EDALIN MICHAEL

May 12, 2010

On April 28, 2010, the Obama administration approved the first offshore wind farm in the U.S., the Cape Wind Project. Secretary of the Interior Ken Salazar announced the decision from the State House in Boston, stating, "After careful consideration of all the concerns expressed during the lengthy review and consultation process and thorough analyses of the many factors involved, I find that the public benefits weigh in favor of approving the Cape Wind project at the Horseshoe Shoal location." The project's developer, Energy Management, hopes to begin construction before the end of the year and have the project online as early as 2012.

The Cape Wind Associates, LLC facility will be built on a 25-square mile section of federally submerged lands in Nantucket Sound on the U.S. outer continental shelf. The Horseshoe Shoals site will allow the project to take advantage of Nantucket Sound's strong and steady Atlantic winds to generate a maximum electric output of 468 megawatts and average output of 182 megawatts—enough energy to power more than 200,000 homes in Massachusetts which represents about 75 percent of the electricity demand for Cape Cod, Martha's Vineyard, and Nantucket Island combined. Despite being located adjacent to coastal communities, the project site is outside of shipping channels, ferry routes, and flight paths.

The array of 400-foot-high turbines making up the project will be located about 5.2 miles from the mainland shoreline, 13.8 miles from Nantucket Island, and 9 miles from Martha's Vineyard. In addition to the turbines themselves, the project will include a 66.5-mile buried submarine transmission cable system, an electric service platform, and two 115-kilovolt lines connecting to the mainland power grid. Under the terms of the lease, the developer will decommission the facility by deconstructing the turbines and towers and removing them from the site when the project has completed its useful service life.

This announcement of lease approval for Cape Wind came as billions of gallons of petroleum leaked into Gulf waters from the uncapped well opened by the Deepwater Horizon oil platform, offering a tragic reminder of the consequences associated with development of traditional fossil fuels. Cape Wind President Jim Gordon "It gives the nation pause to reflect on, really, what are our energy choices, and how are we going to live with them?"

Cape Wind will be "one of the largest greenhouse gas reduction initiatives in the nation, cutting carbon dioxide emissions from conventional power plants by 700,000 tons annually"—equivalent to removing 175,000 cars from the road for a year. In addition to offering an alternative clean energy source, the project will create hundreds of construction jobs, and potentially pave the way for more. Experts believe that the Atlantic's one million megawatts of offshore wind energy potential could replace old and inefficient fossil-fuel-based generating plants, but also create thousands of manufacturing, construction, and operations jobs.

Despite its benefits, the project has faced bitter opposition since it was first announced by its developer in 2001. Opponents of the project range from residents upset about the visual impacts of the turbines to environmentalists and fishermen worried about the effects on the area's wildlife, to the area's native populations who decry the turbines' interference with burial grounds and sunrise ceremonies.

Two local tribes initiated proceedings to have the Sound listed in the National Register of Historic Places based on its cultural significance in hopes that this would stop project approval. The decision of the National Register's Advisory Committee, however, did not require Interior to stop the project. The governors of the Northeastern coastal states, in a letter to Salazar, protested the federal historic panel's recommendation that the wind farm not be approved, noting that if the panel's advice was followed, it would put a stop to most of the wind projects currently proposed along the East Coast.

While Interior has signaled its approval to the project, it has also required the developer to change certain aspects of the project's design and configuration in order to lessen its visual effects and has also required that the developer conduct additional seabed surveys to ensure that submerged resources are adequately protected before construction begins. "After almost a decade of exhaustive study and analyses, I believe that this undertaking can be developed responsibly and with consideration to the historic and cultural resources in the project area," Salazar said. "Impacts to the historic properties can and will be minimized and mitigated and we will ensure that cultural resources will not be harmed or destroyed during the construction, maintenance, and decommissioning of the project."

Among these changes required by Interior is a reduction in the number of turbines in the wind farm from 170 to 130. Interior has also mandated that the turbine array be reconfigured—the developer must move the array further away from Nantucket Island and also must reduce the width of the array—in order to diminish the visual impacts from the Kennedy Compound National Historic Landmark and the Nantucket Historic District. Interior has also required the developer to paint the turbines off-white to "reduce contrast with the sea and sky yet remain visible to birds."

In requiring these changes to the project, Salazar hoped to "strike the right balance" between the broad, national public interest priority of energy development and protecting the area and its resources. "The need to preserve the environmental resources and rich cultural heritage of Nantucket Sound must be weighed in the balance with the importance of developing new renewable energy sources and strengthening our Nation's energy security while battling climate change and creating jobs," Salazar said.

Interior evaluated nine other locations, the Cape Wind proposed location, and a no action alternative before reaching its decision to approve the Cape Wind project. In addition, Interior considered "onshore, nearshore, and dispersed sites, a deepwater alternative located more than 22 mil[es] offshore..., and other forms of renewable energy production." After a review of the oceanographic conditions, environmental impacts, cost of maintenance, and reliability of each site, the Cape Wind proposal emerged as the preferred option.

