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Winter 2023: The Future of the Energy Grid

Regulating Offshore Wind Energy Development and Interconnections with Electricity Markets

Tade Oyewunmi


  • Provides regulatory background for developing offshore wind energy.
  • Addresses regulatory decisions and legal challenges pertaining to offshore wind projects.
  • Discusses the costs and market integration factors associated with the implementation of offshore wind projects.
Regulating Offshore Wind Energy Development and Interconnections with Electricity Markets
jonathanfilskov-photography via Getty Images

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According to the International Energy Agency (IEA), the global offshore wind market is set to expand significantly over the next two decades and will account for about 10% of investment in renewables-based power generation globally, considering existing and emerging national policy measures. IEA, Offshore Wind Outlook 2019 (2019). These remarkable developments are driven by national policy measures, incentive schemes, and falling costs of relevant technology. The leading jurisdictions so far have been the European Union, the United Kingdom, and China. At the same time, in the United States, the Biden administration is keen on bolstering plans to develop about 30 gigawatts (GW) (30,000 megawatts (MW)) of offshore wind by 2030. States such as California and Oregon on the Pacific coast or New York and Massachusetts on the Atlantic coast have likewise established significant targets for offshore wind energy. This article briefly discusses the framework for permitting offshore wind projects in the United States and some of the energy policy implications for supplying energy generated as a result to the respective wholesale markets. It highlights the tensions between developers and stakeholders with competing interests in the areas designated for offshore wind projects.

One of the main advantages of wind energy from an energy systems perspective is that wind turbines generally utilize more of their generating capacity than other variable renewable technologies, such as solar photovoltaic (PV). While offshore wind output varies according to the strength of the wind, its typical hourly variability is lower than that of solar PV and onshore wind projects. Thus, given a good location with appropriate wind speed and interconnections with transmission networks, offshore wind systems could provide an essential variable baseload service to the power market. A typical project’s viability depends on location, water depth, and wind speed available at a given height. These factors also influence the permitting process before and during project development and affect the costs of generating energy when the project is up and running. Offshore wind turbines are typically larger than land-based turbines and can generate more power due to the spinning size. These factors are essential to harnessing wind energy cost-efficiently and at the right scale. The size and spread of turbines in designated areas of the U.S. Outer Continental Shelf (OCS) underscores the need for careful assessments of potential impacts on the environment and other legitimate uses, e.g., commercial fishing and navigation.

The recent federal approvals for the Vineyard Wind project and other offshore developments in states such as New York, Massachusetts, California, Oregon, and North Carolina show strong government and commercial support for harnessing wind energy from the OCS. Nevertheless, projects have faced considerable regulatory challenges, including delays and opposition from some stakeholders. In the United States, the process of planning, leasing, site assessment, construction, and operation of offshore wind projects could take between 10 and 15 years. Permitting and assessments of potential impacts on the environment, endangered species, and migratory birds have been among the chief concerns for both onshore and offshore wind development. There are additional concerns regarding maritime safety, commercial fishing, and military activities for offshore wind. The lengthy duration and cumbersome framework for processing permits mean that projects designed to meet future energy supply goals face considerable uncertainties from changing policies as government administrations change, bringing unforeseen challenges that could affect costs and the timely completion of projects.

Regulatory Background for Developing Offshore Wind Energy

The federal government and coastal states each have overlapping jurisdictions and roles in the permitting process. Their respective roles depend on whether the project is located in state or federal waters.

Under the Submerged Lands Act of 1953 (SLA), 43 U.S.C. §§ 1301 et seq., coastal states such as California, Maine, and New York have title to the lands beneath coastal waters three geographical miles from the shore, subject to federal regulation for “commerce, navigation, national defense, and international affairs,” and subject to federal preemption of state laws. Coastal states must develop coastal zone management plans (CZMPs) to coordinate the protection of habitats and resources in coastal waters under the Coastal Zone Management Act (CZMA), 16 U.S.C. §§ 1451 et seq. Therefore, any federal offshore wind project should be consistent with CZMPs that the secretary of commerce approves. Offshore wind projects to be constructed within state waters, including any interconnection cables that would be necessary to transmit power back to shore, are subject to all applicable state regulations and permitting requirements.

