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					OFFSHORE WIND: NORTH CAROLINA’S CLEAN ENERGY FUTURE
Analysis of Policy Options for Attracting Offshore Wind Development and Supply Chain to North Carolina

EXECUTIVE SUMMARY
          The economic development opportunities of offshore wind are considerable, but so is the
competition among East Coast States to attract those jobs. In an industry that utilizes components that
are often too large to ship by road or rail, like turbine nacelles, blades, and towers, the equation for
attracting the supply chain and its associated jobs is simple. The supply chain follows development. If a
state is able to craft policies that generate a long-term, stable pipeline of development, the supply chain
will locate facilities close to those predictable demand centers. The pattern of supply chain following
development demand has played out three times in the wind industry already – in the European
onshore market, then the European offshore market, then the U.S. onshore market. Next on the list is
the U.S offshore wind market, which is projected to be a multi-billion dollar industry.
          Assuming the technical feasibility of developing offshore wind exists as it does in North Carolina,
the two most important requirements for offshore wind developments to proceed are 1) a long term
financeable power purchase agreement (PPA) with a credit worthy buyer and 2) regulatory certainty.
          Addressing these two critical issues should be central to any policy designed to encourage
offshore wind development in the State. Other complementary measures like met tower subsidization,
transmission upgrades, and port facility upgrades can serve to augment these two main policy priorities.
          There are a number of policy options to enable financeable power purchase agreement that
have been successfully enacted in other states. These are listed below in what we believe is roughly the
order of effectiveness. While the “Delaware Model” is the most traditional approach, sensitivity to
utilities may cause some policy makers to lean towards a Feed-in-Tariff. In each of these policy options,
funds from North Carolina ratepayers or taxpayers would not be required until the facilities are
permitted, built, and producing energy, which would be 2016 to 2017 at the earliest even though the
direct economic development impacts from construction would be realized before funds are required.

1) A Feed-in-Tariff (FIT) model (Ontario, Canada is a recent example) is the most straightforward policy
to ensure rapid development. A standard price for offshore wind energy would be set (and verified by an
independent consultant) that ensures a reasonable return for developers. Utilities would be required to
purchase energy from an offshore wind facility at “market” rates that will pass FERC approval and to
provide priority interconnection for such projects. The additional funds required to
reach the FIT price would be collected either from ratepayers through a “system benefit charge” or
from taxpayers and would function outside of the REPS cost cap. Renewable energy certificates
(RECs) could either be applied towards the existing REPS targets or could operate outside the
existing REPS. An uncapped FIT would send an unmistakably strong signal to the industry and result
in developers and supply chain quickly locating in the State. A capped FIT would also generate rapid
interest and would limit costs, but decisions by suppliers to locate facilities here would depend on
both the size of the cap and the strength of other signals pointing to long-term development
demand. If capped, we recommend 800 to 1,000 MW minimum as an initial cap.

2) The “Delaware Model”, which was a competitive bid process for new generation, could be
repeated in North Carolina with some modifications. The legislature would direct the Utilities
Commission to issue a request for proposal (RFP) for offshore generation in the State for
comparison against new conventional generation. The main criterion for selection would be the 20
to 25-year life-cycle cost, not just cost in year 1, and would factor in values for environmental and
social benefits, long-term price stability, reasonable assumptions for cost of emissions, and fuel
price volatility risk. Using these criteria in a very transparent process, the Bluewater Wind project in
Delaware was selected over a new coal-fired facility and a natural gas facility and was unanimously
approved by the legislature. A REC multiplier for offshore wind was also approved in Delaware,
which resulted in no public funds being used. If a REC multiplier is not used, funds may be required
to support the REC prices needed to make the projects economically viable for investors.

3) An offshore wind carve-out / Offshore REC (OREC) model (proposed in New Jersey) would be
implemented by the legislature creating a requirement for utilities to have a minimum amount of
offshore wind generation capacity and could function outside of the existing Renewable Energy and
Energy Efficiency Portfolio Standard (REPS). Developers would be selected through a competitive
process for rights to develop a portion of that requirement (2x 450 MW projects, for example). The
price of OREC’s would be determined by a competitive bid process among the finalist developers
and utilities would be required to purchase ORECs to satisfy their portion of the carve-out. The cost
of ORECs would be funded by ratepayers and total payments to wind developers would be fixed,
which minimizes ratepayer cost while allowing developers to earn reasonable returns without
windfall profits. New Jersey’s initial goal is to have 1,100 MW of offshore wind by 2016.
North Carolina may choose to use one of these programs as a model or create a new, hybrid program
that draws components from several successful policies.

        To ensure regulatory certainty for investors and developers, any of these policies must be
crafted with a long-term focus and, at least, with enough certainty that they will not change during the
development cycle. We also recommend coordinating with federal agencies while defining the State
permitting process to avoid redundancy. Finally, we recommend that the State initiate the MMS task
force formation as both a signal to the industry and as a necessary step in the federal leasing &
permitting process.


