LePage’s energy czar questions offshore wind plan; most PUC comments supportive

AUGUSTA, Maine — While environmental groups, business leaders and university officials continue to trumpet the long-term benefits of placing a wind farm off the coast of Maine, Gov. Paul LePage’s energy czar wants more answers about whether the effect on ratepayers and the proposed economic benefits justify the project.

If customers will have to pay more for their electricity as a result of the project, Ken Fletcher, director of the Maine Energy Office, wants assurances that more than 30 jobs will be created, as one analysis suggests.

As a pilot project for more extensive development of offshore wind energy production, Statoil North America proposes to moor four floating turbines in federal waters off the coast of Maine to generate 12 megawatts of energy. On May 2, 2011, Statoil North America submitted a proposal for the project, called Hywind Maine, to the Maine Public Utilities Commission, which had issued a request for proposals after the Legislature passed the 2010 Ocean Energy Act.

A separate federal process to determine competitive interest and environmental effects is underway through the Bureau of Ocean Energy Management.

In documents dated Aug. 15, Statoil North America submitted to the PUC a term sheet, including economic impact projections, for a proposed 20-year contract to sell power generated by offshore turbines to one or more of Maine’s three major utility providers, Central Maine Power, Bangor Hydro and Maine Public Service Co. Anticipated overall costs and how much Statoil North America expects to pay to Maine businesses for work related to the pilot project are blacked out of the documents made available to the public on the PUC website.

The term sheet elicited responses from dozens of Maine residents, state and national advocacy groups. businesses and government officials. Most are supportive.

Fletcher submitted written comments in response to Statoil’s proposal on Sept. 7, the initial deadline that the PUC set to accept comments. He expressed concern about the cost to utility company ratepayers, Statoil’s commitment to Maine beyond this pilot project and the relatively low number of jobs that Hywind Maine is projected to create.

“The proposal sets the electricity price at a minimum of $290/MWh which is significantly higher than historic and current prices,” Fletcher wrote. “Over the 20-year contract term, Maine ratepayers could be required to pay $203 million higher costs.”

“I don’t know if Maine ratepayers can shoulder $10 million per year without more assurance that this will work,” Fletcher told the Bangor Daily News on Friday. “I know pilot project costs are higher, but if you’re asking Maine ratepayers to pay $10 million per year, we need to see that we’re going to get a reasonable return on the investment.”

“By its very concept, the pilot park is not intended to optimize cost efficiency or to produce energy at costs that reflect current market prices,” attorney Patrick Scully of the firm Bernstein Shur wrote on behalf of Statoil in a Sept. 7 response to confidential comments submitted by CMP, Bangor Hydro and Maine Public Service Co. “It is intended to be the first step in developing the capabilities, the technologies, the supply chain and the economies of scale that will result in a large scale, cost-effective offshore wind industry off the Maine coast.

“The rate impact associated with this important pilot project is not large,” Scully wrote. “For an average residential household consuming 500 kWh per month, a rate increase of 0.145 cents/kWh results in a monthly bill impact of 73 cents per month.”

In his letter, Scully also thanked the Maine Public Advocate’s Office, which represents ratepayers, for its support of Statoil.

Dr. Habib Dagher of the Advanced Structures and Composites Center at the University of Maine, where research and development of model floating turbines continues through a consortium known as DeepCwind, believes a system in which turbines are built on land then towed out to sea, where they would be moored, offers potential for great savings over the cost of energy produced by turbines that are fixed into the seabed as is the case in Europe.

But the experimental nature of the floating turbine technology — none exists in the U.S. — creates uncertainty for Fletcher. “It just can’t keep going forever,” he said. “That’s why price is so critical. If it can never get to that competitive point, then we’re committing to subsidizing it forever.”

“All the work we’ve done is pointing to the fact that we ought to be able to meet [a goal of getting the cost down to 10 cents per kilowatt hour by 2020],” Dagher said Thursday. “Our goal is to get the cost down to be competitive, to one of the lowest costs of energy in Maine by 2020.”

