The company behind Deepwater Wind
6/28/10 — A recurring question that has dogged the proposed Block Island wind farm is: where did Deepwater Wind come from?
Deepwater’s origins stretch back to 2005, when Bryan Martin and David Hang, then with the financial giant JP Morgan, purchased a small wind company called Winergy, which at the time was developing a small offshore wind installation off of Plum Island.
When Martin and Hang made the move to the investment firm the D. E. Shaw group in 2005 and 2007, respectively, they led the purchase of Winergy.
Martin is now a managing director at the D. E. Shaw group, and Hang is a senior vice president; as of April, the firm had $22 billion in investment and committed capital.
In April 2008, Winergy became Deepwater Wind.
Speaking to the Block Island Times this week, Martin said he became aware of the need for supplemental energy in 2000 and 2001 when New York City and Long Island suffered a series of brownouts; the cost of new onshore capacity in the form of power plants or even nuclear plants was exorbitant, yet there was the potential for up to 1,000 megawatts of capacity just miles offshore, ideally beyond the horizon.
When putting together the Deepwater management team, Martin identified three distinct, and somewhat disparate, sets of skills required for the team: experience with traditional energy, utility, transmission and regulatory matters; offshore expertise and experience in the specialized and esoteric field of utility financing.
Having owned oil and gas companies, as well as offshore oil rigs, Martin says the team has “serious respect” for “how challenging it is to take it offshore.” The rest of the world is learning the same hard lesson, he points out, with the tragic oil spill in the Gulf of Mexico.
So far the D. E. Shaw group has invested “tens of millions of dollars” into building Deepwater.
Martin points out that in the realm of private equity, spending nine years working toward the creation a viable business is almost unheard of — and it speaks to their commitment to wind energy as the future.
Martin “strongly believes” that offshore wind will become an established competitive supplemental power source in the near future.
There has been much deliberation in public hearings and information sessions about what Deepwater stands to make from the Block Island wind farm. One consultant for the state Division of Public Utilities and Carriers offered that it was possible for Deepwater to enjoy a 98 percent rate of return.
“Just bad math — and bad assumptions,” says Martin. He said the company stood to make less than 18 percent on the Block Island farm. The project “needs to be profitable to satisfy and attract investors, but the goal is not to retire off of this first demonstration farm,” Martin adds with emphasis. “It’s to make wind energy cheaper in order to grow the industry.”
“We’re trying to drive down costs,” says Martin. “We view that as in our best interest…to make [wind power] more pervasive.”
Hang points to the new wind farm legislation that puts a “governor on the rate of return” — if it costs the company less to build the farm, then the savings would be passed on to ratepayers.
The price for onshore wind technology has dropped as much as 80 percent in the last 15 years, and that “is happening offshore” too, says Martin.
The D. E. Shaw group made a sizable investment in Boston, Mass.-based First Wind in 2006. That company has installed, or is in the process of installing, a series of utility-scale projects: three land-based farms in Hawaii, three in Maine with a fourth underway, three in New York, two in Utah, and one nearing construction in Vermont, for a grand total of 770 megawatts.
If the Block Island Farm comes to fruition, it may be possible to utilize new state-of-the-art turbines that are capable of generating 5 megawatts of electricity; that would mean the farm off Block Island could be comprised of six rather than eight turbines.
The cost of the Block Island farm is estimated to be in the $200-250 million range, with an additional $45 million for the cable. While Martin concedes Deepwater does not officially have the exclusive right to build all larger wind farms in the ocean off Rhode Island, the Joint Development Agreement it signed with the state will hopefully mean, “if we do a good job and prove that the economics work” then the company is well positioned for the further contract as well.
A Deepwater subsidiary is also the lead developer for New Jersey, where it gained permission to erect a Met tower.
However, Martin says, “Rhode Island is the right place to start.” This is so, he says, because of the confluence of “so many assets.” These include a ready and willing labor pool and the state’s rare “access to terrific Real Estate in Quonset.” The former air station in Quonset provides a deepwater port with direct access to the ocean, railways, air and an interstate
If it is established first, it could service the wind industry on the entire east coast.
“Do we need power? That’s at the heart of this whole exercise,” says Martin.
There’s no question offshore wind is much more expensive than existing power sources, Martin concedes, but he says comparing them to the Block Island project seems unfair.
He points to Cape Wind, which came in at a similar price — in the 20 cents per kilowatt-hour range. He thinks that it will soon be possible to bring the number down below 20 cents per kWh.
The new legislation caps the Block Island wind farm electricity price at 24.4 cents per kWh.
Martin thinks in the end an energy mix from all sources would be the ideal.
“At some point renewable energy can’t be subsidized, it has to stand on its own,” says Martin.