NORTH CAROLINA’S OFFSHORE WIND RESOURCE
         North Carolina has the potential to become a leader in the U.S. offshore wind industry. The
state’s long coastline, extensive continental shelf, and highly energetic wind regime result in a
tremendous renewable energy resource for the state.

RESOURCE ESTIMATES
         The Coastal Wind Study published by UNC in June 2009 estimates that North Carolina has
the potential for over 58,000 MW of offshore wind capacity within reach of existing technology, and that
is after excluding areas with environmental or use conflicts. That represents over 130% of the state’s
total energy demand in the year 2007 and is a staggering resource. By comparison, the global capacity of
offshore wind either installed or under construction at the beginning of 2010 was over 5,200 MW. In
addition to this near-term installed capacity, actual order books from major turbine vendors has been
confidentially reported at over 5,900 MW.
         In the US Department of Energy’s 20% Wind by 2030 report, it is estimated that North Carolina
would have over 10,000 MW of offshore wind installed in order to meet the DOE targets. North Carolina
has the potential to not only provide a significant portion of its own energy from offshore wind, but also,
with proper transmission infrastructure, to potentially become a power exporter to higher-priced
markets in the Northeast.

ADVANTAGES OF OFFSHORE WIND
         Offshore wind energy is North Carolina’s most attractive renewable resource due to its large-
scale availability, ability to drive job creation, price stability, and near-zero environmental impact.
Current offshore wind project proposals around the world vary from around 350 MW to England’s
recently announced multiple-phase 32,000 MW project. These projects are comparable to the
nameplate capacities of today’s large conventional power plants. A megawatt of installed wind capacity
can power approximately 260 average North Carolina homes1. Commercial scale offshore wind is a
proven technology for electricity generation. Europe has over 2,000 MW of installed offshore wind
capacity with a goal of 40,000 MW by 2020 and 150,000 MW by 2030. The impetus behind offshore
wind development in Europe is primarily driven by energy security, climate change, price stability, job
creation, and declining fossil fuel production in the North Sea.
         Offshore winds are stronger and more consistent than their terrestrial counterparts; thus, they
are able to produce more electricity per unit than onshore wind installations. This is due to the fact that
winds will blow the strongest over areas where there are no physical obstructions like hills, buildings,
and trees. When the wind hits those obstacles, it becomes more turbulent and slows down. These
turbulent winds put additional stress on onshore wind infrastructure resulting in additional wear and
tear. However, offshore wind follows a smoother path creating laminar wind patterns that generate
more force and efficient contact with the blades. Offshore wind resources provide the combination of
higher wind speeds and laminar wind patterns, which maximizes energy output and reduces wear-and-
tear on the machines.
         Aside from the social and environmental impacts of this clean energy source, offshore wind also
provides long-term energy price stability. While it is initially more expensive than conventional
generation, offshore wind “locks in” the price of energy for 20-25 years, avoiding risks associated with
fuel price volatility and the uncertainty regarding a future price on emissions or pollution. By contrast,
the cost of conventional generation is directly impacted by fuel prices and future emissions prices, and
since fuels are (or are quickly becoming) global commodities, our fuel prices are impacted by factors
outside our national borders, including the energy demands of growing markets like China, India, and
other rapidly developing areas.
         Offshore wind will not replace all conventional generation, but it is an important part of our
energy generation portfolio that provides clean energy, local jobs, and long-term price stability.

SUPPLY CHAIN & ECONOMIC DEVELOPMENT
          There is a proven pattern that has occurred multiple times in the wind industry. Simply stated:
supply chain follows development. This pattern has played out in the onshore wind industry in both
Europe and the U.S. as well as the offshore wind industry in Europe. The fourth place we will see this is
in the US offshore wind industry, and states or regions that position themselves properly stand to be big
economic “winners”.
          The onshore wind industry supply chain developed first in Europe as a result of favorable
policies creating significant development pipelines in Europe. In the early days of the modern U.S. wind
industry the vast majority of equipment was imported from European markets. As the certainty of long-
term demand for equipment in the US onshore wind industry grew from 1998 to 2008, we saw a major
shift in the supply base for US projects as both American and European companies established
manufacturing facilities in the U.S. Today, the U.S. wind industry employs over 85,000 Americans.
          The same pattern is now playing out in the offshore wind industry. Active in offshore wind since
1991, Europe has become the center of the supply chain for the industry with over 2,000 MW already
installed. A good recent example of the supply chain following development is in the UK, where 33,000
MW of offshore wind development were recently awarded. As a result of this clear signal for long-term
demand, GE recently announced plans to invest $453 million to expand offshore wind manufacturing
facilities in the UK2. The same pattern of supply chain following development demand will occur in the
U.S. offshore wind industry. State or regions that are able to create long-term, predictable demand for
offshore wind and provide an attractive environment for manufacturing will see the supply chain, and
associated jobs, come to them.
         The sheer size of the components for offshore wind also promotes the pattern of local
manufacturing. Tower sections and nacelles for offshore wind turbines are so large that they often
cannot be transported via road or even rail. Even low-cost suppliers like China have a hard time
competing when having to ship large tower sections, which are essentially big hollow metal tubes. Local
manufacturing makes sense in this industry and that manufacturing will locate where there is long-term,
stable demand.
         The economic development associated with offshore wind includes component manufacturing,
construction, port facilities for staging areas, and long-term operations and maintenance work. The U.S.
Department of Energy’s National Renewable Energy Labs (NREL) developed a model to estimate the jobs
and economic impact of wind development. According to that model, if North Carolina were to develop
10,441 MW of offshore wind, the amount assumed in the DOE’s 20% Wind by 2030 report, that would
result in 45,000 jobs during construction, over 9,000 long-term jobs, and over $22 billion in economic
benefit.

