The federal government holds an auction Tuesday for two leases to develop wind farms in federal waters off Ocean City.
If built, the two wind farms will cover almost 80,000 acres, roughly half the size of Howard County. The western border of the parcels is about ten nautical miles off the coast.
Sixteen companies have qualified to bid, including SCS Maryland Energy LLC. Its Chief Operating Officer, Mike Miller, says that the high upfront cost of offshore wind has made it hard to find investors. “There’s so many potential points of failure,” he says. “Ultimately everyone’s financial reward comes over a 20 year period of steady production of electricity.”
Not many companies (or investors) can be so patient. It’s unlikely all sixteen firms that qualified to bid will do so. To win, developers have to place the largest cash bid. After the auction is certified, they’ll start to pay an annual rent of $3 dollars per acre. They pay an operating fee once the turbines produce power.
But it could be more than five years before a site design is complete, let alone constructed. To make the project more financially enticing, the General Assembly passed a subsidy last year. Once energy is generated, ratepayers will pay up to $1.50 a month more on household energy bills, in 2012 dollars. Businesses pay up to 1.5 percent more annually. A developer has to win approval from the state’s Public Service Commission to get it, but that money will help.
Liz Burdock, who runs the Business Network for Maryland Offshore Wind (BizMDOSW), a trade group, says that Maryland is alone among states in offering this kind of funding mechanism. “Why we are so confident that this project is going forward is because the financing is in place unlike other offshore wind projects,” she says.
BizMDOSW members hope that dozens of subcontracts become available during the installation and operations phases. The network has a database of companies that want to get in on the action, and Burdock plans to hand over that list to the winning developers.
Still, she stresses the need for urgency. “[Local businesses] keep thinking because they’ve heard, well, the turbines aren’t going to be up and spinning until 2019, that they can wait until 2018 to become involved in this industry,” she says. “By 2018, this ship will have sailed and the opportunities will be gone.”
No partner will be more critical than the company that builds the actual turbine, according to Memo Diriker, director of the BEACON center at Salisbury University. “It is very important that whoever’s going to win the bid puts together a consortium with a very strong turbine partner – the most expensive, most complicated piece of machinery in the whole equation,” he says.
Most of the world’s offshore turbine manufacturers are in Europe, and that’s not likely to change soon. Attracting a turbine manufacturing plant depends on whether the U.S. can scale up its offshore wind industry into the thousands of megawatts. Currently, there are no wind farms in U.S. waters.
Federal officials say that fully-developed Maryland leases can produce up to 1,450 megawatts of power. Others estimate that it’s not financially feasible to produce that much energy yet. Still, developer Mike Miller sees Maryland’s local experiment in offshore wind as part of a larger effort: “whether or not we’re going to find a way to viably develop that industry and have it as a part of the growth of our economy.”
So, Miller’s company will be at the online auction Tuesday, raising its virtual paddle.