By William Opalka and Rich Heidorn Jr.

The federal government on Wednesday designated about 127 square miles off Long Island as a wind energy area that could produce as much as 900 MW of power for New York.

The area designated by the Interior Department’s Bureau of Ocean Energy Management, about 11 miles south of Long Island, comprises 81,130 acres.

The announcement — which came a day after Interior withdrew plans to allow oil drilling off Virginia, North Carolina, South Carolina and Georgia — was cheered by environmentalists.

“The offshore wind industry is critical to the ultimate success of Gov. [Andrew] Cuomo’s call for the generation of 50% of New York’s energy from renewable sources by 2030,” said Anne Reynolds, executive director of the Alliance for Clean Energy New York. (See Cuomo: 50% Renewables by 2030, Keep Nukes Going.)

Offshore wind also is crucial to the U.S. Energy Department’s “wind vision,” which set a goal of capturing a 20% share of U.S. electricity production by 2030 (including 22 GW of offshore wind) and 35% by 2050 (with 86 GW of offshore wind).

BOEM has already issued 11 commercial wind energy leases off the Atlantic coast, but development of them has been slowed by high costs and local opposition.

The Cape Wind project off Massachusetts has withstood an onslaught of court challenges, but it was put on hold last year when it failed to meet financial benchmarks that led to the cancellation of its power purchase agreements. (See Terminated PPA Imperils Cape Wind Offshore Project.)

Projects off New Jersey also have stalled, although state legislators are trying to revive them.

Deepwater Wind began work last July on the first demonstration project in the country, a 30-MW project off Rhode Island’s Block Island. The project, which had to withstand court and regulatory challenges to its above-market contracts with local distribution company National Grid, could go into service as soon as this year. (See FERC Won’t Investigate Offshore Wind Contract.)

Shallow Waters

If the U.S. is to enter the offshore wind industry, it will likely happen first on the Atlantic. The coastline’s shallow waters are similar to those in Europe, which has been building utility-scale offshore wind for more than a decade.

More than a quarter of the U.S. wind capacity in shallow water — depths of 30 meters or less — is along New Jersey, Delaware, Maryland, Virginia and North Carolina. The Mid-Atlantic region has almost 300 GW of potential wind capacity in shallow waters, more than enough to supply all of the region’s power needs. (See PJM States Seek ‘First Mover’ Status.)

2011 Proposal

The creation of the New York Wind Energy Area was prompted by a 2011 proposal by the New York Power Authority on behalf of itself, the Long Island Power Authority and Consolidated Edison. The NYPA proposal estimated a cost of $2 billion to $4 billion for up to 200 turbines generating about 700 MW.

BOEM, which oversees development of the nation’s energy resources on the Outer Continental Shelf, responded by issuing a notice in 2013 to determine if other developers were interested in the area. After issuing an environmental assessment, possibly by the end of this year, BOEM could move forward to offer leases under competitive bidding.

Five companies, Fishermen’s Energy, Energy Management, Deepwater Wind, EDF Renewable Energy and Sea Breeze Energy, have expressed interest in developing the site. Deepwater Wind is reportedly considering a Brooklyn waterfront site as a staging ground for the project.

The New York site is attractive to prospective developers for several reasons. New York City Mayor Bill de Blasio issued a request for information last year to identify new renewable energy generation capacity, with a goal of powering 100% of city government operations with renewables.

“Given the site’s proximity to load centers in New York and Long Island, it has the potential to be a very desirable location,” Thomas Brostrom, of Denmark-based Dong Energy A/S, the world’s largest offshore wind developer, told Bloomberg.

At the EUCI US/Canada Cross-Border Power Summit in Boston last week, Dennis Duffy, vice president of regulatory affairs for Cape Wind Associates, cited a New York study that showed onshore wind capacity factors in the state were only 10% during peak hours for electric use, while offshore wind reached 40%.

University of Delaware professor Willett Kempton has estimated the New York wind area is large enough to generate as much as 900 MW. His estimate is based on the use of 6- or 8-MW turbines, rather than the 3.6-MW turbines in the NYPA proposal.

Larger Turbines, Higher Costs

Offshore wind turbines are larger and thus generate more power than land-based turbines. But offshore turbines, which must be robust enough to withstand salt water and hurricane-force winds, are more expensive and also have higher operations and maintenance and financing costs.

The Energy Information Administration says the levelized cost of energy from offshore wind is $197/MWh (2013$), more than double the $74/MWh for onshore wind and the $73/MWh for natural gas advanced combined cycle plants. (EIA’s figures exclude any savings from government incentives.)

In Europe, which has about 90% of the 8.8 GW of offshore wind installed worldwide through 2014, the resource has benefited from government subsidies.

Patrick Woodcock, director of the Maine Governor’s Energy Office, told the EUCI conference that the New England states made a mistake by each trying to establish a foothold for the nascent offshore wind industry.

“What we really should have been doing is collaborating from the start. It never really made a lot of sense that one project, one group of utility ratepayers, would be the only class of ratepayers to bear the … huge burden for a demonstration project, when the dividends for bringing a new technology to the region is [shared] across the entire Northeast.”

Cape Wind Prospects Revived?

Cape Wind, a 130-turbine, 468-MW project planned for Nantucket Sound, is still trying to obtain financing after losing its PPAs with National Grid and NSTAR in January 2015. The utilities said the developers failed to meet deadlines to secure financing and begin construction by the end of 2014.

Duffy said Cape Wind’s hopes have been revived unexpectedly by a Massachusetts proposal to import Canadian hydropower under long-term contracts. Prospects for offshore wind and hydropower, he said, are “joined at the hip.”

“Sometimes politics makes strange bedfellows, but the future of both large imports of Canadian hydropower and offshore wind in New England depend largely upon Massachusetts legislation,” he said. An omnibus energy bill in the legislature is likely to include both.

A report released last week by the University of Delaware predicted that a commitment by Massachusetts to develop 2,000 MW, and anticipated technological advances, will lower previously projected costs by as much as 55% by 2029.

Newer wind farms would rely on larger, more efficient turbines than the older turbines for which Cape Wind is permitted.

The study says costs for the first installations in a 2,000-MW commitment would be about 16.2 cents/kWh and that costs could drop to a “very competitive” 10.8 cents/kWh by the project’s completion. By comparison, the Block Island project has a PPA with National Grid that includes a fixed price of 24.4 cents/kWh with an annual 3.5% escalator.

“The key is making a firm commitment to scale so the market can do its work,” said Kempton, the study’s lead author. “By providing market visibility — the state’s commitment to a pipeline of projects over a set period — the offshore wind industry in the U.S. can deliver energy costs on the kind of downward trajectory seen in Europe.”

Renewed Hopes for NJ Project

Legislators in New Jersey, meanwhile, may have improved the prospects of a demonstration project near Atlantic City that has been blocked by the state Board of Public Utilities.

The New Jersey General Assembly last week voted 53-21 to approve legislation that would require the BPU to reopen a 30-day period for Fishermen’s Energy to resubmit an application for the five-turbine, 25-MW project. The bill cleared the state Senate on Feb. 11 by a 23-11 vote.

Gov. Chris Christie vetoed a similar bill in January by not taking action.

Fishermen’s Energy CEO Chris Wissemann said the legislation “cannot be ignored” by the governor this time around. He said Fishermen’s has secured federal funding from the Energy Department and switched to Siemens turbines, rather than the previously proposed Chinese windmills.

Suzanne Herel contributed to this article.