POLICY MECHANISMS TO ENABLE OFFSHORE WIND
         Ultimately, the most important piece of an offshore wind project is the long-term contract for
the purchase of electricity, the Power Purchase Agreement (“PPA”). In order to secure project financing,
developers typically require long-term guaranteed revenues through a PPA between a developer and
a credit-worthy offtaker, usually an investor-owned utility. In return for fixed revenues with no
windfall profits, the wind developer guarantees the price of electricity every hour for the 20-25-year life
of the PPA. Offshore wind is initially more expensive in comparison to conventional electricity sources
because of its higher capital needs and recent entry into the established electricity market. However, its
long-term operations and maintenance costs are extremely low and fuel costs are zero. States are
recognizing the value of long-term price stability as well as offshore wind technology’s environmental
and social benefits and are crafting a suite of incentive mechanisms to facilitate critical ‘offtake
agreements’ that sustain offshore wind projects. North Carolina may choose to develop a policy using
these structures or create a new model.

FEED-IN-TARIFF
          A feed-in-tariff (FIT) is a policy mechanism that obligates retail utilities to purchase electricity
from renewable producers under standard arrangements specifying prices, terms and conditions. This
standardization simplifies the purchase process, provides revenue certainty to generators, and reduces
the cost of financing generating projects. The key provisions to a feed-in-tariff are 1) setting a price
that allows for a reasonable return without windfall profits, 2) a “must take” provision requiring
utilities to purchase all power generated, and 3) priority interconnection for new generation under
the FIT. FIT prices are typically set above existing retail rates in order to enable and encourage
development of clean energy technologies.
          Feed-in-tariffs have been used extensively in Europe and are considered largely responsible for
the rapid growth in the European renewable energy industry.

Benefits and Costs
         A properly structured offshore wind feed-in-tariff in North Carolina is probably the most
straightforward way to ensure very rapid growth in both development and supply chain. An uncapped
FIT with periodic reviews (e.g. every two years), like the one in Ontario, would create a strong and clear
signal that North Carolina is serious about bringing the offshore wind industry to the State, and would
result in rapid and massive investments in both development and supply chain. A capped FIT, which
limits the total allowable generation (and cost) under the program, would also have positive, albeit less
certain, results. Development plans to meet the cap would likely materialize quickly but the
establishment of the supply chain and manufacturing base in North Carolina would depend on the
market’s perception of long-term opportunity in the State, which is driven by the size of the cap as well
as other policies in place.
         Below is a chart prepared by an independent consultant for the Delaware Public Service
Commission (PSC) that shows the life-cycle rate impact of an executed offshore wind power purchase
agreement (PPA) under different assumptions for natural gas prices and carbon prices. In the Reference
Case (the red line), offshore wind ends up reducing electricity rates in the future. This chart
demonstrates the inherent price stability of offshore wind in comparison to fossil fuel generation.

