It’s a cold, windy day on the beach in Nags Head, and Daryl Law is looking out over the ocean. He reaches up to hold down his hat, which is threatening to blow off. “You can tell the wind’s really blowing today,” he says to no one in particular. He points towards the sky. “The turbines are starting to furl.”
Law is the public relations coordinator at Jennette’s Pier, which was constructed in 1939 as the area’s first fishing pier. He’s standing under one of three 90-foot turbines that were installed on the pier in late 2010. He looks up at the hulking giants and says that on especially windy days, the turbines are capable of powering half of the pier’s facility. Today seems like one of those days, and a group of fishermen stop to mumble something about hoping they don’t blow off.
Law says he never thought much about wind energy before taking his job, but after noticing that the turbines cut the pier’s electricity bill by $6,000 in a year and a half, he’s looked into buying one for his own house. He’s started to travel to wind conferences and says he’s interested in the possibility of offshore wind. “It’d be new and different, and in the beginning, people will be upset by the turbines,” he says, struggling to be heard over the waves crashing into the pier. “But maybe if they put a few up out there, people would see they aren’t noisy or anything, and they could build a farm.”
He pauses for a minute to look out over the water again. “It’d be fine by me. I’d love it.”
Law isn’t alone. Proponents of renewable energy have long called for installing turbines off the state’s coast because of North Carolina’s high potential. North Carolina has the largest offshore wind resource on the East Coast. If the coast were completely developed, offshore wind would be able to meet 130 percent of the state’s energy needs–of course, no one has suggested that much development. Because of the cheap labor available in the state, North Carolina also has the lowest estimated construction costs for offshore wind of any state and one of the largest electricity markets on the East Coast. All of this begs the question: Why haven’t any large offshore wind projects, the big ones that could feed electrons to a utility company, been built here?
Simply put, the answer is it’s just too expensive. By some estimates, the electricity produced by proposed wind farms would cost around 16 cents per kilowatt hour. That’s nearly double the 9.9 cents per kilowatt hour that North Carolinians pay for electricity today. “The present costs are relatively high,” says Jeremy Firestone, a professor of Marine Policy and Legal Studies at the University of Delaware. “But,” he adds hastily, “that’s not unusual for a new technology.”
Firestone was part of a study at the University of Delaware that concluded the winds of the Middle Atlantic Bight, the aquatic region from Cape Cod, Mass., to Cape Hatteras, N.C., have the potential of generating 330 gigawatts of power—enough to support nine states from Massachusetts to North Carolina. He says the government will need to make investments in offshore wind energy attractive for states to be able to tap that potential “If we want to bring down the cost of offshore wind, then we’ve got to encourage its development through government policy.”
But offshore wind may lose crucial government support on December 31, when the Investment Tax Credit is set to expire. The Investment Tax Credit—also known as the ITC— is provided by the federal government and voted on by Congress. It offers manufacturers of offshore wind energy a credit equal to 30 percent of their project cost and is available for qualifying facilities that are “placed in service”—meaning they start producing energy—before the end of 2012.
The problem is, no such facilities exist.
Developers say that the high price of wind has made it difficult to negotiate contracts with utilities, which in turn makes it hard to secure investments. They are asking Congress to extend the credit for another year and change the language of the credit so that it applies to projects that start building their facilities before the end of 2013.
Brian O’Hara, the director of the North Carolina Offshore Wind Coalition, a nonprofit organization that advocates for wind development and regional collaboration along the East Coast, says the change in language is crucial because the planning cycle for an offshore wind farm is long—lasting from four to seven years—and thus it would be impossible for one to start producing energy in one year.
O’Hara has spent the last few years touting the benefits of wind to investors in North Carolina. He says that losing the credit would hurt investor confidence and slow the process of financing wind energy development. “The industry really needs some sort of long-term tax certainty to be able to effectively plan out these projects,” he says.
With the deadline quickly approaching, leaders of offshore wind energy development have scrambled to mobilize congressional support for the extension. Jim Lanard, the president of the Offshore Wind Development Coalition, which advocates for federal policies promoting the development of wind, has called the potential loss of the credit an “impossible barrier.” Lanard has come out in support of the “Incentivizing Offshore Wind Power Act’’ introduced by Senators Tom Carper (D-Del.), and Olympia Snowe (R-Maine) in July.
