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Legislation encourages wind farm, but hurdles remain

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After three years of trying, Gov. Martin O'Malley has won approval of legislation that aims to spur construction of towering wind turbines off Maryland's Atlantic coast.

Now comes the hard part.

Daunting regulatory, political and financial hurdles remain before a wind-driven power plant could be built in the water 10 to 20 miles from Ocean City. Even if all goes right, construction could be four to seven years away, industry and government experts say — long after O'Malley has left the State House.

"We have a lot more work to do," said Abigail Ross Hopper, the governor's energy adviser and acting director of the Maryland Energy Administration.

Jim Lanard, president of the Offshore Wind Development Coalition, a national group of developers, praised the Maryland legislation, saying projects that can cost billions of dollars to build need help from states to ensure a market for the electricity they generate.

The bill will require suppliers of electricity in the state to get up to 2.5 percent of their power from offshore wind as early as 2017. And it would offer a successful developer a subsidy of up to $1.7 billion over 20 years — paid for by Maryland's residential and commercial electric ratepayers through slightly higher bills.

To pay for the subsidy, the Public Service Commission could authorize an additional charge of up to $1.50 a month for residential electricity customers. Commercial customers could see a charge of up to 1.5 percent of their electric bills. The higher rates would help assure that the wind energy developer takes in enough money to pay its investors.

To keep customer costs that low, the governor scaled back the project that would be supported by Maryland ratepayers to 200 megawatts, about a third the size of offshore wind developments proposed in other states.

Some have said the smaller scale of the Maryland project could deter developer interest. Hopper said state officials hope developers can find ways to leverage the state subsidy to finance a larger wind facility.

Attention now shifts to the federal government, which is preparing to issue a notice of its intent to lease nearly 80,000 acres of ocean off Maryland for one or more wind energy projects. A spokeswoman for the Interior Department said the notice will go out later this year.

"There is a leap of faith proposals will come in that work," said Nathan Hultman, an associate professor at the University of Maryland who focuses on energy policy.

Six companies expressed interest last year in bidding for a lease off Ocean City, but they haven't yet been required to put any money down to stake a claim. That will come once the Interior Department holds an auction for the Maryland patch of Outer Continental Shelf and selects one or more winning bidders. Hopper said state officials hope that will happen by the end of the year.

Securing a lease is only the next hurdle. Any proposed wind project must be reviewed by the Public Service Commission, and the legislation limits what the commission can approve.

To encourage bids, Maryland officials awarded a $3.3 million contract this year to a Florida-based marine survey firm to map the ocean bottom to be leased. The information will help developers assess the terrain on which they would be anchoring turbines.

Some opposed O'Malley's wind legislation because they object to the government's subsidizing any particular industry, arguing that the market is better at choosing the least costly way to generate energy. Hultman noted that the state tried to boost solar panel manufacturing in Maryland, only to see the plant in Frederick close. But he said other efforts to help fledgling industries get started have succeeded, pointing to Denmark's subsidy of wind projects and the growth of land-based wind in the United States, largely with the aid of a generous federal tax credit.

Hopper said she hopes developers can use Maryland's subsidy for a modest-sized complex of perhaps 40 turbines to get financing for a larger project. And the state has proposed carving its offshore wind area into two zones, with an eye to getting enough interest that the federal government would issue two leases instead of one.

Meanwhile, state and federal officials still are reviewing potential effects of a wind project off Maryland's coast on fish, migratory bird and marine mammal populations, and on human activities such as commercial and recreational fishing and shipping. Any of those could result in trimming the area available for building turbines, particularly shipping.

Thousands of ships enter and leave Delaware Bay and traverse the Mid-Atlantic coast annually. Officials with the Coast Guard, which oversees maritime safety in U.S. waters, say they're concerned about the potential for ships to collide, run aground, or just burn up significant amounts of fuel and valuable shipping time if they have to detour to avoid turbines built just south and west of the main shipping corridor for the Delaware Bay. They also note that there is significant coastal traffic cruising between New York and Hampton Roads that cuts right through the area being eyed for leasing.

