The United States has significant wind energy resources offshore and a significant proportion of its population concentrated on its coasts. Yet installed, grid connected offshore wind generating capacity in the U.S. in 2011 is… zero! Perhaps not for long.
Prospects for the Cape Wind project off the coast of Cape Cod in Massachusetts are looking a little brighter. And on May 19, the Federal Energy Regulatory Commission (FERC), an independent and self-funding agency within the U.S. Department of Energy charged with overseeing interstate wholesale energy transmission and sales, approved incentive rate treatment for several proposed transmission projects, including the 250-mile Atlantic Wind Connection project that plans to connect up to 6,000 MW of offshore wind power to the grid.
Sure, considerable obstacles remain. The project still needs to be approved as part of the PJM Interconnection’s Regional Transmission Expansion Plan (RTEP) and consensus would have to be gained among coastal Governors as to the design and location of interconnections. But the approval for incentive rate treatment is a significant step, basically assuring the project’s investors (which include the likes of Google, Good Energies, and Marubeni) that the price paid on wholesale energy markets to utilize the generation and transmission capacity they plan to build will be high enough to warrant the initial investment. (This is especially important for wind power projects because the majority of lifetime costs are borne up front with high capital costs, whereas with Natural Gas or Coal plants the majority of lifetime costs are spread over time through the price of fuel.)
The transmission and distribution of electrical energy is one of those curious industries often deemed a natural monopoly in America. Americans don’t have much taste for such things of course, but we tolerate them because our way of life depends on the stable existence of the products and services they provide (in this case omnipresent electricity). I often wonder how much more civil the conversation around energy policy would be in the United States if voters knew more about the obscure internal processes of entities like FERC and ISOs/RTOs, or about the restructuring of electricity markets in regions around the country. So in the spirit of that, here is an excerpt from FERC’s recent Notice of Inquiry on the Atlantic Wind project explaining the background of the process for transmission expansion approval and market entry:
“Section 1241 of EPAct 2005 added a new section 219 to the FPA. Section 219(a) of the FPA requires [FERC] to establish by rule incentive-based, including performance-based, rate treatments for the transmission of electric energy in interstate commerce by public utilities for the purpose of benefiting consumers by ensuring reliability and reducing the cost of delivered power by reducing transmission congestion. Section 219(b) requires that the Rule:
- promote reliable and economically efficient transmission and generation of electricity by promoting capital investment in the enlargement, improvement, maintenance, and operation of all facilities for the transmission of electric energy in interstate commerce, regardless of the ownership of the facilities;
- provide a return on equity that attracts new investment in transmission facilities, including related transmission technologies;
- encourage deployment of transmission technologies and other measures to increase the capacity and efficiency of existing transmission facilities and improve the operation of the facilities; and
- allow the recovery of all prudently incurred costs necessary to comply with mandatory reliability standards issued pursuant to section 215 of the FPA, and all prudently incurred costs related to transmission infrastructure development pursuant to section 216 of the FPA.
Section 219(c) requires that the Rule provide for incentives to each transmitting utility or electric utility that joins a Transmission Organization and ensure that any recoverable costs associated with joining such Transmission Organization may be recovered through transmission rates charged by the utility or through the transmission rates charged by the Transmission Organization that provides transmission service to the utility.”
There. So much clearer, right? Oh well.
Notwithstanding impediments like Not In My Back Yard (NIMBY) sentiment and high initial capital costs, offshore wind has the potential to become a significant part of our electric energy generation portfolio in the coming decades, not least of all because it is a much less intermittent resource than land-based wind or solar. My guess is that NIMBY, which has been a chief political impediment to most expansions of generation and transmission capacity in America clean or not, will end up being seen in hindsight as a curious cultural phenomenon from a naïve era in America’s history. Offshore wind projects, like Cape Wind off the coincidentally wealthy coast of Cape Cod, will have to be built if residents there hope to keep the lights on in their vacation houses…
Oh. and I had to add this link. Too cool to leave out.
Troy Ault is a Research Analyst at Cleantech Group
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