Backers of Delaware’s proposed offshore wind farm are blaming the withdrawal of federal loan guarantees and tax credits for the near-demise of the ambitious project.
Without strong and consistent financial help from government, costly, cutting-edge projects like the Mid-Atlantic Wind Park are unlikely to get the billions of dollars in private-sector backing they need to become a reality, the supporters said Tuesday.
That was the experience of NRG Bluewater Wind which announced on Monday that it was pulling out of an agreement with Delmarva Power to supply the utility with wind-generated electricity, in a deal that once offered the planned farm its best chance of success.
But the power purchase agreement (PPA), the first of its kind in the fledgling U.S. offshore wind industry, wasn’t enough to attract private investors without the additional backing of government loan guarantees and, in particular, federal tax credits for production and investment.
NRG Bluewater said on Monday it had been unable to find an equity partner in the venture despite approaching “more than two dozen” potential investors.
“At this time, we can’t rationally justify further investment in this project without the prospect that it can move forward within a reasonable timeframe,” said NRG President David Crane, in a statement.
NRG has invested millions of dollars in design and engineering studies, state and federal permitting, and ecological assessments but could not overcome what Crane called the “difficult and unfortunate realities of the current market.”
That leaves the Mid-Atlantic Wind Park, which was expected to create hundreds of jobs and boost Delaware’s renewable-energy output, hanging by a thread. Unless NRG Bluewater can find a buyer for the operation by the Dec. 23 deadline for confirmation of its contract with Delmarva Power, there is little immediate prospect of a revival.
NRG said it will close its Bluewater Wind development office but keep its options open by retaining development rights over the area 13 miles off Rehoboth Beach that would have generated enough power for 54,000 homes.
“If and when market conditions improve and the company is able to find partners, NRG will look to deploy the wind park and explore other viable offshore wind opportunities in the Northeast,” it said in a statement. They include proposals for wind farms off New Jersey, Maryland and Massachusetts.
NRG Bluewater President Peter Mandelstam said the failure of Congress to extend investment and production tax credits beyond their scheduled expiration at the end of 2012, and lawmakers’ decision to eliminate funding for the Department of Energy loan guarantee program were the main reasons why private backing could not be found in the time available.
“This is a reflection of inconsistent federal tax policy,” Mandelstam told DFM News. “Business people make decisions based on the rules as they find them.”
But he said he is still looking for investors and is scheduled to meet in coming days with “several” potential partners via a UK-based broker that is working on NRG Bluewater’s behalf.
With nearly 3,300 megawatts of installed wind capacity off European shores and approximately 2,900 megawatts currently under construction, that continent’s investors are more familiar with the potential of the technology and attach a “lower risk premium” than their U.S. counterparts, Mandelstam said.
He predicted European investors will also be motivated by the expectation of the future restoration of the tax credits and loan guarantees. “They understand that eventually, Congress does the right thing,” Mandelstam said.
But Jeremy Firestone, a professor of marine policy at the University of Delaware, said the chances of finding a European equity partner just two weeks before the Delmarva deadline are diminished by the continent’s financial crisis which has caused many banks to be reluctant to lend.
“It’s not a day of good news,” said Firestone, who directs the university’s Center for Carbon-Free Power Integration. “There’s a good deal of pessimism in the air.”
Still, NRG’s aversion to the risk doesn’t necessarily mean that others won’t step in, he said. “NRG wasn’t willing to do that but that doesn’t mean that others won’t,” he said.
Firestone said NRG Bluewater’s withdrawal was not surprising given the recent sharp decline in the value of tradable renewable energy certificates it would have earned from the wind park, forcing it to rely more heavily on tax credits in its financial projections.
Although the Delaware project may now be dead, it doesn’t mean other proposed wind farms off the Atlantic Coast, such as Fisherman’s Energy off New Jersey, the Deepwater Wind project off Block Island, NY, and Cape Wind off Massachusetts will suffer the same fate, Firestone said.
The future of offshore wind would be brighter if policymakers compared its high financial cost with the full costs of burning fossil fuels, such as their health impacts, Firestone said.
“If you counted all the external costs of fossil fuel generation, then offshore wind doesn’t look so bad at all,” he said.
Despite the hopes of some supporters, Governor Jack Markell signaled he has little confidence that the project will survive. “While we were supportive of the project moving forward, that seems unlikely now in the absence of some other entity acquiring the rights to this project,” wrote Markell spokesman Brian Selander, in an email.
Bridget Shelton, a spokeswoman for Delmarva Power, said Tuesday afternoon that NRG had not yet informed the utility of its decision to terminate the PPA. “Because we have not yet received official word, we still have a contract,” she said.
Even without the 200 mw of power that would have come from the wind farm, Delmarva is in “good shape” to meet its renewable-energy requirements, thanks to generation including Bloom Energy, a solar installation in Dover, and a number of land-based wind projects, Shelton said.
State Rep. John Kowalko, who promoted the power purchase agreement with Delmarva, said he was “extremely disappointed” by the apparent failure of the Bluewater project. He blamed the withdrawal of federal loan guarantees in part on the failure of Solyndra, a California solar-power startup that shut down and filed for bankruptcy in August after getting $535 million in federal loans.
The furor over Solyndra, including accusations that the Obama Administration had failed to fully scrutinize the company’s financial projections, reduced the chances of loan guarantees being extended to another clean-energy project, especially at a time of deep federal budget cuts, Kowalko said.
Without the loan guarantees, the wind farm was too much of a risk for NRG, Kowalko said. “NRG was not in a position to risk going it alone without the loan guarantees in place,” he said.
U.S. Senator Tom Carper said he too was disappointed by NRG’s action but pledged to continue to work to restore the loan guarantees and tax incentives despite the fact that “not all in Congress” support those measures.
Carper said in a statement that a new partner may be found when the Interior Department soon issues a lease for the wind farm project on the Outer Continental Shelf.
“Regardless of NRG’s decision, Delaware’s offshore wind project remains a good, viable project…and I am hopeful that with this lease we can find another company that will be willing to partner with Delaware to pursue this promising source of offshore wind energy,” Carper said.
