THE BLOG
07/17/2013 03:12 pm ET Updated Sep 16, 2013

A Cautionary Tale: Maine, Statoil and the Importance of State Policies to Advance Offshore Wind

Earlier this month, Statoil, a Norwegian international energy company, announced it will put the brakes on its $120 million Hywind pilot floating offshore wind project in Maine. The news was disappointing because the Maine Public Utilities Commission had already approved the project in January, after a competitive bidding process and nearly two years of settling on a final contract. More disconcerting was that it seemed the state legislature had forced Statoil's hand, sparking a wider discussion about the role of state policy in building an offshore wind market in the U.S.

Statoil's announcement was a direct reaction to LD 1472, a law passed by the state legislature that asks the Maine Public Utilities Commission to accept a second round of bids for offshore wind projects. On one hand, this means the University of Maine -- whose rapidly advancing floating turbine prototype development program was recently featured on a CESA Offshore Wind Accelerator Project webinar -- could conceivably bid in to develop the project and reap its economic awards.

Dr. Habib Dagher, the university's point man on floating offshore wind turbine technology development, told a reporter this week that it makes a lot of sense to combine his project with Statoil's, which would reduce transmission costs and make both projects more viable -- especially since they are competing with each other and five other projects for technology demonstration funding from the U.S. Department of Energy. But there are big differences between the two projects, and the two institutions, and Statoil has yet to publicly comment on Dagher's suggestion.

In the meantime, LD 1472's upshot is a significant loss of certainty, time and money to a key private developer, who might end up abandoning the project altogether. In a letter to the Maine PUC announcing its intention to put Hywind on hold, Statoil says it is considering many locations for the project, and "cannot continue to spend its resources on this project without certainty that a contract for the project output will be finalized."

It's a reasonable request, and highlights some of the major historical problems with developing offshore wind in the U.S. Without policies that make permitting, siting, and financing easier to secure -- from tax credits to ORECs to collaborative procurement -- and make risks easier to predict and manage, private companies won't have the certainty they need to become players in the industry. Investment follows certainty.

Of course, all states are not created equal. But other states have managed to support offshore wind development with both strong executive leadership and legislation. In Maryland, Gov. Martin O'Malley has been a strong proponent of offshore wind energy, and led the charge to eventual passage of the Maryland Offshore Wind Energy Act of 2013 earlier this year. The law paves the way for a ratepayer-funded offshore wind farm off the coast of Ocean City, Md. New Jersey has also taken the lead, creating an Offshore Renewable Energy Credit (OREC) market. Fishermen's Energy, which aims to develop an offshore wind farm off the coast of Atlantic City, NJ, hopes to hear back soon on its application to finance its project with the new ORECs. If approved, it would be a historic first and a significant step toward creation of the nation's first offshore wind project.

In Maine, it seems that odd politics is the real problem. Maine Gov. Paul LePage has been a longtime opponent of offshore wind. In April, he accused the University of Maine of "tricking" people with a "damn windmill in the back yard" (LePage claimed he saw a motor powering the turbine, a claim the University denied). In January, when the PUC first approved Statoil's pilot project contract, LePage expressed public disagreement with the decision, citing high costs of offshore wind power development.

Now, it seems LePage is happy with the delay. "Prior to moving forward with a $200 million contract I would prefer to consider the economic opportunity to our own university system, right here in Maine," he said in a statement about his veto of a bill that would have approved the Statoil deal.

Of course, it's possible LePage may just be pleased with the delay, period. As Jack Cashman pointed out in a recent op-ed against the decision,

Unfortunately, LePage chose to base his veto message on a desire to undo a deal already in place with Statoil to develop an offshore wind-power pilot project and allow the process to be reopened so the University of Maine can put in a competing bid.

Ignoring the fact that allowing a state-funded institution to compete with private industry is a strange position for a ... pro-business administration to take, the real problem is the state's changing the rules after the fact.

You can spin this any way you like, but to the worldwide business community watching all this, Maine has reneged on a deal with a private company that committed to invest hundreds of millions of dollars in our state.

Ultimately, the macro impacts of such a lost opportunity will resonate beyond individual states' borders. On July 4, the United Kingdom celebrated the opening of the London Array, the world's largest offshore wind farm, and just this week approved a new farm that will be even bigger. Offshore wind is now mainstream in Europe. The U.S. has already fallen behind and could lose the economic benefits of new emerging clean energy technology once again if it does not act aggressively.

Hopefully, Statoil's offshore wind ambitions will be realized, in Maine or otherwise. But this should be a cautionary tale to other states. The economic benefits associated with the offshore wind supply chain will be a huge boon to whichever states are first movers in the U.S. offshore wind industry. Muddling the forecast for project developers will squash those opportunities.