Improve the regulatory environment for offshore wind power
Wind energy is coming to the United States. There are already nearly 900 utility-scale land-based wind energy projects installed across 39 states.
However, in many areas of the country, including the Southeast, the best winds are offshore. In fact, the National Renewable Energy Lab rates South Carolina’s offshore wind potential as Class 6, with 7 being the best.
But harnessing the energy from these winds and delivering the power to onshore markets presents unique and costly challenges.
There are many reasons that we should be developing offshore wind energy. Like nuclear energy, wind produces zero emissions and does not rely on foreign oil or finite resources. Offshore wind development will also be a powerful economic engine that promises to bring with it more jobs, investment, development and new business opportunities. Just ask Germany, which plans to rely exclusively on renewable energy by the 2020s, much of it from offshore wind.
However, to make offshore wind a reality in the Southeast, the regulatory environment needs to be massaged. Energy markets here are heavily regulated and are consequently dominated by vertically integrated utilities that control the generation, transmission and distribution of power. The rates that these utilities charge customers are set by state regulatory agencies and are based on the utilities’ reasonable (as determined by the agency) costs to produce the power plus an allowed return on that investment, calculated as a percentage of those costs.
Because the utilities’ costs are so closely scrutinized, utilities are incentivized to deliver power to customers at the cheapest price. This makes more expensive sources of power, like nuclear and offshore wind, problematic from the utilities’ perspectives.
So how are new nuclear facilities currently under construction in South Carolina?
A brief review of the history of nuclear energy in the U.S. is instructive.
In the 1950s then-Chairman of the U.S. Atomic Energy Commission Lewis Strauss proclaimed nuclear power “too cheap to meter.” Although producing power from an operating nuclear plant is relatively inexpensive, the statement ignores the high costs of constructing facilities. Early plants experienced long delays and huge cost overruns, and few were ultimately built. History repeated itself in the 1970s when, as a result of the energy crisis and a new emphasis on energy independence, calls for new nuclear reemerged.
Again, fiscal realities intervened (as well as safety concerns stoked by Three Mile Island and Chernobyl), and many of the planned facilities were scrapped. Today, as a result of increased tensions in the Middle East and a desire to lower greenhouse gas emissions, yet another push for new nuclear facilities is under way.
The current emphasis on new nuclear, however, has been buoyed by governmental incentives designed to mollify the financial sting associated with developing new facilities. For example, in 2007 the South Carolina legislature passed the Base Load Review Act (BLRA), which, among other things, allows utilities to recover the costs of developing new nuclear during construction instead of waiting until the new facility is placed in service. In the case of new nuclear, because of the long construction time, this saves the utilities and their customers hundreds of millions of dollars in interest costs. Offshore wind, however, is not covered by the BLRA and therefore does not enjoy the same incentive. That can be fixed with the stroke of a pen. Moreover, the federal government could help by renewing the existing production tax credit and extending the investment tax credit to include offshore wind.
Our governments simply must demonstrate support for offshore wind, just as they do for more established sources.
Offshore wind development is already under way in East Coast states that do not have the same regulatory impediments as the Southeast. But Southeastern states and the federal government can create a similarly conducive environment by simply providing these incentives for offshore wind. It will not be a silver bullet; Advancements in distribution and storage will help make wind more reliable as a base load source of power.
However, regulatory tweaks will go a long way towards incentivizing the development of this valuable renewable resource.
As technology continues to improve and costs keep coming down, we need to be ready.
Perrin Dargan is an environmental lawyer in the Charleston office of K&L Gates LLP.