Deepwater cites ‘unavoidable economies’

Mon, 10/26/2009 - 4:00am

10/24/09 - In the wake of last week’s National Grid filing with the state Public Utilities Commission, Deepwater Wind executives are hoping for more time at the bargaining table.

Last Thursday National Grid recommended the PUC to turn down a power purchase agreement (PPA) proposed by Deepwater for an eight-turbine wind farm within three miles of Block Island.

According to National Grid, Deepwater was asking 30.7 cents per kilowatt-hour for its electricity, when the average cost for wholesale electricity is about 9 cents. It called the proposal “commercially unreasonable.” Deepwater countered that its offer was in the range of 20 cents to 25 cents a kilowatt-hour.

Deepwater CEO Bill Moore said Wednesday that the difference in the numbers came down to the number of turbines.

National Grid argues that by law it is not required to purchase more than 10 megawatts of power from the Block Island farm, which would translate to no more than six turbines. Deepwater could bring its price down to as low as 19 cents per kWh when allocated over eight turbines, Moore said, but the company’s costs rise as the number of turbines drop.

“Unavoidable economies” drive the company’s costs, said Moore. For example, Deepwater will still have to pay $2 million to rent a vessel to help construct the farm — regardless of whether it’s six or eight turbines.

Moore said Deepwater chose a pricing scheme that would “backload” its revenue — meaning that the company sought to keep prices low in the early years, and increase them with time.

“Better for ratepayers, and defers our return out years,” Moore said.

He said Deepwater favored a “completely transparent, open-book approach” to the costs involved.

Regarding Deepwater’s desire for 12 percent return to its investors, Moore said that number was “way low with a risk profile like this [project].”

He said there was no guarantee of return, and that Deepwater would bear the entire completion risk, meaning the company would “have to eat the difference if it goes overbudget” by millions of dollars.

As to the suggestion by some that Deepwater forgo the small Block Island farm and instead simply tie the island into the larger farm planned 15 miles to the east, Moore called that a “non-starter.”

He said that farm would be delivering extra-high voltage direct current, and it would be “prohibitively expensive” to build a substation to convert it to alternating current for the island. Also, judging by the Cape Wind matter, which has now been delayed for a decade, the larger project in federal waters is similarly years away.

The smaller Block Island project, on the other hand, could “kick start” the industry in Rhode Island, said Moore. The state’s push for offshore wind development is “as much about economic development as energy,” he said.

Deepwater Chief Development Officer Paul Rich concurred, and added that the environmental benefits should not get lost in the discussion of price. He said the prevailing opinion he’s heard is that “we can’t let this opportunity pass us by… especially over a few business points in a contract.”

Moore said that they are “reasonable people,” and they are hopeful the PUC will order the parties back to the bargaining table at its October 29 hearing.

Governor reacts

The genesis of the Deepwater project came from Gov. Donald Carcieri’s call two years ago for the state to obtain 15 percent of its energy from renewable sources.

In the wake of the National Grid filing, Carcieri spokeswoman Amy Kempe said the governor would like to see the parties “get back to the table and work these things out.”

The project is “far too important not to … ,” she said

Kempe said the Northeast is vulnerable to volatile foreign oil prices, and yet there is an “unending source of reliable energy right off our coast.” Harnessing that resource could not only bring price stability for years to come, Kempe said, but could potentially be exportable to other parts of the country.