Making a Feed-in-Tariff Work in North Carolina
          A clear mechanism for allocating FIT costs to ratepayers would need to be identified since
Federal Energy Regulatory Commission (FERC) laws make the process less straightforward in the U.S.A
recent technical report by the Department of Energy’s National Renewable Energy Lab (NREL) looks at
the legal constraints of states implementing a feed-in-tariff program.
          States decision makers have encountered arguments that state-level feed-in tariffs are
preempted by federal law. These arguments arise because the transaction resulting from a feed-in
tariff is a wholesale sale of electricity, from renewable seller to retail utility. A wholesale sale
of electricity triggers one of two federal statutes—the Public Utility Regulatory Policies Act of
1978 (PURPA) or the Federal Power Act of 1935 (FPA). Each of these statutes does in fact limit
the discretion of state-level tariff designers.
          There are a number of solutions to this limitation proposed in the NREL report. Some require
changes to federal law, but for states following a PURPA mandate, there is a solution that requires no
changes in federal law.
          [A] state implements PURPA by establishing an avoided cost price, which the utility must offer to
[qualifying facilities] QFs. FERC precedent allows states to supplement this avoided cost payment
(i.e., get the QF compensation exceeding avoided cost), in one of three ways: (a) assigning
“renewable energy credits,” (b) making cash grants or paying production-based incentives
(funded, for example, by taxpayers through the general budget, or by ratepayers through a
"system benefits charge"), or (c) establishing a purchase price that exceeds avoided cost but
granting the purchasing utility a tax credit equal to the excess.
          Although the PURPA process described here is limited to “qualifying facilities” which are
generally 80 MW or less, the report authors argue that the PURPA precedent allowing states to
supplement the avoided cost compensation using the methods described here also allows the same
FERC-authorized flexibility under the FPA setting.
          In other words, a feed-in-tariff policy can be implemented by a two-stage process. 1) The
legislature (or the utilities commission as directed by the legislature) requires utilities to purchase from
offshore wind energy supplier(s) at “market-rate” costs and provide priority interconnection. 2) The
funds for the supplemental cost needed to reach the designed FIT rate are collected by one of the
methods described above. Funds could be collected from ratepayers through a “system benefits charge”
(or other appropriate name), from taxpayers, or issued as tax credits to utilities. The costs for this
program would function outside of the REPS cost cap.
          RECs associated with the offshore wind energy can be handled a number of different ways and
could be a point for further policy discussion. The RECs could convey to utilities and be applicable to
their REPS requirements or could function outside of REPS requirements. The RECs can either be
bundled with the energy sale or sold separately. However the REC transaction is handled, the total
revenue paid to the developer, including energy sales, REC revenue, and supplemental payments, would
equal the designated feed-in-tariff rate. This ensures controlled costs and long-term price stability while
providing the developer with a reasonable return without windfall profits.

Other Components of a Feed-in-Tariff
          The feed-in-tariff program in Ontario also contains a domestic content provision, which requires
a certain percentage of equipment and labor to come from within the provincial boundaries, ensuring
the economic development benefits are realized locally. The requirement ramps up from 25% in early
years to 50% in order to give the local supply chain time to get established. It should be noted however
that a domestic content provision is best used with a program that creates long-term, stable
development demand. If insufficient development demand is created, for example through a capped
FIT with a low cap, the domestic content provision can backfire and make projects overly costly or
difficult to execute successfully.
          The Ontario FIT is a comprehensive program covering a wide range of renewable energy
technologies including offshore wind, and could be used as a model for an offshore wind focused
program in North Carolina. Appendix A contains language from Ontario’s Green Energy Act of 2009
which enabled the formation of the feed-in-tariff program. Appendix B contains the program overview
for the Ontario FIT program, which includes information on tariff rates, contract procedures, domestic
content requirements, and interconnection requests. Extensive information on the Ontario program can
also be found on the Ontario Power Authority’s website: http://www.fit.powerauthority.on.ca/.

“DELAWARE MODEL” PUBLIC-PRIVATE PARTNESHIP
         The ‘Delaware model’, created through Bluewater Wind’s winning a competitive solicitation,
produced the nation’s first PPA for electricity generated from offshore wind and has proven to be one of
the most sound development processes to date. (See Appendix C for an independent consultant’s report
prepared for the Delaware PSC on the outcome of that process)
         In May of 2006, following rate cap expiration, electricity prices in Delaware increased by 59%,
signifying the final switch from regulated electricity prices to market electricity prices. House Bill 6
mandated that Delmarva Power & Light (Delmarva) - the main regional utility - issue an RFP for new in-
state generation that would stabilize electricity prices. The Delaware Public Service Commission, the
State Energy Office, and two other State agencies oversaw the bidding process and the selection of a
winner. (See Appendix D for the full text of House Bill 6) Delaware’s House Bill 6 spelled out certain
criteria for the evaluation of the proposals.
         For example:
● House Bill 6, §1007, Section (d). Such RFP shall also set forth proposed selection criteria based on the
cost-effectiveness of the project in producing energy price stability, reductions in environmental impact,
benefits of adopting new and emerging technology, siting feasibility and terms and conditions
concerning the sale of energy output from such facilities.7
● House Bill 6, §1007, Section (d) Subpart (1)
The Commission and Energy Office shall ensure that each RFP elicits and recognizes the value of:
a. proposals that utilize new or innovative baseload technologies,
b. proposals that provide long-term environmental benefits to the state,
c. proposals that have existing fuel and transmission infrastructure,
d. proposals that promote fuel diversity,
e. proposals that support or improve reliability, and
f. proposals that utilize existing brownfield or industrial sites.8
         The Delaware Bill also requires the State agencies to hire an independent third-party entity at
the utility’s expense (recoverable) to help evaluate the proposals. Ultimately, the State agencies’
decision to approve a winning proposal was based on the one(s) “that result in the greatest long-term
system benefits, including those identified in subpart (1), in the most cost-effective manner.”
          Three proposals were submitted; one for a new coal plant, one for a new natural gas plant, and
one for offshore wind. The inherent price stability and life-cycle lowest cost associated with wind energy
made Bluewater Wind’s offshore wind proposal the winner. Bluewater’s selection culminated in
negotiations with Delmarva for a long-term PPA. In addition to the capacity payment and energy sales in
the PPA, the Delmarva-Bluewater agreement includes a legislatively approved Renewable Energy Credit
(REC) multiplier in order to help make the agreement economical for the developer.
          This process was extremely successful because it satisfied the state’s price stability goal, the
utility’s compliance with its renewable energy goals (via the state RPS), and established a sound
financing structure for the project. North Carolina may choose to follow a similar process using the
authority of the NC Utilities Commission to mandate that utilities create opportunities for offshore wind
development through a competitive bid process. This is a proven conduit through which to secure a
financeable PPA to support the project’s certainty of execution, ensure a public and competitive
process, and to advance the state’s economic development goals that can be realized from the growth
of the offshore wind industry.

