Change is in the wind, offshore

September 19, 2013, 11:48 AM UTC

In early July, British Prime Minister David Cameron cut the ribbon on the world’s largest offshore wind farm — a project, known as the London Array, of some 175 giant turbines in the Thames Estuary with the capability of powering 500,000 homes. In the past 20 years Europe has completed 58 offshore wind projects. By contrast, the U.S. has yet to install a single commercial offshore wind turbine.

You might argue that Europeans care more about climate change than cost. To an extent that may be true. Offshore wind farms are at least three times more expensive to build and operate than their landlocked cousins and aren’t close to being competitive with coal and natural gas. Offshore wind still accounts for just a small fraction of global power production. Europe, however, is taking the long view, believing that rising fossil fuel prices and economies of scale will eventually make it competitive. Says Peter Asmus, an analyst at the consultancy Navigant: “Offshore wind will only make sense if you do it in a very big way.”

The big news in the U.S. is that the pro-wind view finally appears to be gaining traction with a small but growing number of utilities, investors, politicians — and even Google (GOOG).

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What’s driving the push for wind? About 30 states have required that at least a small percentage of their energy come from renewables. And on the East Coast, offshore wind is one of the best options for meeting those requirements. The region doesn’t have the intensive sunshine for big solar projects, and it lacks open land near transmission lines for onshore farms. What it does have, in relatively shallow water, is steady wind offshore.

The new demand is translating into action. This summer, for the first time, the U.S. Interior Department auctioned off leases for offshore wind in Virginia, Massachusetts, and Rhode Island. After a decade of fierce resistance and regulatory hurdles, Cape Wind of Massachusetts won approval to build in Nantucket Sound. The startup just received a $200 million investment from a Danish pension fund.

In New Jersey, meanwhile, Gov. Chris Christie has set a target for one gigawatt of offshore wind power by 2020. That won’t be easy to achieve. A plan by Fishermen’s Energy, a startup founded by a group of former fishermen, was recently rejected by the New Jersey Board of Public Utilities for being too expensive. Fishermen’s Energy is appealing.

The obstacles to offshore wind are technological as well as financial. Turbines continue to get larger and more efficient. The latest built by Siemens (SI) and Repower have blade spans twice that of an Airbus A380 jet. But how do you get the electricity onshore? Google has committed funds to help build the Atlantic Wind Connection, a $5 billion, 350-mile offshore grid from New York to Virginia. (Google has a 37.5% stake in it.) The risky project, which won’t be finished till 2020 at the earliest, still needs to raise billions. For the U.S. it would be a huge first step.

This story is from the October 07, 2013 issue of Fortune.