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US Wind Market Status & Projections

• Land-based wind – US– 40 GW in 2010– $20 B invested (09)– 85,000 workers (09)– DOE target of 251 GW by 2030 @ 7 ¢/kWh

• The US is well behind China and Europe: no U.S. offshore projects– Siting, permitting & investment bottlenecks – 7 to 9 years!– Infrastructure & transmission challenges– All offshore turbine manufacturers European or Chinese

• GE just announced plans for a 5 MW offshore machine

• Offshore wind potential– ~20 projects representing 2.4 GW in planning and permitting stage– Mostly in Great Lakes, Northeast and Mid-Atlantic. Some proposals for

Gulf of Mexico, and Pacific Coast. – DOE target of 54 GW by 2030 @ 7 ¢/kWh (>20 ¢/kWh now) – 22 jobs/MW (Siemens estimate)

"Wind power isn't the silver bullet that will solve all our energy challenges—there isn't one. But it is a key part of a comprehensive strategy to move us from an economy that runs on fossil fuels to one that relies on more homegrown fuels and clean energy.“ --President Barack Obama, April 2010

China’s Investments in New Clean Energy

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US

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Bloomberg New Energy Finance

• Cape Wind (MA) offered first commercial lease by DOI (April 2010)– 9 years in permitting process– Siemens' just announced it is offering financing– Still need PPA for ½ of project and address lawsuits

• Department of Interior’s Bureau of Ocean Energy Management (BOEM): – U.S. Outer Continental Shelf (OCS) renewable energy regulatory framework– Atlantic Offshore Wind Energy Consortium– Smart from the Start Initiative: Designated Wind Energy Areas

US Offshore Wind Progress

• Google/TransElect backbone, Atlantic Wind Connection, announced 3/11

• $5B transmission backbone 20 mi offshore from NJ to VA – 2015

• Network the DOI Mid-Atlantic offshore wind development zones

• Filed the 1st ever unsolicited right-of-way application with BOEM

Primary Federal Incentives

• Production Tax Credit (PTC) – 2.1 cents/kWh for 10 years

• Investment Tax Credit (ITC) – 30% of capital costs of project (depreciable items)

• Section 1603 Payment in Lieu of Tax Credits (ITC/Treasury Grant)– Project must commence construction by end of 2011, and complete

by credit expiration date• ITC/PTC/ITC grant expiration dates:

– 1/1/2013 for large wind, 1/1/2017 for small wind (100 kW)

• Modified Accelerated Cost-Recovery System (MACRS) + Bonus Depreciation:

– Immediate tax write-off for capital cost of depreciable property– Property placed in service before January 1, 2012 qualifies for 100% first-

year bonus depreciation– For 2012, bonus depreciation is still available, but the allowable deduction

reverts from 100% to 50% of the eligible basis

• Offshore wind/MHK eligible for all, but existing deadlines raise uncertainty on ability of offshore industry to utilize:

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Policy Proposals

• Marine and Hydrokinetic (MHK) Renewable Energy Promotion Act of 2011H.R. 2994, the Marine and Hydrokinetic (MHK) Renewable Energy Promotion Act of 2011, introduced on September 21st by Congressman Jay Inslee (D-WA) with the support of co-sponsors Congressmen Ted Deutch (D-FL) and Don Young (R-AK), was referred to the House Subcommittee on Energy and Environment on October 5th. The bill mirrors S. 630 that is co-sponsored by Senator Ron Wyden (D-OR).Congressmen Earl Blumenauer (D-OR) and Peter DeFazio (D-OR) additional co-sponsors

H.R. 2994 would authorize the continuation of funds for the Department of Energy's Water Power program's MHK research, development, and deployment initiatives. Follow our colleagues at Ocean Renewable Energy Coalition for real-time updates.

The federal fiscal year 2012 budget process is well underway with both the respective Subcommittees of the Senate and House Appropriations Committees advancing their versions of the Energy and Water Appropriations bill. This bill will provide the funding for the Department of Energy's Water and Power program. The House version of the bill would provide $50 million in fiscal year 2012 split evenly between conventional hydropower and hydrokinetic. The Senate version of the bill includes $34 million for hydrokinetic energy with $10 million set aside for national test facilities. The bill is now being negotiated between the Senate and the House. It is likely that the bill will be rolled into a larger spending package with either most of the spending bills (omnibus bill) or with a couple other spending bills (minibus). One other potential is a long term continuing resolution that would set funding levels for 2012 at a previous year's funding.

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State Policy Leaders• OR

– OWET, BETC

• NJ– Upfront environmental reviews: 2-year evaluation of environmental impacts to

expedite future environmental impact statements (Wissemann 2010). – Offshore RPS carve-out

• New Jersey Board of Public Utilities to develop an offshore renewable energy certificate program with a % based standard to support at least 1,100 MW of offshore wind energy capacity (DSIRE 2010a).

– The solar carve-out has created a market for certificates with compliance payments in the $600-$700/MWh range (ICAP 2010).

– Financial incentives for manufacturing & projects

• Maine– Legislature established one-stop permitting for offshore wind & MHK, within state

marine resource agency– State partnering to collect data on OSW resource assessment and environmental

baseline with Ocean Observing System (IOOS), using IOOS assets including buoys and vessels. IOOS is federal program lead by NOAA, US Navy, to collect ocean data.

