The three months Bluewater Wind bought to try to salvage its offshore wind-power contract with Delmarva Power has not brought the change in federal law the developer had hoped for, industry observers say.
But it’s anyone’s guess what will happen when Bluewater and Delmarva reach a key deadline in their power-purchase contract in less than two weeks.
Sept. 23 is the deadline by which Bluewater’s parent company, NRG Energy, can exit the contract without having to commit $2.75 million.
It would pay the money to Delmarva, and another $1.25 million by Jan. 1, 2013, and only get it back when – and if – the wind farm planned off Rehoboth Beach is up and running.
The immediate parties aren’t talking publicly. David Gaier, NRG spokesman, declined to comment and said Bluewater President Peter Mandelstam would not be available for an interview.
Delmarva spokeswoman Bridget Shelton said the utility has discussed the upcoming deadline with NRG, but “details of these discussions are confidential.”
Bluewater is working with a three-month extension, granted by Delmarva from its June 23 deadline to pay all $4 million.
NRG has hesitated to pay because its leaders have said the project needs a federal loan guarantee before it can be constructed.
But the loan guarantee program for renewable energy was dramatically scaled back under the continuing resolution passed earlier this year that kept the federal government open.
Congressional observers say there’s been little progress in restoring these funds so far, knowing that, with divided government, the entire federal budget is in play.
“Given the current political dynamics in Washington, “I just think it’s not something that is reliable,” said Matt DaPrato, an analyst with IHS Emerging Energy Research.
So come Sept. 23, NRG will need to decide whether it wants to hand over the money and proceed. If NRG instead seeks another extension, Delmarva will need to decide if it’s willing to be flexible.
If Delmarva declines, NRG would then have to decide whether to pay the money or end the contract and walk away from the project for now.
Bluewater’s contract with Delmarva, for up to 200 megawatts of offshore wind power, is the first contract for offshore wind power in the United States. Others have been signed since, but facing the same financing headwinds, no offshore wind farms have yet been built.
Bluewater’s plans call for anywhere from 49 large turbines to 150 smaller ones, about 13 miles off the Delaware coast. The turbines would power the equivalent of 54,000 homes.
There are compelling arguments for keeping the project alive and for closing it down, DaPrato said.
It’s looking unlikely that wind developers of any stripe will gain policy certainty about the long-term fate of federal subsidies, including tax credits for wind projects, until the lame-duck session of this Congress, at the end of 2012 or early 2013, he said.
In light of those uncertainties, the parties may not feel it is worthwhile to continue investing in an uncertain proposition, he said.
But he said NRG may be willing to continue to take risks that have a big upside – that it can be among the first offshore wind developers in the country, which could position them to build more.
“That’s something they do not want to relinquish,” he said.
NRG is also looking at financing options that don’t require the loan guarantees, the company has said.
Gov. Jack Markell supports moving forward with the project, “but recognizes that decision largely rests with NRG and Delmarva,” said his spokesman, Brian Selander.
“The Governor hopes these questions concerning the viability of this project can be answered soon,” Selander said.