OFFSHORE WIND CARVE-OUT
          New Jersey is proactively strengthening the offshore wind market by implementing an offshore
wind carve-out in the State RPS which will be satisfied by the fixed-price purchase of Offshore
Renewable Energy Credits (ORECs). The proposed OREC program would establish prices through a
Request for Pricing Proposal (RPP) process. The New Jersey Board of Public Utilities (NJBPU) will solicit
bids from the three winning bidders from the 2008 offshore wind solicitation to define an OREC price
that is determined by each bidder to be required for a viable revenue stream to complete an offshore
project. The NJBPU will choose the best bid based on competitive OREC prices and proposed project
competence, which sets the 20-year fixed OREC price starting that vintage year.
8 Delaware 143rd General Assembly, House Bill 6, §1007, Section (d) Subpart (1)
9 Delaware 143rd General Assembly, House Bill 6, §1007, Section (d) Subpart (3)
          Although the legislation is not yet finalized, the New Jersey OREC / carve-out system is
envisioned to work approximately as follows:
1. The legislation creates a carve-out for offshore wind in the State’s RPS. The initial goal is 1,050
MW in the first phase, with development rights currently awarded to three developers at 350
MW each. The NJ Board of Public Utilities has the authority, with some consultation required,
to extend the program beyond the initial goal. A future potential goal of 3,000 MW by 2021 has
been assumed in various documents.
2. The 20-year fixed price for ORECs (in $/MWh) will be determined by a bid process, managed by
the NJBPU, whereby the three pre-qualified bidders (Bluewater among them) submit proposals
for OREC pricing required to cover expected costs plus a reasonable return on investment. The
Board will analyze the bids with the help of a knowledgeable third-party entity and either
approve, modify, or reject the proposals. This fixed OREC price, along with an assumption about
average output of the offshore wind facilities, sets the 20-year guaranteed revenue stream to
allow for project financing.
3. Utilities are required to purchase ORECs generated from qualified projects up to the total
current State goal. The proportion of the total ORECs each utility is required to purchase is
proportional to their 12-month projected energy supply commitments.
4. The cost of purchasing ORECs is collected by utilities from ratepayers and those funds are
passed through to offshore wind developers.
5. Offshore wind developers will sell energy and capacity into the PJM market and revenues from
those sales will be refunded to the NJBPU or to utilities to offset costs that would have been
paid by ratepayers.
6. There are also provisions to ensure long-term revenue certainty for developers, which is
required to obtain project financing. If OREC sales are insufficient to meet the annual fixed
revenue targets, whether due to default by one or more OREC buyers, reduced energy demand,
or unusually low wind years, then developers may withhold revenue from energy and capacity
sales until that target has been met. In any given year, the developer should collect revenue
equal to (not more than, not less than) the annual goal defined by the 20-year fixed contract.
New Jersey is implementing ORECs through an offshore wind carve-out in the state’s RPS. However, the
NC Utilities Commission could craft an OREC program that it views to be most conducive to the North
Carolina electricity market. For example, an OREC could simply be determined as the equivalent of
multiple RECs, thus making OREC’s a key player in satisfying the state’s REPS requirements. However,
the competitively chosen Delaware model and resulting PPA or a Feed-in-Tariff program both provide
more easily financeable project structures.

POTENTIAL MODIFICATIONS TO REPS
          One of the provisions in North Carolina’s current REPS bill that will likely limit or prevent the
implementation of offshore wind is the cost cap. Because of its large scale and significant costs,
offshore wind would cause utilities to quickly reach the cost caps under the state REPS. This could not
only prevent other renewable technologies from contributing to the REPS requirements, but could also
limit the scale of offshore wind facilities. Similar to most utility-scale generation, sufficient size is
required to achieve optimal energy pricing from offshore wind. Also, the “low-cost” direction provided
to utilities in the REPS forces a shorter-term outlook and may result in utilities not adequately taking
into account the long-term benefits of offshore wind in the areas of price stability, fuel diversification,
and economic development. Below are some options for addressing these issues.
• Exclude the costs of offshore wind from the REPS cost cap,
• Increase the cost cap to allow for utility-scale offshore wind and other renewable generation,
• Remove the cost cap from the state REPS, thereby ensuring percentage targets are met,
• If a specified offshore wind feed-in-tariff is used, treat the offshore wind energy generated
outside of the REPS requirements, or
• Re-frame the “least cost mix” direction provided to take into account longer-term benefits of
renewable generation like offshore wind. This could include a requirement to analyze 10 or 20-
year life-cycle cost while taking into account price stability, environmental benefits, and
economic development value.

