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NRG Energy has announced plans to terminate its Bluewater Wind power-purchase contract with Delmarva Power at the end of this year.
Bluewater President Peter Mandelstam said on Monday he holds out hope that a buyer for the offshore wind division would step forward before Dec. 23, the date by which NRG must inform Delmarva if it wishes to end the contract.
The contract is widely seen as Bluewater’s most valuable asset, and observers said it would be difficult to build the project without one.
NRG has struggled to secure financing for the massive project and failed to secure federal loan guarantees.
The Bluewater project captured the public’s imagination five years ago as a utility-scale, carbon-free source of energy, 13 miles off the Delaware coast. The turbines have been expected to provide 200 megawatts, or enough to power about 54,000 homes.
Bluewater’s contract with Delmarva, reached in 2008 and revised in September, calls for Bluewater to forfeit a $4 million security deposit on Dec. 31, or walk away.
In a release Monday, NRG reported it would not seek another extension. The release contained nothing about attempts to sell the contract or the company.
“Our people have worked hard and we’ve made a considerable financial investment in the wind park, but that effort cannot overcome the difficult and unfortunate realities of the current market,” said David Crane, NRG president and CEO.
The long-term forecast for federal price supports for the wind industry remain uncertain. This has been important to offshore wind developers, given the long time frame for permitting and building an offshore wind farm.
NRG still expects to receive federal approval for a lease to build offshore wind turbines off the Delaware coast, said David Gaier, NRG spokesman. The company would hold onto this lease as an asset, unless NRG finds a buyer for Bluewater, he said.
Even absent the contract, NRG could re-enter the offshore wind business in the future if market conditions are good enough, Gaier said. Or it could sell Bluewater at a later date, he said.
“We’re not giving up, but at this moment we can’t rationally justify further investment in this project without the prospect that it can move forward within a reasonable timeframe,” Crane said.
Analysts and observers said that by letting the power-purchase agreement lapse, it would be especially challenging for Bluewater to regroup.
Amy Grace, an analyst for Bloomberg New Energy Finance, said the future of any offshore wind project in Delaware would rely on a willing buyer, which in this market appears unlikely.
Offshore wind power is among the more expensive forms of renewable energy.
“If your project doesn’t have a PPA, a lot of the value is gone. And I’m sure they know that,” Grace said of the power purchase agreement.
Chad Tolman, of Delaware’s chapter of the Sierra Club, was active in pressing for the Bluewater contract, against Delmarva’s initial objections. It became clear, Tolman said, that without a clear federal energy policy, including long-term extension of tax credits for wind, investors would go elsewhere.
But he said he thought NRG would have been able to pay for the project on its own, given the energy giant’s deep pockets.
“I am very disappointed,” Tolman said. “I and a lot of other people worked very hard on this thing.”
Potential buyers that could step forward within the next two weeks would think twice because of their own cash problems, in light of the European debt crisis, Grace said. Any buyer would have to be willing to risk the federal government not renewing subsidies for wind, she said.
“A lot of the nonfinancial factors seemed to be pointing in the right direction, but it’s tough to avoid a global financial crisis,” said Brian Yerger, president of the Wilmington alternative-energy consulting firm AERCA Advisors, referring to federal action to shorten permitting time lines.
Brian Selander, spokesman for Gov. Jack Markell, said on Monday, “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.”
NRG, seeking environmentally friendly acquisitions, purchased Bluewater in 2009 after Bluewater’s Australian parent, Babcock & Brown, became laden with debt.
NRG’s vice president Drew Murphy said at the time it was important that the project win a federal loan guarantee for renewable energy projects.
But those guarantees were largely defunded as part of the continuing resolution that kept the federal government open this spring.
Bill Yingling, spokesman for Delmarva, said NRG had not yet been in touch, and declined to comment until then.
The six employees of Bluewater, including Mandelstam, would see their positions eliminated in January unless a buyer comes forward, Mandelstam said. NRG would retain the Bluewater brand.
NRG plans to suspend its offshore wind operations in New Jersey as well, Gaier said.
Despite the move, Mandelstam spoke highly of NRG on Monday, praising its commitment to solar energy.
It’s likely that Congress will extend the wind tax credits, but “you can’t take that to the bank,” which Mandelstam said gave NRG pause.
The market for offshore wind has matured in Europe, but in the United States, “it’s just one of those situations where policy really does affect the way business people allocate their money,” Mandelstam said.
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