Milestones for 2005
On January 14, 2005, the Electric Power Research Institute (EPRI) issued
its final report on Wave Energy Conversion in the United States. The
report, which was a culmination of many months of study, analyzed the wave
potential at various coastal sites in the United States, examined the
economics and viability of various ocean technologies and provided an
overview of potentially applicable permitting regimes. The EPRI Report
concluded that generation of electricity from wave energy may be
economically feasible in the near future and as such, warrants continued
investigation. EPRI's endorsement of continued study of wave energy
represents a real sea-change in attitude. EPRI's membership comprises many
of the nation's largest electric utilities, which as recently as a decade
ago had little interest in any form of renewable energy, let alone a
nascent technology like ocean energy.
Building on its success, in April 2005, EPRI launched a second phase of
its oceans program, this time focusing on evaluation of tidal technologies
and potential tidal sites in the United States and Canada. Tidal
technologies (often referred to as hydrokinetic devices) have potential
applicability not just in certain ocean environments but also in rivers
and streams -- and have thus attracted attention from the hydroelectric
US and FERC Developments
In April 2005, the Federal Energy Regulatory Commission (FERC), which has
jurisdiction to issue licenses for hydrokinetic and ocean technologies,
agreed to provide limited waivers from licensing to developers of pilot
projects. Verdant Power, developer of the nation's first hydrokinetic
project in the East River, New York, had requested the ruling so that it
could install six project units and provide power to customers in order to
test the project's capabilities in real-world conditions. In the absence
of an exemption, Verdant would have had to wait an additional year before
it could complete all the studies necessary to receive a license.
Moreover, Verdant's inability to test its project without a license posed
a catch-22 because, without the tests, Verdant could not gather data
necessary to complete its license application. As a result, FERC made a
narrow exception to its otherwise mandatory license requirement. FERC held
that developers could obtain a limited exemption from licensing (Verdant
was given 18 months) as long as they did not generate power for commercial
uses and needed to install the project to gather data needed for the
licensing process. With the exemption in hand as well as other necessary
permits from the Corps of Engineers and State of New York, Verdant remains
on course to deploy its first six units sometime in 2006.
At the same time, while FERC indicated willingness to bend its rules, it
has still declined to break them, even to help a new industry emerge. In
October 2005, FERC denied Australia-based Energetech's request that FERC
declare that Energetech's proposed Port Judith Project, to be located a
mile off the coast of Rhode Island, did not require a license. FERC
offered Energetech an opportunity to request a more limited exemption.
FERC specified that to qualify for the exemption, Energetech would need to
show that the exemption was needed to gather data for licensing and that
power generated by the project would not have an effect on the interstate
grid, which would trigger FERC jurisdiction.
Since the FERC ruling, both FERC and the Department of Energy have tried
to explore ways to streamline permitting for hydrokinetic technologies in
rivers, streams and oceans. In April 2005, at the behest of the National
Hydropower Association, FERC convened a meeting of small hydro and ocean
developers, resource agency representatives and other stakeholders to
figure out how to expedite permitting without compromising environmental
protection. Later that year, in October 2005, DOE, through mediation group
RESOLVE, held a three-day meeting in Washington, DC, to familiarize
stakeholders with a wide range of existing ocean energy technologies,
identify these projects' potential environmental impacts and start a
dialogue on how to foster cooperation between developers and stakeholders
so that ocean and hydrokinetic projects can move forward.
Other FERC developments included the February and March 2005 issuance of
several preliminary permits to two different companies to study tidal
energy sites in the Gulf Stream off the coast of Florida. Also, the
AquaEnergy Group, located in Washington state, continued to advance
through the licensing process for its proposed Makah Bay Project, which
will be located in the Olympic Coast Marine Sanctuary in the Makah Bay off
the coast of Washington state. In May 2005, AquaEnergy announced that it
received a first round infusion of capital from Finavera, an Irish
renewable energy company, which can hopefully help AquaEnergy complete the
licensing process and bring its projects online.
On the U.S. scene, Ocean Power Technologies (OPT) also made strides,
securing $2.8 million dollars in funding from the Navy for a 1 MW project
underway at a naval base in Hawaii. Because of its location on a naval
base, OPT is not subject to FERC licensing requirements though it must
still comply with other environmental regulations, including preparation
of an Environmental Assessment which has been completed.
Ocean technologies continued to advance beyond the United States as well.
In May 2005, Ocean Power Delivery (OPD) announced a deal with an electric
company in Portugal to construct the world's first commercial wave farm.
The 2.25 MW project will be comprised of three of OPD's distinctive,
orange sausage-shaped, Pelamis units. And in December 2005, Marine Current
Technologies announced that it had received additional funding of 2
million pounds for its SeaGen project, which that same month obtained
approval needed to move forward with deployment.
Legislative and Regulatory Developments
In May 2005, Sean O'Neill and I founded the Ocean Renewable Energy
Coalition (OREC), a trade association to promote and advance commercial
application of ocean energy. Within six months, OREC attracted ten core
members including renewable energy advocates, developers and consulting
firms that are prominent in their respective sectors.
During the summer of 2005, OREC joined with other ocean energy developers
and lobbyists who working together to play a pivotal role in obtaining
federal recognition for ocean energy in the Energy Policy Act of 2005.
