The Law of Wind: A Guide to Business and Legal Issues

The Law of Wind: A Guide to Business and Legal Issues

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Cherise M. Gaffney
Chad T. Marriott
Alan R. Merkle
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Offshore Wind in the United States

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I. Why Offshore? As of the date of this publication, there is one operating offshore wind project in the United States: the five-turbine, 30 MW Block Island Wind Farm off the coast of Rhode Island. The Block Island project began commercial operations in December 2016. Several other projects have been proposed over the past several years, and a few have advanced to various stages of development, off the coasts of Massachusetts, New Jersey, New York, Virginia, Maryland, Ohio, and Michigan. With the success of the Block Island project, recent developments in turbine technology, and a continuing push by coastal states without significant onshore wind resources to help satisfy state renewable portfolio standards (“RPS”), interest in offshore wind in the United States has continued to increase (albeit cautiously). The National Renewable Energy Laboratory has estimated that several states, including Michigan, Ohio, New Jersey, both Carolinas, Maine, and Massachusetts, may be able to supply more than 100 percent of their 2004 state electricity consumption through offshore wind sited in waters at less than 30 meters in depth at locations within 50 nautical miles of shore. Because offshore wind resources are generally greater and more stable than onshore wind resources, some of these states see offshore wind as a potentially viable alternative for satisfying utilities’ RPS obligations. In addition, offshore wind represents potential new opportunities for economic development and job growth through establishment of infrastructure and manufacturing bases in these states.

II. Federal vs. State Jurisdictional Waters. Both the outer continental shelf (“OCS”) and the Great Lakes have demonstrated strong potential for offshore wind. The first distinction that must be made is which agency has jurisdiction over the submerged lands upon which the wind energy project will be placed. Each state bordering the Atlantic Ocean or Pacific Ocean has jurisdiction over submerged lands out to three nautical miles offshore pursuant to the Submerged Land Act of 1953. Texas, Florida, and Louisiana have jurisdiction over submerged lands in the Gulf of Mexico out to nine nautical miles offshore. Beyond the state jurisdictional borders, jurisdiction to grant leases, rights-of-way (“ROWs”), and rights-of-use and easements (“RUEs”) on the OCS for most energy projects lies with the Bureau of Ocean Energy Management (“BOEM”), a division of the U.S. Department of Interior, pursuant to the Outer Continental Shelf Lands Act as amended by the Energy Policy Act of 2005 (“EPAct”). EPAct gave BOEM (formerly the Minerals Management Service) jurisdiction over renewable energy projects, such as wave, wind, and solar energy, and other projects that make alternative use of existing oil and natural gas platforms in federal waters. In the Great Lakes, each state has jurisdiction over submerged lands out to the center of each lake. This jurisdictional distinction is important because leasing regulations differ based on whether a project is to be sited in federal or state jurisdictional waters.

A. The Federal Leasing Process. As stated above, EPAct granted BOEM jurisdiction over renewable energy projects on the OCS. BOEM grants competitive and non-competitive commercial leases, limited leases, ROWs, and RUEs for renewable energy development activities, including the siting and construction of offshore wind farms on the OCS. A commercial lease issued by BOEM conveys the access and operational rights necessary to produce, sell, and deliver renewable energy generated on the OCS. A commercial lease provides the lessee full rights to apply for and receive authorizations to assess, test, and produce renewable energy on a commercial scale over the long term (approximately 30 years). A limited lease will convey access and operational rights for activities on the OCS that support the production of energy, but do not result in the production of electricity or other energy product for sale, distribution, or other commercial use exceeding a limit specified in the lease. Other land interests that may be granted include ROWs for construction and use of cables or pipelines for transmitting, distributing, or otherwise transporting energy, as well as RUEs for the use of existing OCS facilities for activities not otherwise authorized by the BOEM rules.

The BOEM regulations also require a comprehensive environmental review before a lease may be entered into. Specifically, a Site Assessment Plan (“SAP”), a Construction and Operations Plan (“COP”), and a General Activities Plan (“GAP”) are required to be submitted for BOEM review and approval. The SAP and the COP will be used for commercial leases, while the GAP will be used for limited leases and grants. The SAP describes the activities (e.g., installation of meteorological towers, meteorological buoys) a lessee plans to perform for the characterization of its commercial lease, including the project easement, or to test technology devices. A COP will be required before a lessee may conduct any activities pertaining to construction of facilities for commercial operations under the lease. The COP describes the construction, operations, and conceptual decommissioning activities the lessee plans to undertake under the lease and project easement. A GAP will be required before a lessee or grantee may begin activities on a limited lease (including a project easement, as applicable) or ROW grant or RUE grant. The GAP describes the site assessment and/or development activities. If the action by BOEM of approving these plans is found to be a major federal action significantly affecting the quality of human health or the environment, BOEM will need to comply with the National Environmental Policy Act (“NEPA”). NEPA compliance is discussed in greater detail in Chapter 3. For each approval that is found to trigger NEPA, either an Environmental Assessment or an Environmental Impact Statement will need to be prepared.

BOEM’s regulations also specify the amount of financial assurance that is required to be posted by the lessee for each phase of development: a $100,000 basic lease-specific bond or another BOEM-approved financial assurance before BOEM will issue the lease; a possible second assurance if BOEM determines that it is necessary due to the complexity, number, and location of facilities in the SAP; and a third assurance before BOEM will approve a COP or before the Federal Energy Regulatory Commission issues a license for a hydrokinetic project. Additional payments or deposits are required and vary depending on whether the application is for a competitive or non-competitive lease. A $300,000 bond or financial assurance is required for a limited lease, ROW grant, or RUE grant, or an amount sufficient to guarantee compliance with the terms and conditions of the limited lease or grant. Prescribed rental amounts that will be paid by a lessee during the term of a commercial and limited lease are generally $3.00 per acre per year. Commercial lease rental payments will be paid during construction, and an operating fee will be paid during commercial operation that will be calculated according to a formula based on the project’s nameplate capacity and anticipated capacity factor and the annual average wholesale electric power price for the state where the transmission makes landfall.

