When it comes to wind power, the U.S. could learn a thing or two from Denmark. The country made a long-term commitment to wind energy in the 1970s, and now the Danish wind industry employs roughly 28,000 people (in a country of only three million workers). Fully 20 percent of Danish electricity comes from wind turbines on land and off the coasts. In contrast, the U.S. generates less than 2 percent of its energy from wind, though this share has been steadily increasing.
Last month, I traveled to Copenhagen with other students to learn more about the Danish approach to wind power, and offshore wind farms in particular. We talked to business leaders and government officials, toured wind farms and factories, saw how the government has made wind energy an attractive prospect for developers, and came back with ideas for improving support to offshore wind in the U.S.
Why the focus on offshore wind? Because, although sea-based turbines are currently more expensive than those on land, they offer some interesting strategic advantages. They can be built near major coastal cities without straining existing transmission systems. The open ocean enables the construction of farms large enough to generate as much electricity as traditional power plants. And intriguingly, the turbines become more efficient with increasing size. The newest models are taller than the Statue of Liberty, with blade wingspans longer than a football field.
Why does size matter, apart from efficiency? Jobs. Parts this big are so pricey to transport that local manufacturing can compete on the overall cost of a project, even in countries with high labor wages like the United States. Developing offshore wind on the Atlantic coast alone could create 133,000 to 212,000 U.S. jobs annually, according to a recent analysis from Oceana, an ocean conservancy group. Offshore wind, in other words, means onshore jobs.
With numbers like that in the air, the federal initiative announced last week to help jumpstart the U.S. offshore wind industry is timely and welcome. The plan, released by Interior Secretary Ken Salazar and Energy Secretary Steven Chu, provides up to $50.5 million in grants to improve turbine technology and otherwise equip the offshore wind power market to compete on cost with traditional electricity sources. The initiative will help meet President Obama’s State of the Union goal of creating new jobs while generating 80 percent of energy from clean sources by 2035.
Based on the view from Denmark, I was encouraged to see that the federal initiative brings progress in several areas that have been key to the Danish success story, though it also neglects an important one. What are the encouraging aspects? And where could further policy changes help us achieve offshore wind’s full potential?
First, by conducting preemptive environmental reviews of the coastline, the Danish government makes it easier for wind developers to find suitable sites to develop into wind farms. The plan from Secretaries Salazar and Chu identifies “Wind Energy Areas” along the East Coast, which will receive expedited reviews to reduce the time needed to evaluate and approve potential wind farms.
Second, private developers in Denmark must interact with just one public office: the Danish Energy Agency. The agency supervises a routinized regulatory process that can move a wind project from proposal to construction in roughly two years, and there are only two opportunities to challenge the process in court.
Compare this to the Cape Wind project in Massachusetts — likely to be the first offshore wind farm in the U.S. — which received its final permits in January 2010 after nearly a decade of bureaucratic and legal difficulty. No fewer than 17 separate federal and state agencies reviewed Cape Wind. The subsequent delays due to the permitting’s sheer complexity also gave opposition groups numerous opportunities to bring litigation against the project.
Encouragingly, Massachusetts has begun coordinating work between its energy and environmental agencies. And in addition to reflecting collaboration between the Departments of Energy and Interior, the new federal initiative funds research to make regulation more efficient. These reforms should provide new confidence to investors weighing the risks of U.S. offshore projects against those in other countries.
Finally, and perhaps most important for the development of a full-fledged wind power sector, Denmark provides a guaranteed “feed-in tariff” to wind farm developers. The tariff is paid in pennies per kilowatt-hour generated, which enables the consumer to purchase clean energy at a price competitive with traditional sources. It’s on this issue of financing that we could do better in the United States.
Since 1992, the U.S. has supported renewable electricity through the production tax credit (PTC), which reduces the cost of clean energy by about 2 cents a kilowatt-hour. But, compared to a tariff, the PTC has several shortcomings. As a tax credit, its value to the developer depends on income, which many energy start-ups don’t have. Tax equity financing, meanwhile, dried up during the financial crisis. And once secured by a developer, the PTC typically lasts for 10 years — yet a modern wind farm generates power for twice that time. But most significantly, the PTC requires regular congressional renewal, which has lapsed on three occasions since the 1990s. Each lapse resulted in a collapse in new wind turbine installation.
This “stop-start” dynamic undermines the certainty of the market for renewable electricity, making it risky for businesses up the supply chain to make long-term investments in factories or port facilities. The jobs that President Obama sees emerging from the clean energy sector depend on improving this certainty, but reform of the production tax credit — which would help all renewable energy — is missing from the new offshore wind initiative.
Much remains to be done to ensure the viability of domestic offshore wind power, and the global pool of investment capital for clean energy will continue to favor countries, like Denmark, that create certainty for the industry. But the new federal plan reflects learning from nations that have succeeded in fostering clean energy and is a major step in the right direction.
Nicholas Gerry-Bullard is a master’s candidate in the joint MPP/MBA program at Harvard Business School and the Harvard Kennedy School of Government. The views expressed are his own.