3.5 OTHER OPTIONS
Below are a number of policy options that supplement the three primary options described in Sections
3.1 to 3.3 above.
         REC Multipliers – One way to improve the economics of offshore wind without direct financial
impact to ratepayers is through a REC multiplier. This is accomplished by designating RECs from offshore
wind to be worth 3.5 times (for example) a standard REC, thereby making offshore wind more valuable
towards meeting the State REPS goals. This model was used for the Bluewater Wind / Delmarva Power
PPA in Delaware. The upside of this program is that it increases the value of offshore wind without any
direct financial impact to ratepayers. The downside, however, is that it may “dilute” the value of RECs
and could result in less overall renewable energy being developed to meet the state REPS.
● Met Tower Subsidies – In order to secure project financing, a developer must have sufficient wind
measurement data at the height the turbine will be operating (“hub height data”), correlated with
longterm buoy data. This is achieved by erecting a full-height meteorological tower (called a “Met”
tower) on the proposed project site. The cost to install an offshore met tower is estimated between $4-8
million, depending on site conditions. New Jersey has a program to substantially subsidize the cost of a
met tower installation for three preferred developers. One benefit of North Carolina subsidizing met
tower installations is that the data proving the state’s wind resource could be publicly available, thus
reducing risk to potential investors and attracting additional development.
● Proactive Transmission Planning– Efforts like those being undertaken by the NC Transmission Planning
Collaborative are an excellent proactive approach to short and long-term planning for transmission
infrastructure. It is crucial, however, that the unique needs of significant offshore wind development
are considered in those planning efforts.
● Transmission Infrastructure Upgrades –Performing necessary transmission infrastructure upgrades
prior to offshore wind installation, perhaps concurrent with planning and permitting, is critical to
ensuring energy can be delivered efficiently to the market. Transmission upgrades can be done by wind
developers and included in the cost of energy, however since the state and utilities have a significantly
lower cost of capital than a developer, it is generally more cost effective for upgrades to be funded by
the public sector.
● Port Facility Upgrades – There is a not-so-quiet competition happening among East Coast states to
capture the economic development benefits of the emerging offshore wind industry. North Carolina has
two deepwater ports, Morehead City and Wilmington, which could serve as staging areas for offshore
wind construction activities as well as bases for operations and maintenance activities. Identifying and
completing improvements needed to service the offshore wind industry could help make NC a regional
hub for offshore wind and attract additional supply chain and manufacturing. Some states use
economic development riders as a mechanism for funding projects like this.
● Manufacturing Tax Credits – The primary driver for attracting “Tier 1” suppliers (large components –
nacelles, blades, towers) is going to be a long-term, stable development pipeline. However, many of the
tier 2 and 3 suppliers of smaller, more easily shipped sub-components can be attracted by
manufacturing tax credits or similar policies. With North Carolina’s strong manufacturing base, the
State has the potential to attract significant supply chain economic development with favorable policies.
● MMS Revenue Sharing – Though not a policy option, it should be pointed out that offshore wind
development may result in increased revenue to the State, which could be used to offset the cost of
other policy initiatives. Current MMS rules specify that if a project’s geographic center is within 15 miles
of a state’s coastline, there is a 27% revenue share to the State.10 For a 400 MW project, this could
equate to about $340,000 per year in additional State revenue.11 Most of NC’s strong resource without
use conflicts is beyond the 15 mile limit but there are some areas of resource within that limit.

NC’S ROADMAP FOR OFFSHORE WIND DEVELOPMENT
Assuming there is a proven resource and technical feasibility, the two most important factors in
allowing offshore wind development to secure financing and proceed are 1) securing a long-term
power purchase agreement with a credit-worthy buyer and 2) regulatory certainty. Addressing both of
these needs through effective policy is the optimal path to success of offshore wind in North Carolina.

FINANCING AND OFFTAKE AGREEMENTS
          North Carolina’s utilities have historically operated under a “low-cost and reliability” mandate,
and have done so very successfully. Operating purely under that mandate with no additional direction,
utilities will not likely enter into contracts to purchase offshore wind power, despite its low life-cycle
cost, longterm price stability, and social and environmental benefits. In order for a long-term PPA for
offshore wind to be executed, which is critical to project financing, there must be new policy and
additional direction provided to the state’s utilities. The state REPS is a good first step, but given its cost
cap constraints, additional mechanisms are required to realize the benefits of the state’s offshore wind
resource. Section 3 of this paper describes a number of suggestions for proven policies to achieve this
end.

