June 2008www.seadiscovery.comMARINE

TECHNOLOGYR E P O R T E R

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By Joan M. BondareffWhen more than 300 participants from all sectors of the econo-

my and government attend a conference on Renewable Energyfrom the Ocean in April, as they recently did in New York City,then something is clearly happening to attract their interest. As oneof the keynote speakers at the conference, Senator Lisa Murkowski(R-Alaska), said, "[ocean energy] has arrived in the big leagues."

This article provides a brief overview of what the legislative, legal,financial, and permitting picture looks like in the United Stateswhen it comes to developing marine ocean resources, called "hydro-kinetics".

Hydrokinetics includes the use of ocean (or river) winds, waves,tides, and currents to create energy. The good news about theserenewable sources of energy is that they leave no carbon footprintand therefore can help the U.S. reduce carbon emissions. Someexperts estimate that up to 10 or even 20 percent of our energy cancome from the ocean.1

Legislative Framework for Ocean EnergyResource Development:

MMS and the Outer Continental Shelf Section 388 of the Energy Policy Act of 2005 (Act) authorized the

Minerals Management Service (MMS) to act as the lead agency forFederal offshore alternative energy and alternate uses of America'soffshore public lands, and to grant easements, leases, or rights-of-way for alternative energy uses of the Federal Outer ContinentalShelf (OCS). The Act also designates that coastal States will sharein 27% of the revenues generated from alternative energy activitieswithin three nautical miles seaward of a State's submerged lands.

In 2007, the MMS produced a Programmatic EnvironmentalImpact Statement (PEIS) outlining the environmental impacts ofdeveloping renewable energy resources from the OCS, and onJanuary 10, 2008, published a Record of Decision approving thefinal PEIS.

MMS was also directed by the Act to issue regulations governingocean energy development on the OCS. To date, those regulationshave not been issued, but proposed rules are expected shortly.MMS hopes to issue final regulations by the end of 2008.

In the meantime, to expedite development of alternative energy,MMS has announced a policy of awarding interim leases to compa-nies who want to collect data and test technology on wind, waveand ocean currents. These leases will be authorized on five desig-nated areas of the OCS offshore New Jersey, Delaware, Georgia,

Florida, and Northern California.2 MMS received over 40 nomi-nations for test leases and plans to approve about sixteen of them.

Jurisdiction of the MMS is largely confined to the OCS, althoughit and the Federal Energy Regulatory Commission (FERC) sharejurisdiction for alternative energy development between three andtwelve miles.

FERC Licensing and Permitting on InlandRivers and Coastal Waters

FERC, a regulatory agency within the Department of Energy(DoE), has jurisdiction under the Federal Power Act to issue licens-es for construction, operation, and maintenance of hydropowerprojects.3

To encourage and facilitate the development of power fromwaves, tides, and ocean currents, FERC created a new licensing pro-gram for renewable ocean energy production. Under this program,FERC instituted three types of permits to authorize companies todevelop hydro-energy and connect it to the electric power grid.These permits consist of: (1) pilot project licenses; (2) preliminarypermits; and (3) regular licenses. The various types of activitiesauthorized under each permit are described in detail in a WhitePaper issued by FERC in 2007, and recently updated.4

In December, 2007, FERC issued its first license for a hydrokinet-ic energy project located in the Pacific Ocean off the coast ofWashington State. The project is called the Makah Bay OffshoreWave Pilot Project, and is described further, below.

On March 27, 2008, FERC and the State of Oregon signed aMemorandum of Understanding to coordinate procedures andschedules for review of wave energy projects in state waters off thecoast of Oregon.

Finally, DoE is about to release $10 million in FY 2008 funds tosupport the advancement of water power technologies, to be allo-cated as follows: (1) $5 million for cost-sharing with industry to testnew technologies; (2) $2.5 million for cost-sharing with universitiesto establish R&D centers; and (3) $2.5 million for market acceler-ator projects.5

Comparison to Other Countries' Marine Energy Initiatives

The U.S. lags behind Canada and a number of nations when itcomes to the development of renewable marine resources. Forexample, Nova Scotia has passed a new Sustainable Prosperity Actestablishing a goal of 20% from renewable sources of energy. NovaScotia plans to take advantage of the great tidal sweeps of the Bay

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Opportunities Aboundfor Offshore Alternative Energy Development

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of Fundy to generate power for 100,000 nearby homes. NewZealand has set a goal to generate 90% of renewable electricity by2025, including 250 MW of wave energy. New Zealand has alsoauthorized 15% tax credits for R&D and appropriated $8M (NZ)for a Marine Energy Development Fund. The United Kingdomhas created a $1.1 billion Energy Technology Institute to partnerwith companies to produce power from offshore wind, waves, andtides. These are just a few of the international initiatives takingadvantage of marine sources of renewable energy. 6

State of the U.S. IndustryOne FERC project on the West Coast and one MMS project on

the East Coast offer some insights into varying U.S. approaches toapproving ocean energy projects, and, demonstrate how difficult itis to get these projects to the production stage. A lengthy exposi-tion is beyond the scope of this article, so the comparison is ofnecessity brief. Additional information can be found on the websites of the two agencies: www.ferc.gov and www.mms.gov.

