By Timothy B. Wheeler, The Baltimore Sun
3:39 PM EST, January 12, 2013
After being thwarted the past two years by skittish lawmakers, Gov. Martin O'Malley is preparing once again to introduce a bill aimed at planting mammoth wind turbines off Ocean City — and the measure may finally pass, thanks to a shake-up in a committee that stifled it last year.
Whether turbines ever get built off Maryland's coast remains to be seen, though. The wind industry faces significant financial hurdles in its attempts to build the first offshore electricity generator anywhere in the United States.
"I think there's just no doubt that a bill is going to the governor's desk this year," predicted Mike Tidwell, founder of the Chesapeake Climate Action Network, one of offshore wind's most ardent advocates.
Observers say this is a potential watershed year for offshore wind. Congress recently extended federal tax breaks meant to encourage renewable energy development. Three wind projects along the coast in Massachusetts, Rhode Island and New Jersey stand to benefit from that one-year extension, and construction could start by year's end. In an industry struggling to launch its first project, such government subsidies and incentives are vital, advocates say.
The federal Bureau of Ocean Energy Management is expected to invite bids later this year for leases in a 124-square mile swath of the Outer Continental Shelf off Maryland. Eight wind developers had expressed interest in the area, though one has since dropped out. What happens in Annapolis this year could be critical, observers say.
"I think the timing [for the governor's bill] is better now than it was last year or the year before," said Jeremy Firestone, a professor of legal studies at the University of Delaware and an expert on renewable-energy policy.
O'Malley's bill won't be introduced for another week or so, but Abigail Hopper, his energy adviser, said it would be "very similar" to the one the House of Delegates approved last year. That measure, whittled down from the governor's original proposed, would have offered a limited subsidy to place dozens of turbines 12 to 26 miles off Maryland's coast.
Under the bill, state households would be projected to pay up to $1.50 a month on electricity bills to support a modest-sized project capable of generating up to 200 megawatts. Depending on the size and design, the number of turbines could range from 30 to 70.
O'Malley and his supporters in the environmental community say the state should act to reduce climate-warming greenhouse gases and to put Maryland in the forefront of what they believe is a promising clean-energy technology. Lining up a wind project off Ocean City would give a boost to the state's economy, they contend. It would support hundreds of jobs — not just in building it, but in manufacturing and servicing turbines and related infrastructure all along the East Coast and even nationwide, as more projects get going.
"We think this will be the first step in a much larger movement," said Hopper.
But opponents, including state Sen. E.J. Pipkin, a Republican representing the upper Eastern Shore, argue that offshore wind is prohibitively expensive, and its higher-priced electricity could cost jobs rather than create them.
"This is like the dumbest project ever," Pipkin said. "Each year the governor brings it back, and the economics get worse."
Pipkin questions why the state should commit ratepayers to nurture a fledgling industry when Western Maryland is sitting on potentially rich reserves of natural gas.
Under the governor's bill, the state would require Maryland's electricity suppliers to furnish up to 2.5 percent of their power from offshore turbines by 2017. And it offers a subsidy to encourage the construction of enough turbines off the coast to generate 1 percent of the state's energy needs, by guaranteeing developers a fixed price for the power they produce.
That power is expected to be much more expensive to produce than what's cranked out by coal, gas or nuclear plants, or even land-based wind turbines. But under the O'Malley bill, offshore developers would sell their electricity at whatever the market will pay, and state ratepayers would make up the difference. Using a complicated financing system of energy "credits," the House-passed bill last year would have authorized a maximum price for offshore-wind electricity of 19 cents per kilowatt-hour, which is roughly double Baltimore Gas & Electric Co.'s current standard residential rate.
The bill would also direct the state Public Service Commission, which regulates energy suppliers, to approve a wind farm proposal only if it meets certain criteria, including capping the projected extra costs to residential ratepayers at $1.50 a month.
Hopper said prospective developers would need to hit "a very narrow strike zone" of conditions laid out in the bill to qualify for approval. But she insisted that the developers bear all the risk, and the state's ratepayers and businesses wouldn't pay anything if a project fails to materialize or falls through. Nor would they pay more if the project suffers cost overruns, she said.
If fossil-fired electricity prices fall more than projected, ratepayers might have to pay more than $1.50 a month for offshore wind power, Hopper said. But any increase in the subsidy would be offset in that case by the decline in consumers' overall power bills, she noted. And if electricity prices, which have declined 20 percent in the past three years, unexpectedly soar, the premium that ratepayers pay would actually shrink under the bill's provisions.
The average household served by BGE will pay $102.70 this month for 800 kilowatt-hours, according to the company, not counting the cost of distributing it over the wires. In 2010, that same amount of electricity cost $125.17.
While lawmakers leery of irate constituents have pressed the administration to limit the impact on Marylanders' electricity bills, others warn of another risk: discouraging development.
"You definitely need significant state incentives," said Firestone. "If the incentives are too small, at this point, offshore wind won't be built."
One of the companies interested in building off Maryland's coast has urged O'Malley to increase the size of his incentive package. Larger projects of 300 megawatts or more actually begin to see "economies of scale," wrote Deepwater Wind CEO Jeffrey Grybowski, allowing the cost per kilowatt-hour of electricity produced to go down.
Hopper acknowledged the pressure, but said the administration is "comfortable" with the smaller incentive package the House passed last year.
Senate support for offshore wind has yet to be tested, because O'Malley's bill never got out of the Finance Committee. Sen. Thomas M. Middleton, a Charles County Democrat in charge of that panel, said he believes it will send the legislation to the floor this time because one of the bill's opponents last year has been shifted to another committee.
Middleton also said he had urged the governor to stick to the proposal that the House passed. Last year, O'Malley sought a higher subsidy of up to $2 a month for a larger project, but delegates reduced the scope.
Even if Maryland lawmakers approve an offshore wind bill this year, the state is unlikely to claim bragging rights to the nation's first offshore wind farm. The earliest that turbines might begin spinning off Ocean City would probably be 2017, while other projects hoping to start within the year — the 130-turbine Cape Wind project in Massachusetts, a five-turbine venture in Rhode Island and a six-turbine pilot off Atlantic City in New Jersey — would be finished before that.
How many other projects are built in the next several years, including off Maryland's coast, may depend on whether Congress renews the federal investment tax credit. It helps make offshore wind projects more feasible to finance by letting developers take a tax credit against 30 percent of a project's costs.
Time and time again over nearly two decades, the credit has nearly expired, only to be renewed for another year or two. That has left developers wondering whether the credit would still be there when their project was ready.
"The industry is turned off by the uncertainty of that market benefit, and is not willing to make strong investments … with such short-term commitments," said Walt Musial, an engineer who specializes in offshore wind for the National Renewable Energy Laboratory in Golden, Colo.
Wind energy supporters in the U.S. Senate, including Maryland's two senators, have co-sponsored a more predictable tax break, which they hope might get wrapped into any tax reform efforts in Congress this year, said Jim Lanard, executive director of the Offshore Wind Development Coalition.
Even with federal help, large-scale offshore wind farms face a daunting challenge from the recent boom in U.S. production of natural gas and oil from shale deposits. Prices for natural gas in particular have plummeted, making it far less costly to build a land-based power plant that relies on gas to power its turbines than one in the ocean.
"Is this going to lead to a wind farm? At today's prices, probably not," climate activist Tidwell said of the Maryland bill. But he predicted the prospects would improve over the next several years through government actions and changes in energy markets.
"You can't get there without a start," Tidwell concluded. "This is a good start."