The seaward jurisdiction of the U.S. government, known as the U.S. Exclusive Economic Zone (EEZ), begins at the coast and extends 200 nautical miles out to sea. The OCS is the 1.7 billion acres of federal submerged lands, subsoil, and seabed beginning three nautical miles off the coastline—except for Texas, western Florida, and Puerto Rico, which claim a nine-nautical-mile belt—and extending to the edge of the EEZ. See 43 U.S.C. §§ 1331(a), 1301(a)(2), 1337(10).

Section 388 of the Energy Policy Act of 2005 (EPAct) amended the Outer Continental Shelf Lands Act (OCSLA) to address previous uncertainties regarding offshore wind projects. It gave the secretary of the Department of Interior (DOI) the leading authority over offshore wind energy projects. DOI’s Bureau of Ocean Energy Management (BOEM) administers the role. The BOEM can designate Wind Energy Areas (WEAs) in the EEZ, using information and data gathered from relevant Intergovernmental Renewable Energy Task Forces (Task Force), and issue leases for wind projects accordingly. Exercising such powers over the EEZ is subject to an internationally recognized right of free passage and to the jurisdiction granted to coastal states under the SLA.

The BOEM’s planning and designation of WEAs takes about two years, while the leasing process takes one to two years. Issuance of leases for offshore energy projects proceeds under different processes depending on whether BOEM or a developer proposes an area for lease. Either way, BOEM must consult with state and local representatives, and with representatives of Indian tribes whose interests may be affected. The development activities must adequately address issues such as environmental impact, safety, protection of U.S. national security, and protection of the rights of others to use the OCS and its resources. Generally, the issuance of a lease or permit for development triggers agency action under the National Environmental Policy Act (NEPA) and the need for an environmental impact assessment review, unless the lease or permit reserves both the authority to (i) preclude all activities pending submission of site-specific proposals and (ii) prevent proposed activities if the environmental consequences are unacceptable. See, e.g., Fisheries Survival Fund v. Jewell, 2018 WL 4705795 (D.D.C. Sept. 30, 2018) (describing BOEM’s four-step process for issuance of an offshore wind lease and the requirements of the lessee to submit a site assessment plan (SAP) and have a BOEM-approved construction and operations plan (COP) in place before any project development activity can occur). In Public Employees for Environmental Responsibility v. Beaudreau, 25 F. Supp. 3d 67 (D.D.C. 2014), incorporating the U.S. Coast Guard’s navigational safety findings into the final environmental impact statement (EIS) for the Cape Wind project off the coast of Massachusetts, informed BOEM of the project’s impact on navigational safety issues. The Cape Wind project was initiated in 2001 but was eventually canceled after several years of unresolved controversies.

Regulatory requirements for offshore projects underscore the need for proactive stakeholder engagement and thorough environmental assessment, including reviews under NEPA, security considerations, and navigational use evaluations. These could inadvertently slow permitting processes if not properly coordinated and handled.

Following the grant of a lease, the next phase involves site assessment, which typically takes up to five years. The lessee submits an SAP, which describes how the leased area will be studied, e.g., by installing meteorological towers or buoys and site testing activities to evaluate wind resources. BOEM must approve the SAP through a process that includes environmental reviews under NEPA. Once approved, the lessee must submit the COP. The COP outlines the details of the lessee’s construction, operation, maintenance, and eventual decommissioning activities. The COP must be approved before the lessee can install facilities or conduct commercial activities for which the lease was granted.

The BOEM conducts its own environmental and technical reviews and solicits public comment before ultimately deciding whether to approve, with conditions, or disapprove the COP. Upon approval, the lessee typically receives a 25-year commercial lease, with the possibility of renewal beyond the initial 25 years. Developing and transmitting energy to shore means the lease terms will typically include one or more easements to install cables, pipelines, and other appurtenances on the OCS.

