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An environmental permit granted last week for the Cape Wind power project is not the last hurdle facing the most advanced offshore wind farm proposed for the United States. However, wind power technology developers and analysts express confidence that the nine-year-old offshore wind project will get built, and that more like it will dot U.S. coastal waters by 2020.

Catching up: Cape Wind plans to install 130 of Siemens’ 3.6-megawatt turbines, shown here at the Burbo wind farm in England, which has powered roughly 80,000 U.K. households since 2007.

The drive toward offshore wind, however, may be driven more by politics than economic and energy policy. Offshore wind farms cost up to twice as much as land-based wind installations, but they offer political leaders in densely populated U.S. coastal states a source of local energy other than offshore oil and gas. “They want their energy to be local. They want to harvest it inside their own state. And for the first time they can conceive of that possibility,” says Walt Musial, who leads offshore wind energy research activities for the U.S. Department of Energy’s National Renewable Energy Laboratory in Golden, CO.

Musial’s analyses show that the 28 U.S. coastal states consume 78 percent of the nation’s electricity, but only six could meet even one-fifth of their power demand with land-based wind energy–the fastest growing source of energy. Add in offshore wind potential in shallow waters, however, and that number jumps to 26 states; for many it could serve 100 percent of power demand. But achieving favorable economics will be hard.

Cape Wind’s top challenge now is to get a deal with an electric utility. Proving that it has a firm buyer and price for its energy is a prerequisite to then clearing the next hurdle, which is raising the close to $2 billion in financing that’s likely necessary to build the 130-turbine, 468-megawatt project. Cape Wind and local utility National Grid say they are negotiating an agreement.

The difficulty is that offshore wind is pricey compared to onshore wind power, the leading alternative by which utilities are meeting renewable portfolio standards. Onshore wind costs about five cents per kilowatt-hour today, whereas Musial says offshore costs start at nine cents per kilowatt-hour for the best European projects and can rise as high as 25 cents per kilowatt-hour, depending on such factors as water depth, distance to shore, and wind conditions.

Matthew Kaplan, a senior analyst tracking North American wind energy markets for Cambridge, MA-based consultancy Emerging Energy Research, says recent examples show that offshore wind projects require additional intervention by states to get launched. The Long Island Power Authority, for example, killed a deal for power from a proposed 144-megawatt project in 2007 after an independent assessment pegged the cost at 29 cents per kilowatt-hour. And just last month, a 28.8-megawatt demonstration in Rhode Island hit the rocks when the state’s Public Utilities Commission recently rejected the agreement signed by National Grid, which would have paid project developer Deepwater Wind 24 cents per kilowatt-hour.

Kaplan says only state intervention sealed the deal between project developer NRG Bluewater Wind and Wilmington-based Delmarva Power. Delaware regulators changed state rules, more than tripling the credits Delmarva will earn toward the state’s renewable portfolio standard and enabling it to spread the cost to rate-payers. “In the end, the state had to step in to make the costs more palatable,” says Kaplan.

There is, as yet, no sign of government sweeteners for Cape Wind, but it is clear that it enjoys strong political support. “Cape Wind will be built,” says Musial. “The approval from the top of the U.S. government shows there’s political will to do this.”

Musial adds that the president’s budget proposal for 2011 requests $49 million for offshore wind R&D–the first targeted request for offshore wind–provides another “significant signal that offshore wind is on the table as a new direction for the Department of Energy.”

Still, building the offshore wind industry in the U.S. could be a slow process. Cape Wind says it hopes to begin construction this year, but Kaplan bets that Cape Wind will likely generate power in 2013 at the earliest. Further projects in the pipeline are years away, he says, mostly due to the federal environmental review process.

Then there is the challenge of developing the infrastructure to build, install, and maintain offshore wind turbines, their foundations, and the underwater power lines to link them with shore. Musial says that incentives introduced in Ontario recently could accelerate that process by creating another North American foothold for offshore wind power. Ontario’s feed-in tariffs for renewable energy, akin to price supports that many European countries provide, guarantee a price of 19 cents per kilowatt-hour for offshore turbines installed in the Great Lakes.

Kaplan estimates that 8,100 megawatts of offshore wind power will be installed in the United States by 2025, with most of the construction taking place starting in 2018. That is still a fraction of wind power installation in the U.S., which Kaplan expects to reach 192,000 megawatts by 2025. But it could go much further according to 2008 report from the DOE, in which it determined that wind energy could provide 20 percent of U.S. power by 2030. In that scenario, shallow offshore wind farms provide fully 54 gigawatts of the 300 gigawatts envisioned.

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