Sunday, May 22, 2005

Offshore, wind farms a rare breed

May 22, 2005

Offshore, wind farms a rare breed
Across Europe and in the American heartland, wind farms are popping up like wildflowers. But offshore, they've barely begun to blossom.

Although renewable energy experts a few years ago were predicting offshore wind farms would quickly become the fastest segment of the already flourishing wind power industry, environmental concerns, bureaucratic red tape, grid infrastructure issues and a shortage of investment capital have stalled some projects while others have been shelved entirely.

''Let's be realistic about this,'' said Gordon Edge, who tracks offshore for the British Wind Energy Association. ''There's only about 600 megawatts of offshore power in the world and over half of that is in two projects in Denmark. It's a new industry and there's still lots to learn.''

Worldwide, there are now enough land-based turbines to light entire nations and last year another 8,154 megawatts were added, according to a report prepared by BTM Consult ApS, a Danish firm that has tracked the industry's global progress.

But offshore, just one new project hit the water in 2004 -- the 60-megawatt Scroby Sands wind farm off the coast of England.

Birger T. Madsen, who compiled the global study for BTM, said a confluence of factors have slowed offshore. In his latest report, he has scaled back his projections for the development of water-based projects over the next five years.

''The reason is that it seems to be taking longer to get approval and financing, whilst the market is also waiting for the proven design of a larger offshore turbine,'' says the report.

In Germany, for example, environmental concerns have put offshore entirely on hold, Madsen said during a phone interview last week. Though the shallows off country's coasts offer strong breezes, they also serve as important feeding grounds for migratory birds.

Madsen said what Germany needs is 5-megawatt turbines that can operate in deeper waters farther from shore, but there are none on the market. A few 5-megawatt turbines are currently in the experimental phase but the biggest windmills online to date are 3.6 megawatts.

Godfrey Chua, an analyst with Emerging Energy Research in Cambridge, cited another problem. He said Germany has a lack of clear regulatory framework for permitting offshore projects. Competing government agencies have at times stepped on each other's toes, slowing the process for developers.

Then there is the question of financing. Until this year, Germany was the world leader in wind power generation thanks to dozens of land-based wind farms. In many cases, the projects were backed by individual investors.

''There's going to be a lot more due diligence required on these (offshore) projects,'' said Chua. ''When you're selling a project to dentists and doctors, you just need some kind of brochure. When you're trying to get Goldman Sachs to hand you a half a billion dollars it's a whole different ballgame.''

Cash incentives
Back in the United Kingdom, which is considered to have the greatest wind resource of any nation in Europe, the British government established a plan to foster offshore wind facilities in 2001. Developers were invited to apply for water lease rights with the proviso that no project would be larger than 30 turbines or cover more than 10 square kilometers.

Once the projects came online, operators would pay the equivalent of .15 cents per each kilowatt hour produced to the Queen of England's Crown Estate, which still maintains control over the country's waters, said Edge. Operators would be subsidized by selling the renewable energy credits U.K. utilities must buy as the country seeks to meet its annual renewable energy output quotas mandated by the Kyoto accords.

The program appears to have had only limited success. To date, just two of the original 17 projects have come online. Most who bought into the first round have since sold their rights to develop larger utilities after finding they didn't have the financial resources to bring the projects to life.

Still, two more of the projects are expected to get up and running this year, Edge said. Ultimately, he said he expects all to come online.

The second round of U.K. offshore development launched last year allowed developers to buy the option to lease much larger plots and build substantially bigger facilities. Edge said he expects a 1,000-megawatt round two project to complete its environmental surveys and formally request a lease as soon as next month.

In all, the government plans to offer the equivalent of $215 million in capital grants to make sure these new projects get up and running, wrote Pete Barnao, a spokesman for the British Department of Trade and Industry in a recent e-mail.

Meanwhile, with 400 megawatts of installed capacity, Denmark remains the offshore wind power capital of the world with major projects in Nysted and Horns Rev. Both will double in size over the next year, according to Eva Balslev, press officer with Danish Wind Power, an industry association.

Learning from mistakes
Backers of the offshore wind farm proposed for Nantucket Sound frequently cite Denmark as a glowing example of a nation that has embraced offshore. Roughly 20 percent of the nation's electricity needs are met with wind, they point out.

But much wind project construction there was spurred by heavy government subsidy. Until 2002, operators received more than 6 cents per each kilowatt hour produced, Balslev said. By comparison, in the United States, wind projects are currently offered an incentive of 1.8 cents per kilowatt hour, which they receive in the form of a tax credit.

Today, wind-related projects employ 20,000 in Denmark and are the country's largest industrial sector.

''It's quite big when you consider in Denmark the population is five million people,'' Balslev said.

Still, the Danish experience with offshore wind has hardly been an unqualified success. The Horns Rev project went online in 2002 and by the following year its operator was experiencing difficulties with the turbines. Ultimately, all 80 had to be removed for repair.

Balslev said the industry has since moved on. ''You can say that Horns Rev is history and an experience that has been very valuable in a way,'' she said.

Still, Horns Rev cast a pall over the entire offshore sector and gave some potential investors pause, a fact at least one turbine maker appears to acknowledge.

An advertisement in the May edition of trade journal ''Wind Power Monthly'' depicts six General Electric 3.6-megawatt turbines spinning at the company's experimental project off the coast of Arklow, Ireland.

''We're getting our feet wet ... so you don't have to,'' reads the ad. ''We're working to bring you every advantage and all the assurance you need ... without the risk.''

Dennis Murphy, a spokesman for GE Power Systems denied the advertisement was created with Horns Rev in mind. He said GE generally experiments with major new technological innovations before selling it on a large scale to customers.

The turbines at Arklow are the same models Cape Wind Associates hopes someday to erect over Nantucket Sound. Were that project to come online tomorrow it would be more than three times the size of any currently operating wind farm.

Cape Wind opponents have seized on Horns Rev as an example of the risks inherent with new offshore technology. Those at Arklow are even less tested, they say.

''So we have asked the question, what are the risks of putting these late-model turbines in the midst of Nantucket Sound?'' said Susan Nickerson, executive director of the Alliance to Protect Nantucket Sound, which has spearheaded local efforts to stop the project.

Jim Gordon, CEO of Cape Wind and Energy Management Inc., said opponents have used turbine technology as a red herring and would be unwilling to accept even the most battle-tested turbines on the Sound.

Gordon described offshore wind power as ''an industry in its infancy'' and attributed the slower-than-expected development primarily to unrealistic expectations and a slew of developers who had neither the expertise or financial resources to actually build a large-scale wind power facility.

That has since changed, he said, noting Goldman Sachs' recent purchase of one of the industry's largest developers, Houston-based Zilkha Renewable Energy.

''You've got players that are coming in and crowding out some of the garage operators,'' he said.

Despite the relatively small number of offshore projects on line to date, Gordon said he is bullish on the technology's future in North America. With its universities and other intellectual resources, Gordon said he envisions Massachusetts leading the way.

''There's going to be an offshore wind capital in the U.S.,'' he said. ''Will it be in New York, Massachusetts or Houston, Texas.?''

Ethan Zindler can be reached at

(Published: May 22, 2005)