The interconnections and access to the networks of the wholesale power markets by offshore wind projects are subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC). FERC regulates the Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), who manage the various power transmission networks. For instance, a project off the coast of New York and close to Massachusetts could be designed to transmit and supply power through the New York ISO network or the New England ISO system. The RTOs/ISOs are responsible for planning the expansion, balancing, and congestion management of their respective transmission networks. Through procedures established under their respective Open Access Transmission Tariffs (OATTs), the RTO/ISOs identify the necessary upgrades required to accommodate the interconnection of the new generation to the transmission system. As new offshore projects are being reviewed and planned, due consideration must be given to necessary investments in interconnection and transmission networks. Local and state-level utility commissions also need to be aware of such plans and future investment needs in the medium to long term. For instance, following the decision of the Virginia State Corporation Commission to require a performance guarantee from Dominion Energy pertaining to its planned 2.6-GW offshore wind farm, the energy utility recently announced that such a requirement will make the project commercially untenable. According to Dominion, the performance guarantee requirement means that its retail customers must be held harmless by the utility for any shortfall in energy production below the project’s expected 42% average annual capacity factor, measured on a three-year rolling average. See Ethan Howland, Dominion Threatens to Abandon 2.6-GW Offshore Wind Farm over Performance Guarantee, Util. Dive (Aug. 25, 2022). Thus, apart from the FERC’s role at the wholesale market level, state utility commissions responsible for managing and regulating power distribution systems and retail on behalf of local end-users would also need to take cognizance of the changing power generation and supply dynamics.

FERC Order No. 2003 provides for standardization of generator interconnection agreements and procedures applicable to facilities with a capacity of 20 MW or more. FERC Order No. 2006 provides for pro forma interconnection procedures and a standard interconnection agreement for facilities generating a capacity of 20 MW or less. How the costs of necessary interconnection between the offshore facilities and onshore networks—as well as the controversies and timing—are managed is essential to the overall project goals and system planning. Regardless of political-level support and interests, FERC and the relevant grid and network operators (e.g., CAISO in California, NYISO for New York, or PJM for Virginia) will have to be involved in the actual delivery of the offshore wind electrons.

Given these procedural steps and the multiple issues to evaluate, offshore wind power developers could expect to spend up to 10 years in the planning and construction process before commercial operations and transmission of energy from the wind turbines can commence.

Regulatory Decisions and Legal Challenges

The first commercial-scale offshore wind project in the United States, the 30-MW Block Island Wind Farm, is located in the waters of Rhode Island and was commissioned in 2016 after several years of planning and regulatory hurdles. Although the wind farm is within Rhode Island waters, the transmission line from the turbines to the shore crosses BOEM’s OCS lands and therefore requires federal approval of a right-of-way (ROW) grant. Some other projects approved recently include (a) the construction and operation of the 800-MW Vineyard Wind project located 12 nautical miles off the coast of Martha’s Vineyard, Massachusetts, approved in May 2021, and (b) the first federal marine hydrokinetic energy (MHK) research lease, which was granted for the PacWave South project and is about six nautical miles off Newport, Oregon. The PacWave lease was approved in January 2021, nearly eight years after the initial request was submitted.

In Protect Our Communities Foundation v. Jewell, 825 F.3d 571 (9th Cir. 2016), environmental organizations and other opponents brought an action against the Bureau of Land Management (BLM), DOI, and various officials of those agencies, alleging the planned Tule Wind energy project in the McCain Valley of southern California, for which BLM granted right-of-way, would harm birds in violation of the Migratory Bird Treaty Act (MBTA) and the Bald and Golden Eagle Protection Act (GEPA), and challenging the adequacy of the BLM’s EIS for the project under the NEPA.