REGULATORY CERTAINTY
         Due to the high up-front capital costs, lengthy permitting processes, and 20-25 year contract
lengths, investors require a high level of regulatory certainty before committing significant resources to
pursuing offshore wind development. Supply chain providers and manufacturers also typically need to
see regulatory certainty leading to a predictable, long-term development pipeline before they will
decide to invest in new facilities in the State. There are two broad categories where regulatory certainty
is required: 1) Policy stability/certainty and 2) Permitting process clarity. First, whatever policies are
chosen to help enable offshore wind development (some suggestions in Section 3), they must be
designed in such a way that developers and investors can at least count on policies not changing during
the course of any given project development. An even longer-term policy commitment sends stronger
signals to the market and encourages a longer-term development pipeline and establishment of new
supply chain facilities.
         Of course, the challenge of committing to longer-term policy initiatives is that it requires larger
cost commitments. Second, a well-defined, efficient, and thorough permitting process is critical for
successful project development. Offshore wind projects will be subject to both state and federal
regulatory oversight; the permitting process must be clear and streamlined to allow for parallel yet
coordinated permit acquisition within a time period not to exceed 2 years. The State should clearly
define the amount of data it feels is needed to satisfy project permitting and use one agency (perhaps
DENR) as the one-stop shop for review and completion of permits. Coordinating these data needs with
relevant federal agencies such as Fish and Wildlife and Army Corps of Engineers is critical in order to
avoid repetitive investigative efforts on behalf of the developer. A clear singular message from both
state and federal agencies regarding required studies will contribute to timely project completion and
efficient allocation of resources. To assist in evaluating permitting requirements, we also suggest that
the State proceed with requesting the formation of an MMS task force for offshore wind. Forming the
MMS task force is not only a requirement of the Federal permitting process, but it also sends a signal to
the industry about the State’s intent to develop offshore wind and creates a group that can be used as a
resource for defining the State permitting process. The task force formation is initiated by a letter from
the Governor’s office to the MMS.

INFRASTRUCTURE NEEDS
        Infrastructure needs for the offshore wind industry in North Carolina include electrical
interconnection and transmission; suitable port facilities for shipping components, staging, and
construction; local supply chain for large components, and offshore met tower installations.
        Transmission Upgrades – The UNC Coastal Wind Study (June 2009) identified up to 250 MW of
transmission capacity at the Progress Energy Morehead City substation, which could be ideally located
for connecting to offshore wind projects. Given the scale of planned offshore wind installations (often
350 MW or larger), some upgrades to the transmission infrastructure will likely be required.
Transmission upgrades can certainly be done by wind developers and included in the cost of energy
delivered, however it is generally more economically efficient for either the State or utilities to fund
those improvements since their cost of capital is significantly lower than a private developers. Whoever
manages the upgrades, long-term transmission planning and upgrades being done in advance of project
construction are crucial to avoid the curtailment issues that have plagued markets like west Texas.
Port Facilities – North Carolina has two deepwater ports that could be suitably developed to service the
regional offshore wind industry. Over 19 years of experience in Europe has helped to define the
requirements for a port to effectively service the construction stage of offshore wind projects. Due to
the extremely large size of turbine components, ports are required to have large staging and storage
areas, proper heavy lift equipment, deep drafts, and robust transportation options. The European Wind
Energy Association has generated the following list of requirements for port facilities.

Port Facility Requirements
• an area of storage of 6 to 25 ha (60,000 to250,000m2, or approx 10 to 60 acres);
• private dedicated road between storage and quayside;
• quay length: approximately 150m to 250m;
• quay bearing capacity; 3 to 6 tons/m2;
• a seabed with sufficient bearing capacity near the pier;
• draft of minimum 6m;
• warehouse facilities of 1,000 to 1,500m2;
• access for smaller vessels (pontoon bridge, barge, etc);
• access for heavy/oversize trucks;
• potentially license/approvals for helicopter transfer;
• being available for the project installation.

● Local Supply Chain – For “Tier 1” suppliers of large components like nacelles, blades, and tower
sections, the supply chain follows the development pipeline. See section 2.3 for a discussion on
attracting the industry supply chain to North Carolina.
● Met Towers – Meteorological towers are erected offshore at proposed project locations to provide
“hub-height” measurement data that lenders can use to reliably predict project power output. State
subsidized, or even State owned met tower(s) make that same data publicly available, thereby
demonstrating the State’s wind resource and potentially attracting developers to the North Carolina.
Indirect measurements, like the SODAR unit being installed by UNC on an existing Dept. of Defense
platform, can provide similar information at a lower cost, but indirect wind measurements are currently
not financeable and on-site met tower installation will still be required for any given project.

