For all of their importance, federal approvals are often only the beginning for large energy projects.

The Atlantic Wind Connection (AWC) jumped a major hurdle with the Federal Energy Regulatory Commission‘s (FERC) recent approval of the offshore wind project’s financing plans but still faces many technical, regulatory and environmental challenges if it is to become a reality.

The proposed 350-mile undersea transmission line between southern Virginia and northern New Jersey has been hailed by its backers as an electric “superhighway” that would interconnect up to 6,000 megawatts of offshore power, encourage the development of offshore wind farms, and help mid-Atlantic states reach their renewable energy targets.

But to reach its goal of starting to transmit power by 2016, the project must secure the approval of PJM Interconnection, the regional transmission organization; meet regulatory demands at state and federal levels, and resist any challenges from environmentalists that originate in the project’s plans to bury cables in the seabed 20 miles offshore.

On May 19, FERC granted an overall 12.59% return on equity for the project, less than the 13.58% sought by the AWC.

It did grant AWC’s requests to include 100% of construction work in progress in the rate base; the opportunity to recover 100% of costs if the project is abandoned for reasons outside the company’s control, and a hypothetical capital structure of 60% equity and 40% debt.

FERC conditioned its approval on the project being included in PJM’s regional transmission expansion plan.

Investor Confidence

“It gives investors confidence to know that there would be certain recovery mechanisms in place,” said Brandi Colander, an attorney with the Natural Resources Defense Council‘s air and energy group.

The project has so far attracted investment from Google, the environmental investment firm Good Energies, and Marubeni, a Japanese trading firm.

Colander said the NRDC is in favor of any project that would scale up production of renewable energy while minimizing its environmental footprint, as the AWC’s project would by removing the need for offshore wind farms to build their own individual transmission lines to shore.

She called the project a “massive undertaking” but said the organization is “cautiously optimistic” that it will succeed.

But it has already run into an initial obstacle at PJM, which cannot currently consider public policy – in AWC’s case its renewable-energy goals — as a reason for approving an application under its tariff, said Ray Dotter, a spokesman for PJM.

“We have been clear in talking to them that, as currently proposed, it is doubtful that the project would fit into our existing tariff,” Dotter said.

PJM’s members are in discussions about amending the tariff, and a proposal would have to be submitted to FERC for approval, said Dotter, who declined to say how long the process might take.

Jim Lanard, president of the Offshore Wind Development Coalition, which includes AWC, called the FERC decision a “very important step” toward realizing the project which if built would be the first of its kind in the world.

“For there to be a robust industry that creates tens of thousands of jobs and produces millions of megawatts of power, we are going to need offshore transmission backbones like AWC,” Lanard said.