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State Policy Leaders

• Virginia– IOU receives 3X credit for offshore wind for meeting state’s voluntary RPS goal– The Virginia Coastal Energy Research Consortium

• Feasibility-Level Design & Economic Assessment for hypothetical offshore wind farm• Preliminary Mapping of Offshore Areas

– Virginia Offshore Wind Development Authority (VOWDA)• Corporate and a political subdivision of the Commonwealth• Collect meteorological, oceanographic, avian, and marine environmental data

– Ensure that offshore wind development is compatible with other ocean uses– Can apply for Section 238 (research) leases in federal waters for met tower installation or

other research projects• Adjacent IOUs to initiate transmission study & report to VOWDA; as well as report on

the appropriate placement for new or upgraded towers for the collection of meteorological & oceanographic data

• Establish public-private partnerships for the upgrade of port facilities & other logistical equipment & sites for manufacturing & assembly of project components & vessels

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Department of Interior designated areas for initial OSW development

• Majority within 30m depth – monopoles

• Some areas to 45m – jacketed foundations

• Deeper Atlantic and almost all of Pacific coast greater than 60m – floating platforms

• Challenges:– Baseline assessment of

migratory animals (seabirds, marine mammals, sea turtles)

– Post-installation monitoring: lack of technologies

DOI Smart from the Start approach uses identified Wind Energy Areas to focus coordinated environmental studies, large-scale planning, and expedited approval processes to speed offshore wind energy development

Removing Barriers for Renewable Energy

• Ensure investment portfolio– Set aggressive mandates for regional generation– Align incentives with mandates

• Maximize access to resources– Ocean/coastal planning for energy generation/transmission– Align supporting infrastructure/capability capacity with industry needs– Regional R&D platforms– Provide certified systems for sustainable operation

• Reduce cost of generation– Increased operational efficiency– Reduced cost of deployment/maintenance

Alignment for Success

Capital

Policy

• Private investment uncertain (LCC, environment)

• Large federal pool (RES, carbon legislation) unrealized

• No guide to who/what/where

• Mandates on power producers• PTC uncertain• Relict environmental legislation• NIMBY effect high

Technology

• Lots of potential• Uncertain characterization• Early phase technologies• Unsystematic (niche

approach)

References and Resources

• Bolinger, M., R. Wiser, Karlynn Cory, Ted James. 2009. “PTC, ITC, or Cash Grant? An Analysis of the Choice Facing Renewable Power Projects in the United States.” LBNL-1642E. Berkeley, Calif.: Lawrence Berkeley National Laboratory. http://eetd.lbl.gov/EA/EMP/reports/lbnl-1642e.pdf

• Bolinger, M. “Revealing the Hidden Value that the Federal Investment Tax Credit and Treasury Cash Grant Provide To Community Wind Projects.” Lawrence Berkeley National Laboratory. January 2010. http://eetd.lbl.gov/ea/emp

• www.dsireusa.org: National Database of State Incentives for Renewable Energy (DSIRE)

• www.windustry.org: Windustry

• www.ucsusa.org: Union of Concerned Scientists

• www.awea.org: American Wind Energy Association

• www.nationalwind.org/publications/state.htm: National Wind Coordinating Collaborative

The Challenges - Project Financing

• Difficult for local investors & community-based entities to take full advantage of PTC

– Passive credit/loss limitation for ITC & PTC often do not allow for utilization of the full value of tax benefits

• Owner/operator requirement for PTC– 3rd party financing: partnership flip structures with tax equity investor– Sale lease-back not allowed for PTC

• Projects often require a combination of incentives, suitable business structure, low-cost capital, & additional state support

– Haircut provisions: PTC reduced by govt grants & subsidized low-interest loans

• Competing with large project developers – Limited access to financing, especially for small projects (higher transaction costs)

• Small # of investors even before “Great Recession”: tax equity investors dwindle from 20 in ‘07 to 5 in early ‘09.

• Many big developers can provide financing themselves– Access to capital for pre-development costs challenging for smaller players

Additional Federal Incentives

• Residential Renewable Energy Tax Credit:– Personal tax credit of 30% of qualified expenditures for a system that serves a

dwelling unit located in the US and used as a residence by the taxpayer.

• Clean Renewable Energy Bonds (CREBs): – Designed for non-taxable entities that cannot receive the PTC or ITC as an

alternative to REPI (Renewable Energy Production Incentive). – Eligible entities: muni/cooperative electric companies, state/local government – The allocation is based on smallest to largest dollar amount.– The Recovery Act increased the CREBs allocation from $800 million to $1.6 billion. – Application deadline has expired.

• USDA Grants/Loans• Small Business Innovation Research (SBIR) and Small Business

Technology Transfer (STTR) programs: – DOE awards funding to small businesses for renewable energy research and

development projects through SBIR/STTR.– Small businesses that win awards in these programs keep the rights to any

technology developed and are encouraged to commercialize the technology. – DOE offers annual solicitations, typically in early October, inviting small

businesses to apply for SBIR/STTR grants on a variety of energy topics.

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