The Coast Guard is conducting a computer analysis of the effects on shipping of multiple offshore wind projects planned along the coast, from Maine to North Carolina. The study should be finished by late fall, said Emile Benard, a marine safety consultant for the service. Depending on the results, the Coast Guard may ask for a buffer zone of one to five miles — which at the outside could put most of the Maryland offshore wind area off limits.

"I think that's still up in the air," said John Walters, a Coast Guard waterways management official, when asked what the service might seek.

Lanard, representing offshore wind developers, said they would object if the Coast Guard tries to impose larger shipping buffers around turbines in U.S. waters than the one-mile separation now enforced for water-borne wind farms in Europe or elsewhere.

The unsettled nature of federal investment tax credits for offshore wind also poses a major political and financial challenge for Maryland and other states pursuing projects. The lucrative federal tax break, which allows developers to take a credit against 30 percent of the project's cost, nearly expired last year and was extended by Congress at the last minute for just another year. It's never been authorized for more than two years at a time, which makes it hard for developers to count on in figuring a project's affordability.

Sens. Tom Carper, a Delaware Democrat, and Susan Collins, a Republican from Maine, have introduced a bill that would create a lasting pool of tax credits for the first 3,000 megawatts' worth of offshore wind developed — enough for 15 projects of the size that Maryland's legislation would aid. The measure, and a parallel one in the House, have bipartisan support, including co-sponsors from Maryland, but Congress has failed to act on a similar proposal before. Lanard said he believes the wind tax credits could be included in broader tax reform or energy legislation that may be proposed later this year.

Though construction of turbines isn't likely to start for several years, businesses are gearing up to get in on the nascent offshore wind industry. Maryland's legislation calls for creating a $10 million fund to give small and minority-owned businesses technical help. The bill creates a committee to advise the state on how to spend those funds, a portion of which will be drawn from $30 million given the state by Exelon when it merged with Constellation Energy. Another task force would be formed to design "clean energy" degree programs at the state's historically black universities, and yet another group would guide community colleges in designing training for wind-related jobs.

Business interest in offshore wind has been growing, according to Liz Burdock, executive director of the Business Coalition for Maryland Offshore Wind. The group's membership has grown to 125 members, and it's planning a workshop April 4 for companies hoping to get in on the "supply chain" for the industry, which she said needs to be in place before turbine construction begins.

"There's a misconception that now the bill has passed, things are just magically going to appear," she said. "There's a lot of pieces that have to be put together."

The state energy agency and the Maryland Port Administration are strategizing, for instance, about how to make the port of Baltimore a transport hub for manufacturers and others supplying offshore wind projects in Maryland and possibly neighboring states, according to Hopper.

The protracted three-year debate in Annapolis over offshore wind claimed at least one business casualty, though. AC Wind announced plans in 2011 to spend $10 million converting a boat plant in Salisbury into a factory for fashioning fiberglass turbine blades and other components. Company president John Congedo said the firm shelved the factory plan and "throttled back" last year after O'Malley's bill died for a second straight year.

"The timetable on this is going to be slower than anybody thought," he said. But Congedo said he remains convinced that offshore wind has a future in America, and he's exploring getting back in, focused perhaps more on research and development this time.

Peter Mandelstam, a veteran offshore wind developer, praised O'Malley for fighting for the legislation. Mandelstam has seen his own share of setbacks, having helped another company, NRG Bluewater Wind, secure a lease to put wind turbines off Delaware's coast, only to have the financing deal fall apart. The project is shelved for now.

O'Malley is "taking the long view, which is the right view," said Mandelstam, founder of Arcadia Windpower, one of the six firms that indicated interest in bidding for a lease off Maryland.

Offshore wind projects elsewhere along the coast have been held up by litigation and difficulty securing financing. But Lanard said with the Maryland legislation and moves by the Obama administration to spur offshore wind, "we're seeing a lot more interest and excitement." He said long-debated projects off Massachusetts and Rhode Island are getting closer to starting work on what could be the first offshore wind farm built in the United States.

"Fifty-five other wind farms are operating offshore, mostly in Europe but now in China as well," Lanard said. "So we've got some catching up to do."

tim.wheeler@baltsun.com

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