A stripped-down wind-energy proposal backed by Maryland's governor and gaining support in its legislature may be the first step in creating a network of offshore turbines and sub-sea cables spanning the U.S. Atlantic coast.

The project would power the equivalent of only 61,600 of Maryland's 2.1 million households. However, clean-energy advocates say it could signal the emergence of an industry that has so far been unable to erect a single tower in U.S. waters, giving the project impact beyond its megawatts.

"You have to start with initial steps, sometimes small steps, and that's what this Maryland bill is," said Mike Tidwell, director of the Chesapeake Climate Action Network in Takoma Park, Maryland.

The project has attracted interest from the U.S. unit of Electricite de France SA and may eventually be linked by an undersea transmission backbone Google Inc. is helping build.

Land-based wind farms in the U.S. have surged thanks to federal tax credits and renewable-energy mandates in 29 states. New installations in 2012 added 6,500 megawatts of capacity, exceeding for the first time the potential output of natural gas-powered plants added to the grid last year. Wind produced about 3 percent of all U.S. power in 2011, up from less than 1 percent in 2007, according to the American Wind Energy Association.

Offshore Costs

Offshore wind has been a harder sell. Installing turbines that can withstand harsh maritime environments is more costly than planting them in the middle of a field, said Chris Long, manager of offshore wind and siting policy for AWEA, a Washington-based trade group whose members include General Electric Co. and the U.S. unit of Spain's Iberdrola SA.

However, offshore winds are stronger, more consistent and, unlike onshore breezes that pick up at night when power demand falls, tend to blow the hardest during the day, he said. While wind speeds are higher off the U.S. Pacific coast, shallower depths in the Atlantic make it more economical for wind energy projects, according to the Interior Department.

Maryland's Democratic Governor Martin O'Malley introduced a bill last month that requires utilities to buy power from offshore wind farms by 2017. Backers said they're confident it will pass after two previous efforts were defeated.

"I hate to celebrate before the touchdown, but we're in the strongest place we've ever been," said Maryland Delegate Tom Hucker, a Democrat who has pushed offshore wind bills for the past four years. Hucker spoke as the House of Delegates Economic Matters Committee debated the bill during a Feb. 5 hearing. A state Senate panel will take up the bill on Feb. 13.

Massachusetts Delay

The wind farm O'Malley is now pushing is about one-third to one-half the size of a project he backed in 2011. That effort drew opposition from utilities that didn't want to be locked into 20-year contracts to purchase the power, a common arrangement for wind projects.

There are no offshore turbines in the U.S., even though developers have been planning multiple projects for years and lawmakers are encouraging the technology.

Cape Wind Associates LLC has been trying to build a 468-megawatt wind farm off the coast of Massachusetts for more than a decade. The Energy Department is still considering whether to guarantee a loan for the project. Opponents of the project, including members of the family of the late Massachusetts Senator Ted Kennedy, are trying to block it in court.

No Approvals

New Jersey passed the Offshore Wind Development Act in August 2010, which calls for at least 1,100 megawatts of offshore wind power. The state has yet to approve any proposals.

"Everything is still one step away," Amy Grace, lead wind analyst for Bloomberg New Energy Finance, said in an interview.

Abigail Hopper, an energy adviser to O'Malley, said leases for the Maryland project may be granted as early as next year, followed by a two-year environmental assessment.

The proposed project will be about 211 megawatts, create 850 construction jobs over five years, and result in 160 permanent jobs in operations and maintenance. The U.S. has designated an area 10 to 30 miles off Maryland's northeast shore for wind projects in an effort intended to speed federal environmental reviews.

"This project alone is going to make an impact far beyond its size," Hopper said in an interview. It will "show the industry, 'OK, this works.'"

A U.S. Energy Department report from February 2011 set a goal of 10 gigawatts of offshore wind power installed by 2020 and 54 gigawatts by 2030. Sea-based turbines may "contribute significantly" to meeting President Barack Obama's goal of meeting 80 percent of U.S. energy needs with clean sources by 2035.

Ideal Waters

Strong wind and relatively shallow waters off the East Coast make the region ideal for offshore wind farms, Tidwell said. "Plus, it's close to where everyone plugs in their iPhones, from Boston to Richmond," he said.

Under the Maryland legislation, operators of offshore wind farms are granted offshore wind-energy credits, or ORECs, for every megawatt-hour of electricity produced. Utilities that buy the power must also purchase the credits, a subsidy designed to make costly marine projects economically viable.

The cost of buying the credits is eventually passed on to utility customers. Under the bill, residential ratepayers will pay no more than an additional $1.50 per month and commercial customers would pay a blended average of 1.5 percent more.

Renewable Standard

Maryland also requires utilities to obtain 20 percent of their power from non-fossil-fuel sources by 2022, and offshore wind may supply a maximum of 2.5 percent of the total.

Maryland's proposed credits differ from standard power-purchase agreements that tend to be long-term commitments, often 20 years, to buy electricity at a set rate.

The energy-credit model is making power from offshore wind farms more palatable to utilities, because they don't like having lengthy purchase agreements, which are "treated as a debt on their balance sheets," Hopper said. Including ORECs "took away utility opposition" to the Maryland bill.

Fishermen's Energy LLC has proposed a 25-megawatt offshore project in New Jersey, about three miles away from Atlantic City.

Stefanie Brand, director of the Division of Rate Counsel in New Jersey, said the state hasn't approved the Fishermen's project for offshore wind-energy credits because it hasn't been shown to provide net benefits to the state's ratepayers. The consulting firm that provided the report to Brand didn't give a per-ratepayer breakdown, like Maryland's $1.50 cap, she said.

'Time Pressures'

Approving the project will have economic benefits for the state, said Bob Gordon, a Democratic New Jersey state senator. Factories will be built and jobs will be created, and the project may qualify for as much as $47 million in additional federal funding, he said.

"We don't want to do this badly in a way that's going to be costly to ratepayers or taxpayers, but we should not let the bureaucrats get in the way either," Gordon said. "There are some time pressures here that are important to recognize. The clock is ticking loudly."

Manufacturers haven't committed to building factories and creating jobs, and assuming companies will create jobs in the first state with an offshore wind farm is "all hypothetical," Brand said.

"I would rather do it right than do it first," she said. "No one's said that whoever is first is going to get the manufacturing." After the federal government awards offshore leases later this year, Brand said she expects developers to compete to build wind farms in New Jersey waters.

Chinese Growth

Offshore wind has proved popular elsewhere. Installations in Europe rose 33 percent last year to 1,166 megawatts, as total capacity climbed to 4,995 megawatts, according to data compiled by New Energy Finance, the London-based research firm. And China last year accounted for more than a third of all offshore installations.

Tidwell, of the Chesapeake Climate Action Network, said it's only a matter of time before the East Coast harnesses offshore wind. "It's inevitable," he said. "And while it may take a few more years to fully develop it, it's going to be developed and it's going to be a major source of clean energy on the East Coast. It's an energy resource that is to the scale of the problem."

Doug Copeland of EDF Renewables Energy said a project the size of Maryland's still would attract interest from developers.

"It's not a gigawatt," he said in an interview. "It's not going to be a simple feat. We get that. But it's doable. And that's our perspective. This is part of a regional approach. All these products together add up to an industry. But you have to start somewhere."

Copyright 2013 Bloomberg

Lead image: Offshore wind farm illustration, via Shutterstock