B. Federal Offshore Policy Initiatives. In addition to specific regulations for siting and constructing offshore wind projects, federal agencies are also engaged in interagency initiatives intended to promote the growth of the offshore wind industry and streamline the federal permitting process.

1. National Offshore Wind Strategy. First released in February 2011, the National Offshore Wind Strategy1 (“Strategy”) is the product of the Department of Energy’s (“DOE”) Office of Energy Efficiency and Renewable Energy Wind and Water Power Program. The Strategy seeks to bolster DOE’s Offshore Wind Innovation and Demonstration Initiative through a joint effort with the Department of the Interior (“DOI”) to “spur the rapid and responsible development of offshore wind energy.” With the goal of deploying 10 GW of offshore capacity at a cost of $0.10 per kWh by 2020 and 54 GW at $0.07 per kWh by 2030, the Strategy strives to reduce the costs and timelines associated with offshore wind projects through a “suite of three focus areas – Technology Development, Market Barrier Removal, and Advanced Technology Demonstration.”

An updated strategy was jointly released by DOI and DOE in 2016,2 emphasizing a renewed emphasis on collaborative efforts to facilitate offshore wind development. In the refreshed strategy, DOE commits to reducing the “levelized cost of energy through technological advancement,” and DOI “aims to enhance its regulatory program” by reducing burdens on regulated stakeholders. In addition to reducing costs and timelines for establishing offshore wind energy projects, the refreshed strategy also emphasizes the importance of increased understanding of the potential costs and benefits associated with offshore wind energy.

2. National Ocean Policy Implementation Plan. In a similar vein, the National Ocean Policy Implementation Plan (“Plan”) was released by the National Ocean Council in April 2013.3 The National Ocean Council, which was established by Executive Order 13547 in July 2010, is composed of 27 federal agencies. Broader in scope than the National Offshore Wind Strategy, the Plan is designed to benefit “(1) The Ocean Economy, (2) Safety and Security, and (3) Coastal and Ocean Resilience by supporting (4) Local Choices, and providing foundational (5) Science and Information.” Specific to facilitating offshore wind, the Plan seeks to galvanize federal agencies to, among other things, advance mapping technology and data access, and facilitate the permitting process through improved information exchange among federal, state, and local entities.

C. The State Leasing Process. Each state with jurisdiction over submerged lands on which energy projects may be sited must establish its own leasing process for those submerged lands. Texas has a program, administered by the Texas General Land Office, under which it leases submerged lands, the revenues from which flow to the Texas Permanent School Fund. A preliminary step to creating a leasing process that some states (Rhode Island, New Jersey, and Michigan) have taken is a form of “ocean zoning,” or identification of prudent sites within state jurisdiction for the siting of offshore energy facilities. Specifically, the Rhode Island Ocean Special Area Management Plan, led by the Rhode Island Coastal Resources Management Council, defined use zones for the state’s coastal waters to protect and enhance current uses as well as plan for future uses, such as renewable energy development. Michigan’s Great Lakes Wind Council submitted a report to the Governor in September 2009 identifying most favorable areas, categorical exclusion areas, and conditional areas to the development of offshore wind projects in the Great Lakes, and in 2010 submitted recommended legislative changes to amend the state statute governing issuance of leases for submerged lands to facilitate offshore wind projects. And the Great Lakes Wind Atlas, developed by researchers at Cornell University and the Technical University of Denmark, uses information from multiple sources to estimate the wind conditions in the Great Lakes region and has found strong potential in the north-central area of Lake Michigan and along the southern coast of Lake Superior.

III. Federal, State, and Local Permitting. For a comprehensive discussion on the siting and permitting of wind projects, see Chapter 3. Several issues common to both terrestrial and offshore wind development include evaluation of avian impacts, visual impacts, and wake effect. With offshore wind development, BOEM leads federal environmental review for OCS projects, and the U.S. Army Corps of Engineers (“Corps”) leads the federal environmental review for Great Lakes projects. The triggering action for BOEM will be its issuance of the land interest, such as a commercial lease, while the triggering action for the Corps will be issuance of a permit under Section 404 of the Clean Water Act and Section 10 of the Rivers and Harbors Act. Unlike the OCS projects, however, Great Lakes projects will have a greater state focus, as the state will be drafting and coordinating the permitting and leasing process. Other federal statutes that may be triggered by offshore wind development include the Coastal Zone Management Act (“CZMA”), Marine Mammal Protection Act, Migratory Bird Treaty Act, Marine Sanctuaries Act, and Endangered Species Act. State approvals will include state shoreline permits and/or determinations of consistency with the state’s Coastal Management Program, as well as energy siting permits for energy facilities. Finally, many coastal states authorize local governments to issue permits for shoreline areas. These local permits may be a condition precedent to receiving the state’s consistency determination under the CZMA, which in turn is necessary before a federal approval (such as a Corps permit) may occur. Special attention should be paid to the local process as it relates to the overall permit strategy. Download The Law of Wind - 8th Edition (PDF)


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1See https://www.energy.gov/sites/prod/files/2016/09/f33/National-Offshore-Wind-Strategy-report-09082016.pdf

2See https://www.energy.gov/sites/prod/files/2016/09/f33/National-Offshore-Wind-Strategy-report-09082016.pdf

3See https://www.whitehouse.gov/sites/whitehouse.gov/files/ceq/national_ocean_policy_draft_implementation_plan_01-12-12.pdf

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