Likewise, in the Beaudreau case discussed above, individuals and environmental groups challenged several federal administrative decisions approving the construction of various aspects of the now-canceled Cape Wind Project in the Nantucket Sound. Following an application to the BOEM in 2005, sponsors of the 468-MW Cape Wind Project received a commercial lease approval in 2010. BOEM approved the COP and the Avian and Bat Monitoring Plan for the Project after receiving concurrence from the U.S Fish and Wildlife Service in 2012. See Kenneth Kimmell & Dawn Stolfi Stalenhoef, The Cape Wind Offshore Wind Energy Project: A Case Study of the Difficult Transition to Renewable Energy, 5 Golden Gate U. Envt’l L.J. 197 (2011). Nevertheless, due to substantial opposition from some stakeholders, the developers terminated their power purchase agreements with the project in 2015. Cong. Rsch. Serv. (CRS), Offshore Wind Energy: Federal Leasing, Permitting, Deployment, and Revenues (updated Dec. 7, 2021). While litigation and disputes hampered the project, the Keeper of the National Register of Historic Places had also issued a determination that Nantucket Sound, where Cape Wind was to be located, is eligible for listing as a traditional cultural property and a historic and archaeological property. Consequently, BOEM published a revised Documentation of Section 106 Finding of Adverse Effect. The court of appeals also subsequently held that the BOEM’s EIS failed to take NEPA’s required “hard look” at the geological and geophysical environment impacted by the project and vacated the EIS. Pub. Emp. for Env’l Resp. v. Hopper, 827 F.3d 1077, 1083 (D.C. Cir. 2016). In addition, the court also opined that the Coast Guard’s terms and conditions to ensure navigational safety complied with the requirements of the Maritime Transportation Act. Id.

In 2021, the D.C. Circuit Court of Appeals held that BOEM does not need to conduct full environmental reviews under the NEPA when granting an offshore wind farm lease. See Fisheries Survival Fund, 2018 WL 4705795. The appellants were fishermen, seaside municipalities, and organizations that had challenged BOEM’s decision to issue an offshore lease to Equinor for a wind farm off the coast of New York. Their claims were made under NEPA and the OCSLA. The D.C. Circuit dismissed the challenges as premature, holding that “[A]n agency’s NEPA obligations mature only once it reaches a critical stage of a decision, resulting in irreversible and irretrievable commitments of resources to an action that will affect the environment.” Id. The court found that the lease to Equinor satisfied both requirements for two main reasons. First, the lease did not, by itself, pre-authorize any activity within the leased area but only granted Equinor the exclusive right and privilege to (a) submit an SAP and COP for the project identified in the lease covering the designated area and (b) conduct only those activities approved by BOEM. Second, BOEM still needed to approve the SAP or COP in accordance with the applicable regulations in 30 C.F.R. part 585. Thus, BOEM could eventually disapprove the SAP or COP to the extent that its proposed project development activities are unacceptable from an environmental perspective or if such activities would conflict with one or more of the requirements outlined in the OCSLA or applicable regulations.

The decision in Fisheries Survival Fund confirms that granting an offshore lease sale does not trigger the extensive environmental review under NEPA, potentially streamlining the initial lease acquisition process. The issues of when and whether to conduct a full NEPA EIS have been somewhat controversial. Nevertheless, this author believes that fostering a more efficient and streamlined permitting process does not necessarily mean short-circuiting the all-important “full” NEPA review. Efficient and open stakeholder engagements during environmental reviews can be adopted to avoid costly project delays and cancelations, as witnessed in the Cape Wind scenario. Currently, BOEM solicits public comments, facilitates Task Force meetings in relevant states, and holds public meetings throughout the offshore wind development process. Some recommendations for reforming the permitting process include suggestions for an early and regional Programmatic EIS or requiring developers to “frontload” all necessary plans and proposals at an early stage during the planning and leasing process for a full NEPA review and stakeholder considerations. See BOEM, Guide to the OCS Alternative Energy Final Programmatic Environmental Impact Statement.

