Future of taxpayer funded wave-energy buoy in failed Oregon project unclear

PORTLAND, Ore. - After years of work and millions of dollars spent, an expensive wave energy project proposed off the Oregon coast is dead, leaving a never deployed taxpayer funded and large wave-energy buoy stranded on shore with an uncertain future.

While millions of dollars of taxpayer money was spent, it could have been a lot worse. The U.S. Department of Energy put the brakes on the project after it determined the project would not happen as planned.

Ocean Power Technologies Inc., the New Jersey company that spearheaded the project, was awarded $4,377,293 of federal money to build and test the buoy, according to its contract with the U.S. Department of Energy obtained by KATU through a Freedom of Information Act request.

According to the agency, it gave OPT about $3.2 million of that award. But through its project management the agency said it determined the company couldn't finish the project on time or on budget, which resulted in a mutual agreement between the company and the agency to end it.

OPT had run out of money and couldn't get additional financing. And, according to the company, after spending $20 million of its own money on the Oregon project, it has said circumstances out of its control, like weather and regulatory requirements, played a role in the project's demise. And in early April it announced its Oregon project was over.

The approximately 280-ton buoy, what the company calls a PowerBuoy, is currently stored at Vigor Industrial shipyard in North Portland. OPT declined a request by KATU to see or videotape it, citing competitive reasons. It was to be at least 135 feet long when fully assembled.

The buoy was designed to be green and be part of the country's push for renewable energy. It was to harness the up and down motion of the ocean waves, turning an electrical generator inside it. In turn that would create electricity that would be transferred to shore via an undersea cable. That electricity was intended to help feed the electrical needs of power customers.

The company designed and built the buoy with the help of an initial September 2008 grant of nearly $2 million from the U.S. Department of Energy, according to the contract. The USDOE confirmed to KATU that portion of the project was successfully completed. The company was then awarded just over $2.4 million two years later to help deploy it. Of that later award, the USDOE gave the company about $1.2 million, and those funds were matched with over 50 percent cost share, the agency said.

At least as far back as 2009 the company began setting goals to deploy the buoy 2.5 miles off the coast of Reedsport, Ore. It missed all of them. The deployment of the single buoy was to be the first phase of a much larger objective. In total, the plan was for three phases. The first buoy was to be used to test the technology in the water and to find out its impact on marine life. It was not to be connected, at least at first, to the electrical grid.

If all went well during that first phase, the second phase called for nine more buoys that would be connected to the electrical grid. Those buoys would power about 1,000 homes. In its third stage, a total of 100 buoys would be deployed in an array.

The buoy, which was to be the first commercial wave-energy device in the United States, was built by Oregon Iron Works. Ocean Power Technologies, through a public relations firm, did not disclose to KATU the total cost to build the buoy; instead, it said it's difficult to come up with a number when developing these sorts of technologies.

But during an interview with GreenEconomyTV in 2010, David Gibson, renewable energy program manager for Oregon Iron Works, said the buoy cost between $3 million and $4 million to build.

OPT also had funding from other sources, including about $500,000 from Pacific Northwest Generating Cooperative (PNGC Power) and $436,330 of state lottery funds through the Oregon Wave Energy Trust, a nonprofit pushing for wave energy development in the state. And the Associated Press reported the company also had a $900,000 state business energy tax credit. But the company ultimately did not did receive that tax credit, because it never finished the project.

OPT, in its nearly 20 years of commercial operations, has never been profitable. According to its filings with the U.S. Securities Exchange Commission, it heavily depends on government contracts for its revenue and admits it doesn't know when or if it'll ever be profitable.

"We have incurred net losses since we began operations in 1994," the company wrote in its Annual Report for the fiscal year ending April 30, 2013. "We do not know whether or when we will become profitable because of the significant uncertainties with respect to our ability to successfully commercialize our PowerBuoy systems in the emerging energy market."

In its SEC filings, the company boasts its many contracts with the U.S. Navy, a successful deployment of a PowerBuoy off the coast of Scotland, a planned deployment of a buoy off the coast of Spain and a planned wave-energy project in Australia.

What's next for the buoy? And was it worth it?

Right now, it's not clear what will happen to the buoy or if taxpayers will be reimbursed for their share of the cost.

In an April 1 filing with the U.S. Securities Exchange Commission, the company announced that on March 28 it and the U.S. Department of Energy had begun the process of ending the contract on the deployment of the single buoy.

In the company's statement to KATU, Fred Rackmil, of Rackmil Associates, said the U.S. Department of Energy "became very concerned" about the delays the project was experiencing, and he said it was a "mutual decision" to terminate the contract it had with the energy department.

"As for the buoy that was built, we are discussing with DOE how to maximize its value and equitably divide recoveries, which won't be great, between the company and the government," Rackmil said.

He vigorously defended the project even if it did fail. He pointed out new technology products often experience problems, but through the development process the technology improves. And he said the systems inside the buoy built for Oregon are better than its predecessor deployed off the coast of Scotland, and the buoys planned for a future project in Australia will be better yet.

"Governments around the world want clean, affordable alternative energy and invest with private industry to help them develop it," Rackmil said. "No one is more frustrated than us that this project can't go forward, and no one spent more money, not to mention time and energy, on it."

He added the company did extensive environmental studies that he said will give future wave or offshore wind projects valuable information.

"In the long run, we believe the arc of wave power development, of which the Oregon project is a key element, will yield a clean power technology that benefits taxpayers in Oregon and beyond," he said.