The bill calls for a one-year extension of the deadline and includes the change of language so that the credit applies to projects that start construction by 2013. It’s part of a larger tax package called the Family and Business Tax Cut Certainty Act of 2012 that was approved by the Senate Finance Committee in August.
Lanard says he expects the bill to pass through Congress later this year. “We’ve always said that we would need an extension of the Investment Tax Credit,” he says. “It’s inconceivable to me that it would be vetoed.”
But not everyone is buying in. Opponents of renewable energy argue that offshore wind has had enough time to become cost-competitive and that removing the credit would create a level playing field for energy. John Droz, a coastal resident from Morehead City who has traveled around the state to give anti-wind energy presentations, says he is strongly opposed to the extension. “Why should our federal tax dollars pay for this private business enterprise?” he asks. “What’s in it for the citizens?”
Droz says that wind is too expensive to succeed on its own and extending the subsidy is just draining tax dollars: “All of this time has gone by and they’re still singing the same tune: We need more money.”
Level playing field
Yet the fact is energy subsidies are nothing new. According to a study produced by DBL Investors, a venture capital firm that invests heavily in clean technology, the U.S. government’s history of offering incentives for energy sources dates back to 1789, when leaders of the new nation slapped a tariff on the sale of British coal.
“The U.S. has always provided financial assistance to new energy technologies and indeed provides financial assistance to old energy technologies, even to this day,” says Firestone, who was involved in a study through the University of Delaware that examined wind resources on the east coast.
He says that traditional energy sources have received larger and longer-lasting federal subsidies than renewable energy. These numbers are confirmed by the DBL study, which shows that while renewable energy received an average of $370 million in annual energy subsidies between 1994 and 2009, oil and gas received an average of $4.86 billion annually between 1918 and 2009.
O’Hara agreed with Firestone’s assessment, and added that, while current subsidies for wind may exceed those for nuclear, coal or gas, those numbers don’t take into account “indirect” subsidies, like “the public health effects of mining and burning coal [and] the military costs for our hyper-dependence on oil prices.”
The cost of these “indirect” subsidies was the subject of a recent study co-authored by eleven scientists, including Dr. Paul Epstein, the director of Harvard Medical School Center for Health and the Global Environment. The study found the best estimate for the “true” cost of coal to be over $345 billion.
O’Hara says it is important to understand the cost of “indirect” subsidies so that people know what they are paying for. “On a per unit of energy basis, these ‘indirect’ subsidies are far larger than any of the subsidies for renewables.”
So what does this mean for offshore wind?
In interviews, wind advocates said the prognosis looks good for the federal investment tax credit. Lanard says he believes there’s enough momentum behind wind to ensure that the credit is extended for another year.
But he says that this extension alone won’t be enough. Even with an extra year, it will be difficult to find developers willing to invest in billion-dollar offshore wind farms. Lanard says it’s likely that the wind industry will need to ask for another extension of the credit in 2013.
“There are many new start-up costs that will initially push the cost higher than traditional forms of energy,” Lanard says. He emphasizes that developers need to know they can make a profit by selling to utility companies before investing. “Before the end of 2013, the investment will only be made by companies that have a very high level of confidence that they have a revenue stream that would support the financing of their projects.”
He stops to list the developments that are on track to start construction before 2013: Cape Wind Project in Massachusetts, Deepwater Wind in Rhode Island and maybe a pilot project off Atlantic City, N.J. None are in North Carolina.
O’Hara agrees that a one-year extension of the credit won’t be enough to jump-start the industry, but says he’s not deterred by the slow start.
“This is a brand-new technology for the U.S.,” he says. “And when you’re talking about an investment that large, for something that big, in an industry that is historically a very conservative, risk-averse, slow-moving industry, it takes time to get things going.”
“When you’re looking at a transition that we’re making as a society from fossil fuels to clean energy that’s driven by market conditions, there is a huge business opportunity in this,” he said. “And I hope North Carolina is one of the states that takes it.”