In 2017 and 2018, Massachusetts conducted a solicitation process for long-term contracts for up to 800 MW of offshore wind proposals, which led to the selection of the Vineyard Wind Project. Vineyard Wind executed PPAs with three Massachusetts electric utilities. The PPAs were approved on April 16, 2019, by the Massachusetts Department of Public Utilities. The Vineyard Wind project has also faced some challenges recently despite the progress made under the current administration, which approved the final EIS for the project in 2020. A solar farm developer has filed suit to vacate the federal regulatory approvals granted to the Vineyard Wind Project, claiming that the authorizations violate federal environmental laws and threaten solar energy producers’ economic interests. Allco Renewable Energy Ltd. v. Haaland, No. 1:21-cv-11171 (D. Mass) (complaint filed July 18, 2021, amended complaint filed Feb. 23, 2022). On June 30, 2022, the district court dismissed without prejudice the solar developer’s claims under the Endangered Species Act (ESA) and OCSLA because the developer had not provided the requisite notice prior to filing the claims. On August 23, 2022, the plaintiffs proposed to amend their complaint to include only claims under the Marine Mammal Protection Act. See Sabin Ctr. for Climate Change Law, U.S. Litigation Chart: Allco Renewable Energy Ltd. v. Haaland (Vineyard Wind), at for future updates on this case.

Despite the highlighted issues regarding offshore wind projects generally, the BOEM continues to offer leases in the OCS, while coastal states such as New York and California are announcing specific targets and incentive schemes to attract investments in developing offshore wind resources. The typical concerns raised by stakeholders include the potential impact on commercial fishing interests and maritime navigation. Coastal communities may also be concerned about potential implications on electricity rates if utilities would be investing in new infrastructure to enhance the supply of additional energy in the mid to long term. Considering developments in jurisdictions such as the E.U. and U.K., these concerns can arguably be addressed via an effective public stakeholder engagement process during the early stages of permitting and reviews of project plans.

During the permitting process, developers must submit a navigation safety risk assessment to the Coast Guard and BOEM with their COP. It is generally believed that offshore wind turbines can coexist with commercial fishing and marine species. For example, the approved BOEM’s supplemental EIS for the Vineyard Wind Project considered an alternative to the proposed turbine layout involving a designated transit lane suggested by fishing industry groups. CRS, Offshore Wind Energy, supra, at 18–20. With turbine spacing and layouts coordinated with BOEM and the Coast Guard, lease areas can continue to be used for many of the same purposes for which they were originally used, such as commercial and recreational fishing, recreational boating, and tourism-related trips.

Costs and Market Integration Factors

Globally, the levelized costs of electricity (the average net present cost of electricity generation for a power facility over its lifetime) for offshore wind fell by 20% between 2010 and 2018. See Int’l Renewable Energy Agency (IRENA), Renewable Power Generation Costs in 2018 at 23–24 (2019). Likewise, the total installed costs for projects commissioned in 2018 were 5% lower than those commissioned in 2010. According to the IRENA, the major driver of this reduction includes technological advancements, installation, and logistics; economies of scale in operations and maintenance of larger turbine and offshore wind farm clustering; and improved capacity factors from higher hub heights, better wind resources (despite increasing cost in deeper waters offshore), and larger rotor diameters. See id.

The trend toward larger turbines, which expands the capacity of a wind farm and/or reduces the number of turbines required for a given capacity, has helped reduce installation costs and project development costs below what they would otherwise have been. However, this reduction has been offset, to a greater or lesser extent, by the shift to offshore wind farms being in deeper waters with better, more stable wind regimes, but further from ports. Larger turbines require more careful planning to avert environmental risks and impacts on conflicting maritime uses. The applicable reviews under the ESA, NEPA, and MBTA are likely to be critical to the success of these projects.

The reductions in project development and maintenance costs influence energy affordability to end-users downstream. Although technological gains and federal and state incentives have helped reduce development and installation costs for wind projects, there are still considerable regulatory and commercialization hurdles that may impact the costs of development and operations when some of the planned projects are commissioned. Consequently, ongoing debates exist about the best ways to standardize and make the cumbersome environmental reviews and coordination among institutions more efficient. Developing a standardized framework for reviews and regulatory decision-making processes would likely reduce costs to the regulator and the regulated stakeholders while avoiding unnecessary controversies and project cancellations. In addition, it may help address the issues of misperception of risks by interested parties. It may also help reduce the risk of political interference in administrative decision-making obligations for the agencies involved.