Cape Wind, which has already spent millions of dollars defending lawsuits in court, now has to find the capital to finance the project's estimated $1 billion construction costs. It looks as though it is already on its way—last week UK-based National Grid, which delivers electricity to approximately 3.3 million customers in New England, agreed to buy 50 percent of the wind farm's output in 2013.

Under the contract, which still requires the approval of state utility regulators, National Grid will pay 20.7 cents per kilowatt hour in 2013. The price will increase 3.5 percent per year over the 15-year term of the contract, assuming existing federal tax incentives.

This price, however, is nearly three times the average cost—a disparity that Cape Wind developers claim is due to the recession, which has reduced prices of fossil fuel such as natural gas, used to fuel about 40 percent of New England's power plants. In announcing the agreement, National Grid President Tom King said, "We recognize that all renewable energy, be it on- or off-shore wind, solar or other sources, has a cost associated with it. Carbon-based generation comes with its own set of long-term costs—to our health and our environment."

Based on anticipated prices, National Grid stated that the Cape Wind deal would result in a 2-percent, or $1.59, increase the bill of a typical residential customer using 500 kWh per month. National Grid, however, noted that the wind farm would lead to reduced electricity bills over the contract term provided that fossil fuel prices increase as the economy recovers. King also noted that "if future federal energy or climate change legislation includes a price for carbon emissions, Cape Wind could have a significant price advantage because it is a low-carbon generator."

While this first contract only covers half, or 91 megawatts, of Cape Wind's projected output, a second contract with National Grid announced at the same time will "facilitate the purchase of the remaining 50 percent by another party or parties." Cape Wind President Jim Gordon stated that utilities and retail electricity providers have expressed interest in the remaining power. Gordon believes that these initial contracts will allow for the acquisition of the investment and financing necessary to get the project constructed.

Interior's approval of Cape Wind provided an important signal to renewable energy suppliers who have been hurt economically by the recession and by the uncertainty surrounding regulatory approval and climate and energy legislation in the Senate. The world's largest maker of wind turbines, Vestas Wind Systems, lost $108 million in the first quarter of 2010 due to a 64-percent reduction in orders, a consequence of the global credit crisis. In the wake of Interior's approval of the Cape Wind project, however, the company said that orders are picking up.

"This is a very symbolic step for the offshore wind industry," says Matt Kaplan of IHS Emerging Energy Research in Cambridge, Massachusetts. "Cape Wind has been the offshore wind pioneer in the US. If the project is completed, it would signal the beginning of a new industry in the US."

A new industry that many believe could boom. The U.S. has massive wind resources—experts believe that the U.S. could easily meet a fifth of its demand for electricity using wind. However, most of the best areas for harnessing wind power are in the interior. Currently, wind farms in the interior generate more than 35,000 megawatts—as much as 35 large coal-fired power plants. There is, however, potential for wind farm development offshore as well, in areas along the Gulf coast, Great Lakes, Hawaii, California, and New England. Two-thirds of this development is anticipated to be in the Northeast due to high regional energy prices and the requirement of state regulators that increasing percentages of power be generated from renewable sources.

Only one-fifth of the East Coast's offshore wind energy potential is located in New England. Developments are planned in Delaware, New Jersey, Massachusetts, North Carolina, Rhode Island, Maryland, Virginia, and New York to take advantage of the Atlantic's strong and steady winds. Outside of the Atlantic seaboard, there are plans for additional offshore developments from Ohio and Michigan to Texas. Many of the U.S.'s proposed offshore wind projects would be more than three miles from shore in federal waters, and would therefore need the approval of federal agencies ranging from the Federal Aviation Administration to the U.S. Fish and Wildlife Service before construction could begin.

State governments and utility companies view Interior's approval of the Cape Wind project as providing certainty in what has been, thus far, a very uncertain permitting process. Indeed, that seems to be the message that Interior is trying to send—Salazar, in announcing the approval of Cape Wind, stated that "With this decision we are beginning a new direction in our Nation's energy future." Massachusetts Governor Deval L. Patrick, standing with Salazar at the press conference where the decision was announced, set his gaze on even higher sights, stating, "We are on our way, and if we get clean energy right, the whole world will be our customers."

In the meantime, however, the U.S. will be playing catch up with Europe and China. Europe initiated its wind power development twenty years ago and currently generates electricity from 830 turbines arrayed along the coast of nine countries. China, a newcomer to wind energy, installed its first offshore wind project earlier this year and is now generating 100 megawatts of offshore wind power.

Despite Interior's landmark approval, the battle that has long surrounded the Cape Wind project is far from over. Cape Wind must still gain a number of other regulatory approvals before it can begin construction, a process it began earlier this week when National Grid and Cape Wind filed with state regulators for approval of the power purchasing agreement. Cape Wind must also still gain Federal Aviation Administration approval. After that, the developer must build the electrical connections, order and receive the turbines, and build the array and its associated infrastructure, all the while dealing with lawsuits aimed at stopping the project altogether.