On December 20, 2007, FERC issued its first license for a hydro-kinetic energy project, called the Makah Bay Offshore Pilot Project,to be located in the Pacific Ocean off the coast of Washington State.Under the license, Irish-based Finavera Renewables Inc., with thesupport of the Makah Indian Nation, was authorized to demon-strate the viability of a patented buoy-based system of wave energy

technology. However, no construction was initially allowed pend-ing receipt of all necessary federal and state approvals, includingsign-off of the State coastal zone management agency. On March20, 2008, FERC amended the license to allow construction of theproject to proceed as the necessary conditions had been met.

It has been much more difficult for the Cape Wind farm projectto gain headway off the coast of Cape Cod, Massachusetts. In fact,the Cape Wind project has been bogged down in lengthy regulato-ry procedures, and downright political opposition. The Cape Windproject is intended to produce 468 Mw of energy from 130 windturbine generators to be located four miles offshore Cape Cod, MA.MMS inherited the Cape Wind farm from the Army Corps ofEngineers as a result of the passage of the Energy Policy Act of2005. MMS issued a Draft Environmental Impact Statement onCape Wind in January 2008. When the comment period closed onApril 28, 2008, the agency had already received 40,000 public com-ments. The Cape Wind project is supported by MassachusettsGovernor Duval Patrick but is opposed by many Cape Cod con-stituents and some Members of the Massachusetts Congressionaldelegation.7 The company, however, remains optimistic that MMSwill issue a Record of Decision before the end of this year.8 Withapproval in place, the company can get financing to begin construc-tion in 2010 and to start producing energy in 2011.

What these brief descriptions convey, is the amount of time ittakes to bring these projects to fruition unless you have clear polit-ical and local support.

Facilitating the Production of RenewableMarine Resources in U.S.

As representatives of financial institutions at the recent conferenceexplained, the U.S. will have to create a steady commitment to theproduction of renewable energy resources and level the playing fieldwith fossil fuels. The U.S. has a tendency to stop and start whenit comes to the subject of renewable energy.

However, many Members of Congress, including CongressmanJay Inslee (D-WA) and Senator Lisa Murkowski (R-Alaska), areequally committed to supporting the growth of this industry.

Of particular importance to the nascent industry is the continu-ity of production tax credits (PTC). Presently, Congress is attempt-ing to renew tax credits that expired last year. The Senate approveda one-year extension in April 2008 as part of a housing bill (H.R.3221), but it is hung up in the House on "pay-go" considerations.To promote the industry, any tax credits will have to be made per-manent.

It is also possible that the U.S., like European nations have done,will have to adopt a form of "feed-in tariff" to level the playing fieldbetween renewable and non-renewable forms of energy. A "feed-intariff" is a form of financial incentive that requires electric utilitiesto buy renewable energy at above market rates. Congressman Insleeplans to introduce some form of feed-in tariff legislation next year.

Finally, the U.S. may have to establish a one-stop permittingoffice for marine renewable energy so that companies clearly have

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Technologies such as the SEADOG pump system, a systemdesigned to harness wave power, are showing promise. (See relat-ed story on page 40)

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one place to go to get approvals and funding assistance. Additionalforms of financial assistance, e.g., loan guarantees, may also beneeded.

ConclusionsThe U.S. marine renewable energy industry is a burgeoning

industry. There are companies that want to produce renewableenergy from the rivers and oceans and supply clean energy to theU.S. As the U.S. sets new goals to reduce carbon emissions, andtries to wean itself off foreign oil, the oceans will look like an evenmore attractive source of renewable energy. At the same time, thecomplication of multiple state and federal licensing and leasingregimes, and the failure of Congress and MMS to establish clearground rules and permanent tax credits have made it very difficultto succeed. Once these rules and credits are enacted, the industryhas nowhere to go but up!

Reprinted from the JUNE 2008 Edition of Marine Technology Reporter

FOOTNOTES1 From Roger Bedard of the Electric Power Research Institute. The Federal Energy Regulatory Commission estimates that up to 20% of our nation's energy supply could come from

renewable marine sources. www.ferc.gov.

2 www.mms.gov.

3 16 U.S.C. 796.

4 www.ferc.gov/industries/hydropower/indus-act/hydrokinetics.asp.

5 The grants should be available on www.grants.gov (CFDA#81.087) and also on the following DoE website: www.eere.energy.gov/financing/business.html.

6 For further information on UK, Ireland, and Portugal initiatives, see www.berr.gov.uk, www.sei.ie, and www.ineti.pt,

7 Members of the MA Delegation introduced legislation two years ago to create a 1.5 mile buffer zone between the wind turbines and shipping and ferry lanes that would have killed

the project; however, the provision was narrowed in Conference to a more specific provision granting the Coast Guard or the Governor of Massachusetts authority to stop the proj-

ect.

8 From an interview with Cape Wind's Vice President of Regulatory Affairs, Dennis Duffy, on E&ETV, April 21, 2008.

About the AuthorJoan M. Bondareff is OfCounsel to Blank Rome LLPwhere she specializes in mar-itime and environmental law,and congressional relations. Sheserved as Majority Counsel tothe House Committee onMerchant Marine and Fisheriesand participated in several LOSnegotiations. The viewsexpressed in this article are those of the author and maynot necessarily represent the official position of BlankRome LLP.

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