Deepwater to announce new investor in early 2012

Wed, 12/21/2011 - 9:15pm
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While a large Delaware offshore wind project has stalled for lack of investors, Rhode Island's Deepwater Wind has attracted a major investor for its smaller, five-turbine demonstration project off Block Island, the company announced this week.

Chief Administrative Officer Jeff Grybowski declined to name the investor but said it is a “major global industrial company that sees a bright future for offshore wind.” Deepwater Wind will release the name early in 2012.

The investor company will partner with investment management firm D.E. Shaw to fund the development of the five-turbine Block Island wind farm, proposed for within three miles of the island’s southern coast. Deepwater has spend $6 million this fall researching the terrain of the sea floor where the project is proposed, and along the route of a 14-mile cable that would link the project, and Block Island, to the Rhode Island power grid.

This announcement comes the same week that New Jersey's NRG Energy announced that it will halt its Bluewater Wind 450 megawatt wind farm off the Delaware coast after it could not find financing.

Grybowski maintains that Deepwater is in a fundamentally different position from Bluewater for several reasons. He touts the company’s strategy of pursuing a smaller demonstration project first to prove the viability of the technology before moving to utility scale projects.

“This new partnership is important because it is an external validation of our company strategy,” Grybowski said. “Build a demonstration scale project first, and use that as a stepping-stone to larger utility-scale projects.”

However, he said, other factors conspired to halt the Bluewater project — some that could impact Deepwater and others that won’t.

Bluewater said that the end of a federal loan guarantee program for wind energy in September and the possible expiration of the production tax credit for wind power next year were a major factor in its decision to suspend the development of its Delaware project.

While Deepwater has not said that the Block Island demonstration wind farm is impossible without those federal tax incentives, company representatives have said it makes the financing for the $200 million project more difficult.

As far as Deepwater’s second, and much larger, utility scale project planned for federal waters further offshore, between Block Island and Massachusetts, Grybowski does not mince words.

“No utility-scale projects will be built in the U.S. without tax incentive support,” Grybowski said. “Energy technologies, including oil, gas, coal and nuclear, have received financial support from the federal government for over a century.”

Earlier this year, a bipartisan group of U.S. senators from around New England, including Rhode Island Senator Sheldon Whitehouse (D), proposed a bill to extend the Federal Energy Investment Tax Credit for offshore wind development past its current expiration date at the end of 2012.

Another factor that might have tripped up Bluewater's financing is the deal it negotiated to sell its wind power to Delaware utility company Delmarva Power, a deal approved by the Delaware Public Service Commission in 2008.

The agreement was for the purchase of 200 megawatts of power at 9.9 cents per kilowatt hour, with a 2.5 percent increase each year. That is far less than what other offshore wind projects, including Deepwater, have negotiated for since.

Massachusetts' Cape Wind has an agreement for nearly twice as much, at 18.7 cents per kilowatt hour, for its proposed 454 megawatt offshore wind project, which has also been on hold since federal tax credits expired.

Deepwater Wind has the most generous agreement, pushed through the Rhode Island Public Utilities Commission last year after two rounds of legislation. Under it, National Grid will buy power generated at the Block Island demonstration project for 24 cents per kilowatt hour, with a 3-percent increase each year.

The offshore wind industry in the United States has yet to install a single turbine, and NRG's decision to abandon Bluewater is significant. But if Deepwater is concerned they are not saying so publicly.

“Our view remains unchanged,” Grybowski said. "Offshore wind is the best utility-scale renewable energy source for the densely populated Northeast, where very strong winds lie within reach of the nation’s largest population centers.”