The Massachusetts Supreme Court is already considering a number of lower court decisions allowing the project to move forward, yet Interior's approval of the project also elicited new lawsuits. As of May 3, ten parties announced their intention to challenge the ruling, including the Wampanoag Tribe of Gay Head (Aquinnah), the Mashpee Wampanoag Tribe, commercial fishermen, and environmental groups, among others.

Audra Parker, President of the Alliance to Protect Nantucket Sound (Save Our Sound), the group leading the challenges, reacted to Interior's announcement by stating, "We will not stand by and allow our treasured public lands to be marred forever by a corporate giveaway to private industrial energy developers." The groups contend that Interior's decision "trampl[ed] the rights of Native Americans and the people of Cape Cod" and violated the National Environmental Policy Act, the Migratory Bird Treaty Act, the Rivers and Harbors Act, the Clean Water Act, and the Outer Continental Shelf Lands Act.

"No amount of mitigation will change the fact that this is a site of great historical and cultural significance for our tribe, and is inappropriate for this project," Mashpee Wampanoag Tribe Chairman Cedric Cromwell said in a statement released earlier this week. The federal government has continued to negotiate with the Mashpee Wampanoag Tribe and another local tribe over the project's impact on the sound.

Salazar, however, says he is confident that the decision, which has undergone nine years of environmental and other reviews in seventeen state and federal agencies, will hold up in court: "There's no question in my mind that the review has been thorough."

Sources:

Press Release, National Grid, National Grid and Cape Wind Sign Power Purchase Contract (May 7, 2010), available at http://www.nationalgridus.com/aboutus/a3-1_news2.asp?document=5163

Press Release, U.S. Dep't of Interior, Secretary Salazar Announces Approval of Cape Wind Energy Project on Outer Continental Shelf off Massachusetts (Apr. 28, 2010), available at http://www.doi.gov/news/doinews/Secretary-Salazar-Announces-Approval-of-Cape-Wind-Energy-Project-on-Outer-Continental-Shelf-off-Massachusetts.cfm

David Harrison, Cape Wind Decision Propels Other Offshore Projects, STATELINE, May 7, 2010, http://www.stateline.org/live/details/story?contentID=483168

Jim Motavelli, Cape Wind's Flimsy Opposition, FORBES, May 3, 2010, http://www.forbes.com/2010/05/03/offshore-renewable-energy-technology-cape-wind.html?boxes=Homepagechannels

Josie Garthwaite, Cape Wind: National Grid to Buy Half of the Project's Power, EARTH2TECH, May 7, 2010, http://earth2tech.com/2010/05/07/cape-wind-national-grid-to-buy-half-of-the-projects-power/

Juliet Eilperin, Offshore Wind Farm, Near Cape Cod, First in U.S. Gets Federal Approval, WASHINGTON POST, Apr. 29, 2010, http://www.washingtonpost.com/wpdyn/content/article/2010/04/28/AR2010042804398.html

Mark Clayton, Cape Wind Project Will Be Big Test For Offshore Wind Energy, CHRISTIAN SCIENCE MONITOR, May 3, 2010, http://www.csmonitor.com/USA/2010/0503/Cape-Wind-project-will-be-big-test-for-offshore-wind-energy

MINERALS MGMT SERV., U.S. DEP'T OF INTERIOR, MMS 2010-011, CAPE WIND ENERGY PROJECT: ENVIRONMENTAL ASSESSMENT (Apr. 28, 2010), http://www.doi.gov/news/doinews/upload/Cape-Wind-EA.pdf

MINERALS MGMT SERV., U.S. DEP'T OF INTERIOR, CAPE WIND ENERGY PROJECT: FINAL RECORD OF DECISION (Apr. 28, 2010), http://www.doi.gov/news/doinews/upload/Cape-Wind-ROD.pdf

MINERALS MGMT SERV., U.S. DEP'T OF INTERIOR, FINDING OF NO NEW SIGNIFICANT IMPACT (FONNSI): ISSUANCE OF LEASE FOR OFFSHORE WIND POWER FACILITY IN NANTUCKET SOUND, OFFSHORE MASSACHUSETTS (Apr. 28, 2010), http://www.doi.gov/news/doinews/upload/Cape-Wind-FONNSI.pdf

Patrick Cassidy, Cape Wind Deal Offers Tribes Millions, CAPE COD TIMES, May 1, 2010, http://www.capecodonline.com/apps/pbcs.dll/article?AID=/20100501/NEWS/5010321/-1/SPECIAL01

Scott DiSavino, UPDATE 2- Cape Wind Finds Power Buyer, Mass. Bills Seen Up, REUTERS, May 7, 2010, http://www.reuters.com/article/idUSN0719421220100507?type=marketsNews