With strong winds, waves and currents, the Outer Continental Shelf is an alluring region for companies developing ocean- and wind-energy projects.
So far, no formal path has existed for companies to get permits and lease space to develop alternative-energy projects in that area, which starts about three miles beyond the United State’s shoreline in most places. But that's about to change.
On Tuesday, the federal agency that manages the nation's Outer Continental Shelf resources, including natural gas, oil and minerals, unveiled a 460-page proposal that outlines how those developing renewable energy can get projects in the water. The proposal includes the creation of two types of leases and a competitive bidding system.
It’s an important step for the ocean power and offshore wind sectors.
With ocean power and offshore wind still in their infancy, the Minerals Management Service’s decision will govern how these two industries emerge and develop in the United States, said Carolyn Elefant, a lawyer for the Ocean Renewable Energy Coalition.
So far, uncertainty – as well as challenges such as cost and the durability of water-bound technologies – has discouraged companies. The ruling could ultimately decide whether or not developers will pursue renewable-energy projects in the Outer Continental Shelf and investors will back it, she said.
"Hopefully, this rule will encourage orderly development of renewable energy on the Outer Continental Shelf," Elefant said.
If it’s approved by the U.S. Department of the Interior and the U.S. Office of Management and Budget, the proposal would create two types of leases – a commercial lease of up to 30 years and a limited lease of up to five years.
The commercial lease is aimed at companies ready to sell power on a commercial scale, while the limited lease is intended for test projects and assessing the environment. The limited lease also would lower the financial commitment for smaller companies, according to the proposal. But those with a limited lease would not get preferential treatment if they applied for a commercial lease at the end of that time
Securing a lease doesn't mean a company will have exclusive use, either. A wind farm could end up sharing space with a company testing wave-power technologies, said Maureen Bornholdt, program manger of offshore alternative energy programs for Minerals Management Service, provided that the move doesn't negatively impact the project.
The proposal also outlines a competitive-bidding system in case two applicants with similar technologies apply for the same space, she said. For example, if two wind developers want the same space, they would enter into a cash bidding war to settle the point.
Still, there are plenty of unknowns left to be worked out. The service is still trying to figure out the details on what to do if two different technologies want the same space, for example.
a">"This whole system is going to evolve, which makes it fun and also gives you a headache," Bornholdt said.
Ocean Renewable Energy Coalition and the American Wind Energy Association said they are studying the document to get a better understanding of the details.
One question Elefant is helping the coalition evaluate is how the competitive bidding system would play out if a startup with a promising technology went up against a company with much deeper pockets. "If there is a financial element that would make a tiebreaker, then we would be concerned," she said.
So far Europe has dominated efforts to build offshore renewable energy projects, with almost all of the world’s 600 megawatts of installed offshore wind energy coming off the coast of Europe, according to the Minerals Management Service
Technologies to harness energy from waves and tides are in a much earlier stage of development. For example, there are no commercial-scale farms pumping electricity from offshore currents into the grid, according to the service.
But companies have been pushing to get renewable energy projects in the water. In the United States, companies like wave developer Finavera Renewables (TSX-V: FVR) have been experimenting in waters that are within three miles of the shoreline, which fall under state – not federal – jurisdiction.
The new guidelines won’t impact the Cape Wind project, expected to be the nation’s first offshore wind project, Bornholdt said. Energy Management, the project developer, wants to locate the park in the Outer Continental Shelf off of Cape Cod, in Massachusetts.
While the Minerals Management Service still is evaluating the project, Congress in 2005 authorized the Minerals Management Service to issue the Cape Wind project developers a lease, without having to go through the competitive bidding process.
But more projects are expected to come. In June, project developer Bluewater Wind announced its intention to build an offshore wind farm in the United States.
The Minerals Management Service is seeking public comments on its proposal until early September, then it will settle on a final set of regulations, which Bornholdt expects will take effect around January.