This is Part 2; read Part 1 here.
Legal Framework for Contracting
The European model for wind farm contracts is one that has been highly successful and adopted in many regions. Usually this involves the Swiss-based Federation of Consulting Engineers (FIDIC). Although not prevalent in the USA, outside the model is seen as fair and comprehensive.
In the US the structure has generally been applied in onshore projects that the turbine and the Balance of Plant (BOP) contracts are supplied separately.
In both cases there will need to be an agreement for O & M, where the contractor may – or may not – be the original turbine manufacturer. Increasingly third-party providers are moving into this sector of the market, where they can specialize.
European developers, experienced in FIDIC contracts, will no doubt prefer to use them as part of the negotiations. Given the American tendency to like to do things their way, it may be that some organizations will want to use adapted US onshore contracts or perhaps variants from Oil and Gas offshore agreements.
Important Liability Issues
The long and often complex cable routing between turbines and then the power-take off to the grid onshore involve difficult decisions and balancing of risk. This often involves Marine Warranty Surveyors for an independent technical review while cables are being laid – to have an instant appraisal of a problem or hazard. These are often required by insurers.
US Oil and Gas projects commonly have a procedure called colloquially “knock for knock” - that is each corporation is responsible for injuries to its personnel and damage to its property or equipment, even if it is another company's fault. Each pays for their own. It simplified things, and means that there are not complex and costly legal proceedings. Some contractors may see this as a simple way to allocate risk in OW projects.
FERC Oversight of Transmission Systems Upgrading
The Federal Energy Regulatory Commission (FERC) has an important role to play, coordinating RTO/ISO transmission systems. Orders No 2003 and 2006 ensure that the below procedure is followed:
Stage 1 Application/interconnection request
Scoping meeting between transmission owners and customer once the application is complete
Feasibility Study or Studies of the proposed project to ensure it is viable
System Impact Study to determine whether the capability of the transmission system is sufficient to support the requested interconnection.
Facilities Study – to see what equipment, engineering and construction work will cost to implement the conclusions of the System Impact Study
Once all the studies are completed, Large Generator Interconnection Agreements are drafted and finalized. Offshore wind projects are more complex than those on land, and the interconnections may be difficult to manage if there are dangerous conditions or are remote from the mainland grid.
Offshore Wind Power Purchase Agreements
Previously purchasers of PPAs used to be large utilities. Nowadays they can also be investor-owned utilities, or Commercial Industrial and Institutional (CI & I) power purchasers. The trend for organizations like Google and Apple to invest in their own renewable energy generation, rather than buying it from a utility, is undoubtedly a theme which will continue.
Renewable Energy Tax Credits
During 2019 the renewables industry in the USA lobbied extensively for the continuation of these credits. Solar power lost out, but Wind RETCs will continue till 2024. If bill passes congress, as is expected, wind developers can now qualify for the production tax credit through 2020 — a year longer than anticipated. Developers qualifying projects in 2020 will receive 60 percent of the PTC if they bring those projects online by the end of 2024. Projects that qualified in 2019 will still receive only 40 percent of the incentive.
That will benefit onshore wind developers. However, offshore wind developers, who typically opt for the Investment Tax Credit, will not receive the financial incentive, so will have to make some difficult decisions.
Consent and Permitting
In 2005 BOEM was authorized under the Energy Policy Act to issue leases, easements, and rights of way to allow for energy development on the Outer Continental Shelf (“OCS”). This was supplemented in 2009 with the Renewable Energy Program Regulations (30 CFR 585) to provide a framework for BOEM to oversee the offshore renewable energy industry. These regulations continue to be updated as the young industry matures.
BOEM has adopted a four-stage structure to enable the industry to proceed to commercial viability.
Planning and Analysis
This consists of environmental due diligence, consultation with the various stakeholders including local tribes, fishers, and State or Federal agencies to determine potential sites for OW turbines. BOEM may issue a Request for Interest or a Call for Information to elicit the level of interest before moving forward to auctions of sea areas.
BOEM usually issues leases using competitive auctions, but also has the capability to issue them on a non-competitive basis if it feels the need to do so.
This stage will involve the analysis of the site for hazards, resources, and environmental disruption, including both direct and indirect impacts.
Construction and Operations plan
Once these stages are completed successfully the developer or consortium will need to create the Construction and Operations Plan (COP). Once completed it is reviewed by BOEM,and then if it is approved, the turbines and ancillary equipment can be constructed, installed and begin operations.
During operations, the turbine array will need to be constantly monitored and assessed as to yield actually produced. The offshore substation will also need to be monitored. This critical infrastructure is they key to OW farms successful operation, and may need to be upgraded during the 25+ year lifespan of the array.
Regulatory Structures Conclusion
The US system is different to the European one, which will inevitably cause frictions as developers have to adapt to performing tasks and legal obligations in a different way. However this is not a major obstacle – as the US is lagging behind Europe many of the painfully-learnt best practices will be instituted in the US industry as it grows.
This is Part 2. Read Part 1 here.
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