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Delaware could be left in bind if NRG exits

WILMINGTON – If NRG Energy walks away from its offshore wind contract with Delmarva Power later this month, the state faces an uphill climb to find a new developer, observers say.

Gov. Jack Markell openly spoke recently of seeking another developer if NRG is not willing to proceed expeditiously with its Bluewater Wind project, planned for a site about 13 miles off the Delaware coast.

But this week, his office sounded less optimistic about the prospects for such a white-knight scenario.

“They’ve got the best chance to make this happen,” Markell said of NRG.

Last week, a company spokesman said NRG was putting the brakes on the project because of an uncertain future for federal tax credits and loan guarantees for renewable-energy projects.

But if NRG gets cold feet, potential suitors may balk at taking on the Bluewater contract, with its risky revenue stream and shaky federal support, said Matt DaPrato, an analyst with Massachusetts-based IHS Emerging Energy Research.

“It’ll be difficult for someone else to come in under the same conditions to get the project built, unless they have a significantly higher risk appetite than NRG-Bluewater,” he said.

Bluewater is under contract with Delmarva Power to begin producing power by 2016. To meet the contract, the firm would need a farm of 49 to 150 turbines generating up to 200 megawatts of electricity. The wind farm is expected to cost more than a billion dollars to construct.

NRG bought Bluewater in late 2009 from its ailing Australian parent company.

Last week, an NRG spokesman said the company was considering all of its options as far as exercising an escape clause in its Delmarva contract, which has a June 23 deadline.

On that date, NRG must decide whether to back out and forfeit a $2 million security deposit or stay in and pay $6 million.

If another developer were to step in, it would in all likelihood need to win over Delmarva, which initially opposed offshore wind power, but later embraced the Bluewater deal. The contract goes a long way toward fulfilling the utility’s state renewable energy purchase requirements.

The contract, signed in 2008 amid political pressure, was structured to give maximum protection to ratepayers by paying Bluewater a low price for the electricity generated, DaPrato said.

Bluewater’s business model relies heavily on renewable energy credits, a market that has been soft lately, DaPrato said.

With few other takers for the wind farm’s power, the project has limited revenue potential, DaPrato said.

Bluewater has in the past received extensions to deadlines in its contract with Delmarva. The utility’s spokeswoman, Bridget Shelton, declined to answer questions about another extension.

In its April deal to keep the federal government open, Congress slashed support for loan guarantee programs that support renewable energy projects. That’s the primary reason NRG cited for opting against installing a multimillion-dollar meteorological tower in the ocean this year to collect data for the project. Congress is unlikely to reinstate the loan guarantee program in the upcoming budget, DaPrato said.

Another challenge would be transferring Bluewater’s work on gathering government permits. Bluewater’s exclusive right to negotiate with the government for a construction lease is not transferrable to another developer, a spokeswoman for the department said.