Among other things, the Energy Policy Act requires the Department of
Energy to include ocean energy in an inventory of renewables that the new
law requires DOE to undertake. And the Energy Policy Act also makes ocean
energy eligible for moneys authorized for appropriation for development of
renewable energy projects. Prior to the Energy Policy Act, no other
federal legislation since the Ocean Thermal Energy Conversion (OTEC) Act
of 1970 had accorded recognition or authorized funding for ocean energy.
This represents a loss not because ocean developers could have actually
used the production tax credit (PTC) (in the short term, they probably
cannot), but rather because the availability of a PTC makes projects more
appealing to private investors. Thus, ocean developers have a task on
their plate for 2006, i.e., to continue to fight for the PTC.
Section 388 of the Energy Policy Act authorizes the Secretary of Interior
to grant leases on the Outer Continental Shelf (OCS) for development of
alternative energy sources such as offshore wind and wave. Prior to the
Energy Policy Act, the Secretary only had authority to lease the OCS for
oil, gas and mineral development. Thus, the Energy Policy Act fills a gap
in the Secretary's authority and eliminates the uncertainty that has
plagued projects like Cape Wind, the 420 MW offshore wind project being
developed off the coast of Massachusetts, as to whether they can acquire
sufficient property interests to be developed.
On December 30, 2005, the Federal and State Management Service (MMS)
issued an Advance Notice of Proposed Rulemaking (ANOPR) seeking comments
on the development of a regulatory program to implement permitting of
alternative energy uses on the OCS. The ANOPR is a comprehensive effort,
comprised of 36 questions on topics such as what types of prequalification
criteria, if any, should apply to lease applicants (e.g., a showing of
financial capability to carry out the project), how MMS can balance
potential competing uses between different types of alternative offshore
uses, what types of environmental information should be required to assess
project impacts, whether MMS should consider special programs for
permitting pilot projects, and how MMS can calculate royalties, especially
for offshore renewable projects which are in their infancy and presumably
cannot afford significant royalty payments. One topic, which the MMS ANOPR
does not address, concerns the potential overlaps between MMS jurisdiction
and those of other agencies. For example, will an ocean energy developer
on the OCS need to pass through an MMS licensing process in addition to a
FERC process? Or will the agencies enter into some kind of MOU to
coordinate efforts and share information? OREC hopes to mobilize offshore
renewable energy developers and work cooperatively with more established
trade associations to develop comments that will assist MMS in carrying
out its responsibilities.
What Lies Ahead
Despite all of the progress and successes enjoyed in 2005, the ocean
energy industry faces the greater challenge in 2006 of keeping the
momentum going and finding the resources to deal with multiple challenges.
For starters, the ocean energy industry now has a unique opportunity to
directly impact the regulatory regime governing offshore renewable
projects through participation in the MMS rulemaking. At the same time,
with limited resources and a need to focus on getting real projects
online, developers may not have the ability to extensively participate in
the rulemaking process. The danger here is in the absence of comment from
ocean energy developers, MMS may establish a regime, which could foreclose
development of ocean energy in the United States even before the industry
has a chance to get started. MMS could not be faulted for this outcome; as
an agency, it must make decisions based on the record before it. If ocean
developers are absent from the record, MMS will devise policies that
conform to input from other participants and stakeholders.
Attracting Private Funding
At the same time, while ocean energy developers will need to grapple with
the MMS rulemaking, the industry has now reached the point where it must
begin deploying real projects in order to attract investment from the
private sector. While many investors have shown interest in ocean energy
projects, none are willing to take a huge plunge, so to speak, until
actual projects are deployed and begin to operate. So developers must
continue to move slowly, as existing funding permits.
Streamlining Permitting and Reducing Costs
Existing regulatory hurdles further complicate matters. Despite FERC's
efforts, developers still face several years and millions of dollars in
costs to license their small and generally benign projects. Most existing
regulation was developed for large utility owned hydro plants, with little
thought to cost because utilities can simply pass licensing costs on to
ratepayers. Moreover, small tidal or ocean projects simply do not have the
same impacts as large hydro plants, with impoundments and reservoirs,
which can change the environmental composition of a river basin. And even
if ocean energy projects turn out to have unanticipated effects, they are
small and portable and can be easily removed.
Thus, another challenge for developers is to find ways to streamline the
licensing process and reduce the costs. One potential solution might be
for Congress or state governments to appropriate more money to resource
agencies to fund and conduct studies, rather than having developers bear
the costs, which is the present model. Environmental studies benefit all
taxpayers by ensuring that our resources are adequately protected -- and
there is no reason why tiny ocean energy developers should bear the cost,
particularly when they already provide a public service by risking their
own private capital to build projects that will reduce reliance on fossil
fuels and minimize environmental problems for future generations.
Seeking out government funds
Though in the long run the ocean energy industry will not succeed without
private funding, at the same time, developers should not overlook
potential sources of federal funding. As mentioned earlier, the Energy
Policy Act authorized millions of dollars of appropriations for many
renewable projects, including ocean renewables. Developers should consider
retaining firms that specialize in appropriations to ferret out and make
requests for appropriations for project funding.
For the past dozen years, I've represented and counseled all types of
ocean energy and small hydro developers in the U.S. and overseas. In all
that time, there's never been the same swell of activity, both in terms of
project development and legislative and regulatory activity that I
witnessed this past year.
Without a doubt, ocean energy made a splash in 2005. But in 2006, here's
hoping for a tidal wave.