The three utility companies filed confidential statements, which based on Scully’s response, also expressed concerns about the cost of power generated by Hywind Maine.

“We raise this issue because these are costs that go back to ratepayers,” said John Carroll, a spokesman for CMP. “It’s important to consider that many of our customers are challenged by the cost of electricity and a contract that adds cost adds hardship for our customers.”

While Statoil North America would contract with the utility companies, “over-market” pricing for energy from the offshore wind farm would be borne by ratepayers as stranded costs, Fletcher said. He worries about the effect that could have on low-income Mainers and small business.

An analysis of jobs created directly and indirectly by the Hywind Maine project also troubles Fletcher. Economic impact projections by economist Charles Colgan of the Muskie School of Public Policy, commissioned by Statoil and submitted with the term sheet, reflect a gain of 30 jobs for the project’s maintenance and operation phase and an economic benefit of $63.33 million, according to Fletcher’s calculations.

“If the 20-year above-market electricity rate impact is $200 million, the economic benefit of an $63 million in regional earnings increase as compared to a cost of $200 million needs to be assessed to determine if there is a net positive gain in economic development in the state,” he wrote in the Sept. 7 comments.

Beth Nagusky, who served as co-chairwoman of Gov. John Baldacci’s Ocean Energy Task Force, said the broadest economic benefits will derive from manufacturing and creating a supply chain for the nascent offshore wind energy industry. She said that the project’s economic impact should not be judged simply on the number of jobs created for Hywind Maine, but as a potential catalyst for the state’s composites, boat building and manufacturing sectors.

“Yes, it’s expensive,” she said Friday. “But if we’re not willing to spend the money, we’ll never get the benefit of the buildout. The only way we’ll ever see huge benefits is if we’re willing to take the small risk.”

Fletcher emphasized that he’s not opposed to the project, but that the LePage administration wants to see more specifics and commitment from Statoil than the Aug. 15 term sheet reflects. The 2010 Ocean Energy Act’s intent is to “encourage the development of deep-water offshore wind energy in a way that enhanced economic development in Maine in a meaningful and measurable manner,” he wrote.

“I’m certainly not saying ocean wind should not be considered, but if we are going to make a $200 million investment, we need to see more,” Fletcher said Friday. “There needs to be a stronger commitment from Statoil. It need not be a contract, but it has to be a greater commitment.”

Annette Bossler, who identifies herself as a business development consultant for European and U.S. energy firms, in Sept. 6 comments submitted to the PUC, argues that Maine has more to lose by thwarting the project than by taking a chance on it. She warns that “a ‘no’ by the Maine PUC to the Statoil project will send the message around the globe that, while Maine with its deep-water offshore wind resources has a lot of potential, Maine does not make it happen when real opportunities present themselves.”

Support and funding from private sources also would ease the uncertainty, Fletcher said.

Comments submitted to the PUC in response to the Statoil term sheet indicate that such support exists within Maine’s business community. Among those who wrote to support the project are Peter Vigue, president and chairman of Cianbro, who wrote Thursday that “although Hywind Maine will be a small-scale project, Statoil’s commitment to Maine has been clear and consistent. They have repeatedly said they will not build a pilot project where there is no potential to build a commercial-scale project.”

Vigue further argued that Statoil “has both the financial capacity and technical expertise to get this project off the ground.”

Engineering firms, energy consultants and Reed & Reed, a Woolwich-based company with experience in constructing wind energy turbines, also filed statements in support of Statoil’s proposal.

“Statoil has designed a pilot R&D project to conform to the goals and standards outlined in the Ocean Energy Act,” Kristen Aamodt, project manager for Hywind Maine, wrote in an email Friday evening to the Bangor Daily News. “We believe that this project will be an important door opener for the development of commercial scale floating wind farms in the Gulf of Maine and worldwide. We are committed to working with the state of Maine and key members of the Maine business and research communities to ensure that the project provides the highest value possible for the state.”