NC’S WIND ENERGY GOAL
          It is entirely possible that North Carolina will have the first offshore wind projects in the
Southeast. As such, it is critical that North Carolina attract the most capable development expertise to
complete these projects responsibly. An effective way to attract such investment is to commit the State
to an offshore wind development goal. Rhode Island and New Jersey announced clear offshore wind
goals and bid out the projects to developers. Rhode Island’s solicitation called for an offshore wind
facility that would generate 15% of the state’s electricity needs13. New Jersey’s goal for the first phase
of development is 1,050 MW, with development rights currently awarded to three preferred developers
at 350 MW each. New Jersey’s longer-term goal is to have 3,000 MW of offshore wind by 2021. This
type of commitment will attract developer attention and positions the state as a regional contender on
offshore wind. It would attract developers to the state because there would be a defined and executable
project, or ideally a project development pipeline with which to work. This mandate would also provide
offshore wind equipment manufacturers with a quantifiable long-term production series for their
products, thus providing more support for locating manufacturing activities in North Carolina

FREQUENT QUESTIONS, CONCERNS, AND MISCONCEPTIONS
There are a number of very good questions and concerns that are frequently raised when discussing
offshore wind energy, including:
● Why should North Carolina consider offshore wind?
The development of renewable energy resources provides environmental and public health benefits to
North Carolina citizens. Offshore wind energy can play an important role in North Carolina’s electric
generation portfolio because winds are stronger and less turbulent offshore, enabling wind turbines to
generate more renewable energy. While no offshore wind farm has yet been built in the United States,
there have been successful offshore wind projects off the shores of European countries since 1991.
● What is the potential offshore wind resource in North Carolina?
After accounting for potential geological, environmental, and use conflicts, the University of North
Carolina at Chapel Hill found a limited portion of state waters in the Pamlico Sound and over 2,800
square miles of potential development area in waters less than 50 meters deep and within 50 miles of
the coastline. In sum, these areas contain 58,000 MW of offshore wind capacity within reach of existing
technology. Some published reports suggest a microclimate near the Gulf Stream that could be
particularly energetic.
● What are the economics of an offshore wind farm?
In comparisons done in 2010, the initial construction costs of offshore wind are more expensive than
other sources of electric generation, the full life-cycle costs of offshore wind has been found to be more
cost competitive than other sources of generation in the state of Delaware. However, any added cost
for carbon as well as a very real health and pollution cost associated with fossil fuel plants will tend to
reduce the relative cost of offshore wind and make it more cost competitive, even in a present-day
comparison. Finally, adding the job creation benefits and economic dev potential in North Carolina
could tip the balance in favor of offshore wind being a net greater benefit to North Carolina than
building new fossil power.
● What would offshore wind turbines look like?
Many of the potential sites identified by the University of North Carolina at Chapel Hill are located 10+
miles from the coastline. Offshore turbines would not be visible on almost all beach days but would be
visible on a very clear winter day. Site-specific photo visualization analysis would be done early on in the
review process.
● What are the potential geological, environmental, and use conflicts that must be considered in
offshore wind development?
An offshore wind project would need to install foundation systems that are appropriate for the
associated geological conditions; study the environmental impact, including impacts to birds, bats, and
marine wildlife; and limit conflicts with existing resource uses, such as low altitude training flights,
traditional navigation corridors, ocean fishing lanes, and commercial fishing areas. The Coastal Wind
Study by the University of North Carolina at Chapel Hill analyzed many of these elements and identified
extensive areas where offshore wind energy could be well suited for North Carolina.
● Where can I learn more about offshore wind in North Carolina?
The Coastal Wind Study released by the University of North Carolina at Chapel Hill is the most extensive
study of North Carolina’s offshore wind resource. Full report: http://www.climate.unc.edu/coastalwind.

We appreciate the opportunity to present this information to North Carolina stakeholders and we look
forward to being engaged in the discussion on how to make offshore wind a reality in the State.

Prepared and Presented by:
Peter Mandelstam, Founder and President, Bluewater Wind
201-748-5000 – peter@bluewaterwind.com
Brian O’Hara, Founder, Outer Banks Wind
919-604-6877 – briano@outerbankswind.com
A Special Thanks To:
North Carolina Sustainable Energy Association
for reviewing and commenting on drafts of this paper.
North Carolina Offshore Wind May 2010
Public and Non Confidential
APPENDIX
North Carolina Offshore Wind
White Paper
North Carolina Offshore Wind May 2010
Public and Non Confidential

APPENDIX A: Selected Sections of Ontario Green Energy Act, 2009
Full bill may be found at http://www.ontla.on.ca/bills/bills-files/39_Parliament/Session1/b150ra.pdf

APPENDIX B: Ontario Feed-in-Tariff Program Overview
Document may also be found at http://www.fit.powerauthority.on.ca/Storage.asp?StorageID=10507
North Carolina Offshore Wind May 2010
Public and Non Confidential

APPENDIX C: Independent Consultant’s Report to Delaware PSC on
Bluewater / Delmarva Power PPA
Document may also be found at http://www.ceoe.udel.edu/Windpower/DE-Qs/NEO%20Report%207-3-
08%20FINAL.pdf
North Carolina Offshore Wind May 2010
Public and Non Confidential

APPENDIX D: Delaware House Bill 6 – 143rd General Assembly, 2006
May also be found at http://legis.delaware.gov/LIS/LIS143.NSF/vwLegislation/HB+6?Opendocument

				
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