Electricity generated with the force of ocean tides will be sold under long-term contracts for the first time in the United States later this year.

The electricity will flow from the Maine Tidal Energy Project in the waters off Eastport and Lubec, Maine. The first phase of the project involves the installation of five, proprietary turbines in Cobscook Bay, where the tides rise and fall 16-to-25 feet at an average velocity of 5.6 knots.

The Ocean Renewable Power Company will install the first of its crossflow turbines this summer, with four more to follow by the end of 2013. Each of the “TidGen” turbines has a nameplate capacity of 180 kilowatts, which means the project could produce up to 900 kilowatts.

ORPC expects to finish building out the entire, $45 million project by installing 17 additional turbines on the other side of the Eastport peninsula by the end of 2016. At that point, the project will reach a nameplate capacity of 3.6 megawatts.

The single turbine installed this summer will produce electricity for commercial sale by Oct. 1. The terms of ORPC’s pending, power purchase agreements with three distribution companies were issued on April 24 by the state’s Public Utilities Commission.

Although distribution companies typically negotiate PPAs with their power providers, the PUC was directed by the state’s Ocean Energy Act of 2010 to set the terms for this deal. Under the PUC “term sheet” (Docket # 2010-235), the price of power from the Tidal Energy Project will be 21.5 cents per kilowatt hour and increase by 2 percent per year – which will raise the price to 32 cents per kilowatt hour in the final year of the 20-year PPAs.

Reconciling Higher Priced Power

The power will be purchased by Bangor Hydro Electric Co., the Maine Public Service Co., and the Central Maine Power Co.

Susan Faloon, communications officer for Bangor Hydro, told Breaking Energy that, “While we have concerns about any public policy that increases costs for our customers, the legislature has set public policy for the state and the commission is moving ahead with implementing that policy by directing us to enter into a PPA.”

A 21.5-cent rate is about twice the price for terrestrial wind power, and it’s slightly north of the initial pricing set for the offshore wind-farms proposed for Cape Cod and Rhode Island waters.

But ORPC president and CEO Chris Sauer told Breaking Energy that tidal energy prices are sure to decline as the fledgling technology matures. “We’re looking out to 2020 with an expectation of substantial efficiency gains. You’ve seen it happen with solar and certainly with wind-energy, and we’re projecting that, by 2020, the break-even cost to generate tidal electricity will be 8-to-10 cents per kilowatt hour.”

Sauer observes that “we’re at something like $13,000 per installed [tidal-energy] kilowatt, now, and we think that, by 2020, that figure will be below $4,000 per installed kilowatt.”

Sauer, a structural engineer who previously designed, developed, and managed major power projects, particularly co-generation plants, pointed out that a portion of the 21.5-cent price reflects the state’s Ocean Energy Act mandate for tidal-energy demonstration projects (and other marine-energy initiatives) to invest in the state’s economy.

As the PUC’s “term sheet” says, ORPC is required to, among other things, “create and/or retain at least 80 full-time equivalent jobs in Maine during the development, construction and installation of the [p]roject.” A failure to deliver on those, and other, commitments will result in “financial payments … not to exceed 7% of total revenue in any given year.”

The mandates were originally recommended by the Ocean Energy Task Force empanelled by then-Gov. John Baldacci in 2008. Sauer, who co-founded ORPC in Florida while working as an energy consultant, said “Maine’s support for tidal energy development was a critical factor in our selection of Maine for our [Portland] headquarters. And, obtaining the terms of these power purchase agreements would not have been possible without the enactment of the state’s marine energy policies – which passed the House and Senate unanimously.”

Maine’s Ocean Energy Act, Sauer added, “has set a precedent for the entire country.”

Carolyn Elefant, co-founder and Legislative and Regulatory Counsel to the Ocean Renewable Energy Coaltion in Washington, D.C., told Breaking Energy that the energy from “waves, tidal power, and other hydrokinetic resources could supply up to 6 percent of the nation’s electric power. But it’s very difficult to pin down the potential for any specific hydrokinetic resource because there’s so much variability from site to site, and you have to remember that the technology is so new that there’s a possibility of capturing more of the potential from [hydrokinetic] resources than there currently is.”

Funding this technology is also an issue. Besides the 30-percent investment tax credit offered by the Treasury Department, ORPC obtained a $10 million, Department of Energy matching grant for the project. But President Obama’s fiscal year 2013 request for DOE’s Water Power Program was only $20 million – a decline of 66 percent from the previous fiscal year.

But Elefant notes that, thanks to “heroic lobbying efforts,” the House and Senate appropriations panels have more than doubled the funding proposal (which is now in conference committee). The Senate’s $59 million proposal, Elefant said, includes $44 million for marine and hydrokinetic research and development; the House proposal allocates $25 million for this research.

Meanwhile, ORPC is preparing to launch a 600-kilowatt demonstration project in Alaska’s Cook Inlet. The project is expected to launch in 2014, after which it will be expanded to 5 megawatts. In a Canadian project, ORPC is planning to install 1.05 megawatts of capacity in the Bay of Fundy.

While “a lot of energy technology companies are thinking in terms of utility-scale projects,” Elefant says, “there’s an increasing recognition that technologies like tidal energy, along with the export potential of that technology, are appealing even if the projects aren’t necessarily built to utility scale.”