Wave energy supporters also point to the fact that millions of dollars was pumped into the Oregon economy to build the buoy and conduct all the studies. In fact, Gibson, in the GreenEconomyTV interview, said the building of the buoy created or sustained 35 jobs, and Oregon Iron Works "issued about $800,000 in purchase orders to companies around the region."

The U.S. Department of Energy also found value in the failed project.

"While it's unfortunate that this project will not be completed, we gained valuable information that can be used to further marine and hydrokinetic technology projects in the future," said USDOE spokeswoman Dawn Selak in a statement to KATU. "Innovative technologies such as these have the potential to be key contributors to America's broader clean energy portfolio and developing just a small fraction of the available wave and tidal energy resources in the U.S. could provide electricity to millions of American homes."

She went on to say that the energy department will continue to "seriously look at marine technologies."

What went wrong?

OPT spent just over three years working with 13 state and federal agencies to craft a Settlement Agreement, which was submitted to the Federal Energy Regulatory Commission July 30, 2010 for its consideration as part of the company's license to operate the wave-energy park off Reedsport. The agreement created an "adaptive management" process in which the project could be modified to avoid causing damage to the environment and to marine life. It also detailed the scope of the project, included studies and information on impacts to marine life and outlined the timeline that the company agreed to meet.

On Aug. 13, 2012, the Federal Energy Regulatory Commission (FERC) approved a license for OPT to build its wave park, the only such license in the nation.

An analysis of a blizzard of letters between FERC and OPT between January 2013 and February 2014 and the company's SEC filings shows FERC's strict adherence to the license's timeline, a company struggling to meet the license's requirements, but falling behind, and an assertion by the company that FERC was claiming jurisdiction over the single buoy that the company argued was outside of its license. OPT said complying with FERC's claim of jurisdiction over the single buoy would add additional costs to the project because it would need to conduct more studies. And doing so would further delay the project.

OPT requested an extension of time to fulfill its responsibilities under the license. But FERC requested more information from OPT as to why an extension of time should be granted. Apparently, the information supplied by OPT was never satisfactory to federal regulators.

OPT blamed the weather for its delay in conducting studies around deployment of its phase one, single buoy, and "the delays in convening the various implementation Committee meetings (required by the license) were a courtesy to allow a key stakeholder sufficient time to identify a new representative," OPT wrote to Charles Cover, with FERC's Project Review Branch, in a Feb. 1, 2013 letter.

In a March 8, 2013 letter, Cover reiterated to OPT that it needed to meet project deadlines as outlined in the license and that "regulation requires requests for extension of time to be filed prior to the deadline with appropriate justification provided. Only in 'extraordinary circumstances' may an extension be granted once the deadline has passed (emphasis original)."

He said "agreements or other arrangements with stakeholders ... are not a substitute for your adherence" to the license requirements.

Cover also again noted the company missed the deadline on three requirements and had not given regulators a sufficient reason why. He reiterated that the company needed to formally file an extension of time request.

On May 9, 2013, OPT did file an official extension of time request through the Stoel Rives LLP law firm of Seattle, Wash. From OPT's point of view, it should have been granted an extension of time in part because of the uncertainties presented with new technologies, specifically wave-energy technologies.

"OPT recognizes that the Commission is not typically confronted with the types of delays and uncertainty faced by new technologies and, in particular, the technical and financial challenges inherent in such projects," OPT argued in its motion. "The types of date-certain licensing requirements that may work well for large, well-capitalized companies pursuing more easily financed traditional hydropower projects and dam relicensings may not be the right fit for new technologies pursuing phased-deployment strategies in a nascent industry. Moreover, such strict deadlines may not be necessary for projects that can be accomplished through incremental deployments."

The company also cited some of the technical problems it faced, specifically during September 2012 when there were problems deploying equipment to hold the buoy in place. In the process a subsurface buoy broke and sunk to the bottom of the ocean.

Mary Abrams, the director of the Oregon Department of State Lands, a signatory of the Settlement Agreement, wrote in a June 2013 letter that the agency was willing to support the extension of time if the company met several requirements, one of which was removing the subsurface buoy, a tendon line and the anchor.

"It appears that OPT is a little over 3 years away from deploying a buoy," she wrote. "The state agencies require the equipment to be removed by the end of August, 2013."

Chris Castelli, with the Oregon Department of State Lands, told KATU last week that OPT had removed the subsurface buoy and the tendon line Oct. 17, 2013, but the gravity based anchor was still in place. He said the company had been given an extension of time to remove the anchor by the middle of June of this year after whale migration.

In his response to KATU, Rackmil, OPT's public relations person, cited the agency's requirement to remove the equipment as one of the reasons for delaying the project and increasing its cost.

"While the company attempted to raise additional outside funding for the project, these issues introduced major delays, which were compounded by additional weather delays," he said.

The company in its motion to FERC for an extension of time acknowledged that it hadn't met several deadlines.

On June 19, 2013, FERC only partially granted OPT's request and declined to extend other deadlines because it said it still needed additional information from the company.

In its annual report for the fiscal year ending April 30, 2013, filed with the Securities Exchange Commission, OPT said that because FERC did not extend the time for deadlines as requested by the company, more studies and other reports would need to be completed and, "This process will require significant delay of the deployment of the first PowerBuoy, as well as impose additional costs on us."

Eventually, according to the company, those prohibitive costs sunk the entire buoy project off the coast of Oregon.

Update: This version clarifies that Ocean Power Technologies Inc. never received the Oregon Energy Business Tax Credit because it never finished the project.

Click here for more information from USDOE about Oregon's failed wave energy project and the potential for wave and tidal energy for the United States.