On December 21, 2007, the Federal Energy Regulatory Commission issued its first ever conditioned original license for a wave energy project to Finavera Renewables for the 1 MW, 4 buoy Makah Bay Offshore Wave Pilot Project that will be located in the Pacific Ocean in Makah Bay, 1.9 nautical miles offshore Clallam County, Washington. (See CNN Report) According to a FERC Press Release, Commissioner Moeller desribed the FERC's action as an historic moment, "the first time that we allow the harnessing of electricity from wave energy-power that results from the gravitational pull of the moon."
OK, so maybe the moon reference smacks a touch of hyperbole -- made me think, "one small stroke for Finavera, one giant splash for mankind. But to be fair, FERC deserves kudos for granting the license and taking seriously its statutory obligation to promote development of water power, make best comprehensive use of the water way and balance energy and environmental concerns.
Unfortunately, acquiring the license (which you can view, in all of its 58 page glory here) isn't the end of Finavera's journey. Because the license is conditional, Finavera must still obtain other federal authorizations, such as Washington Department of Ecology's approval of Finavera's certification of consistency (Para. 18, License). Also, while the project has obtained a Section 401 Water Quality Certificate (WQC) from the Makah Tribe, it is still awaiting approval of its WQC application from the Department of Ecology (Para. 17).
Here are some other brief observations based on my quick read of the license:
Section 401 issues: In footnote 19, FERC notes that not all hydrokinetic projects will require Section 401 WQC. While many believe that a Section 401 WQC is required for all hydroelectric projects, in actuality, Section 401 is triggered only where a project results in a "discharge." The WQC requirement is particularly onerous because the process of obtaining a certificate usually takes at least a year, and states have broad discretion to impose conditions in a WQC that do not necessary relate to the protection of water quality. Developers can challenge conditions in a WQC as ultra vires, but they must pursue review in state appellate courts, which is separate from the license process.
A recent Supreme Court case, SD Warren v. Maine Board of Environmental Protection held that conventional hydro projects, which impound water in a reservoir, or gather it through an intake and subsequently release or "discharge it" trigger the applicability of Section 401. By contrast, because many wave and tidal projects do not release and discharge water and as such, the WQC requirement should not apply. Footnote 19 represents the first time that FERC has publicly suggested that a WQC may not be required for hydrokinetic projects and if FERC's view holds, developers will obtain some relief from at least one regulatory requirement.
Project Cost: The FERC order states that power from the Makah project will cost $542.73/MWh, and $567.61 MWh with the recommended environmental conditions, meaning that mitigation alone costs about $25/MWh or roughly five percent of overall cost of project power. To me, that's a relatively pleasant surprise as the cost of mitigation could have been far, far worse. Then again, this is only a 1 MW project comprised of 4 buoys that will occupy less than 30 acres of land (Para. 2, License Order) and operate for five years; in that context, the proposed cost of mitigation might be disproportionate, but I haven't done a comparative analysis.
While noting that the cost of the project will outweigh the value of power produced, FERC recognized that "the real value of the project" is the contribution that it will make to demonstration of the technology and raising the profile of the nascent marine energy industry. Rarely do regulators adopt this type of "big picture" approach and consider factors beyond than sheer cost in a public interest analysis (as did the Delaware Commission in choosing offshore wind over conventional power sources in a competitive bid, though wind cost more). FERC deserves praise for taking a long term view, and realizing that long term gains of building an industry may require short term costs - more expensive power - up front.
Surety Bond: The license order requires Finavera to purchase a surety bond or equivalent financial assurance to recover the cost of decommissioning. Surety bonds can be costly, particularly for independent developers like Finavera. Presumably, FERC will allow a showing of creditworthiness to suffice as proof of Finavera's ability to pay for decommissioning.
Miscellaneous: The license requires Finavera to prepare and file several monitoring plans (License at 35). Some plans are due within 60 days of issuance of the license, even though the license is conditioned on receipt of other approvals (CZM and WQC) not yet obtained.
The license gives Finavera two years to acquire property rights to site the project; typically, licensees have 5 years to acquire property rights under Standard Article 5. Obviously, that wouldn't work with a five year license. In this case, I'm assuming that since the Sanctuary has already determined that the proposed project will not interfere with the purposes of the sanctuary, and therefore, the issuance of the lease for use of sanctuary lands is merely a formality.
Article 301 requires Finavera to commence construction of the project within 2 years of receipt of the license. The commencement of construction deadline is statutorily mandated by Section 13 of the FPA; FERC can extend the deadline once, but it not more. Some licensees circumvent the tight deadlines by asking FERC to stay the effective date of the license, others seek congressional approval for an extension after the deadlines have expired. For Finavera, the clock is ticking, as it still needs to obtain other approvals. And while siting 4 buoys should not consume more than a few months, siting may be weather dependent, meaning that it must take place during certain seasons, or wait until the following year.
Overall, there's no doubt that FERC's order represents an exciting start that will jump start the marine renewables energy as we head into 2008. And with any luck, in the not too distant future, we'll be exclaiming "Houston: the buoy has landed, and it's generating power."
disclosure: I've done legal work for AquaEnergy in the past, before it was acquired by Finavera, and I hold Finavera stock.
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