December 21, 2011

New owner sought for Bluewater wind farm

By Melissa Steele, 20 December 2011

Time has nearly run out for the future of a wind project off the Delaware coast.

NRG Energy has put all of its offshore wind projects on hold including Bluewater Wind’s proposal to build up to 120 wind turbines off Rehoboth Beach once expected to produce about 200 megawatts of power annually for Delmarva’s grid.

“We’ve actively suspended development,” said Peter Mandelstam, president of Bluewater Wind.

NRG is actively seeking a company to acquire Bluewater, he said. European and American companies have expressed interest, Madelstam said.

NRG now has until Dec. 23 to decide whether it will continue with the contract it signed with Delmarva Power in 2008 to provide wind power, or walk away from it penalty free.

Delmarva Power has already given Bluewater extensions, the last granted in September for the December deadline.

In 2010, $2 million of NRG’s original $6 million letter of credit for the wind project became nonrefundable. A letter of credit is issued by a bank and can be used as cash or a pledge of cash, Mandelstam said.

“Delmarva Power has legal claim on $2 million,” he said, noting Delmarva Power has not yet cashed it in.

NRG risks losing another $4 million if they do not cancel the wind power contract by the deadline.

If NRG finds a company to acquire Bluewater before Dec. 23, Mandelstam said, the power purchase agreement with Delmarva Power and all of Bluewater’s assets would be passed on to the new owner.

Delmarva Power spokeswoman Bridget Shelton said Delmarva Power has spent well over $4 million on multiple studies and outside consulting regarding the Bluewater Wind project. She said Delmarva Power customers have these costs through higher electricity bills.

“Delmarva customers have shouldered costs for three years,” she said.

Shelton said if NRG terminates the contract, Delmarva Power intends to reimburse customers for past costs.

Delmarva Power continues to pursue renewable energy sources despite the setback with the offshore wind project. Already, Shelton said, they have contracts with Bloom Energy for its fuel cells, Dover Sun Park and another land-based wind project. These contracts are for 140 megawatts of electricity annually offsetting the potential 200 megawatt loss from Bluewater.

“We’re in good shape with or without Bluewater,” Shelton said.

Sen. Tom Carper has advocated for the wind farm since the beginning and said he was disappointed with NRG’s decision not to move forward. He said he would continue to work with the Delaware delegation and members of Congress to bring wind power to the area.

“Regardless of NRG’s decision, Delaware’s offshore wind project remains a good, viable project. Soon the Department of Interior will issue the project a lease on the Outer Continental Shelf, 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.

Albert Shields, spokesman for Rep. John Carney, said Carney is disappointed by the setback and will continue to for offshore wind and renewable energy development.

Renewable energy credits decrease in value

State legislators became involved in the power debate in 2008 by passing a bill that requires 20 percent of the state’s electricity to come from renewable sources and another measure that requires Delmarva Power to request proposals for new power plant generation located within Delaware.

At the time, the Delmarva Power and Bluewater contract seemed a perfect fit.

The 2008 contract gained acclaim as the first offshore wind power purchase agreement in North America. NRG acquired Bluewater in 2009 along with the power purchase agreement. At the time, the economic outlook for renewable energy credits to help Delaware meet its 20 percent requirement was bright.

Renewable energy credits are based on the amount of power a plant puts out, said Jeremy Firestone, professor at the University of Delaware’s College of Marine and Earth Studies. Typically, he said, a power company receives one renewable credit for every megawatt of electricity it produces. When the Bluewater contract was signed, however, people were using much more energy than they are now.

When the recession hit, Firestone said, people began to conserve more energy and therefore the value of the renewable energy credits fell. Bluewater could no longer bank on selling renewable energy credits to other power companies for a set price. The price fell and so did the number of credits a power company was required to carry, he said.

Now it’s a matter of supply and demand. There are many renewable energy credit options available for purchase by power companies at lower costs.

“The specific problem was premised on a much more robust renewable energy market,” Firestone said.

Other factors figured into project’s viability

A federal loan guarantee could have helped seal the deal, but that option dried up last summer when Congress eliminated loan guarantees for offshore wind projects.

Firestone said European banks – though on shaky grounds these days – had put up billions for wind projects off European shores and, with a federal guarantee, probably would have done the same here.

NRG, to a lesser extent, counted on federal tax credits to make the wind farm viable, but Firestone said the tax credits would not make up the money lost in the renewable energy credit market.

Energy demand – and prices – were high when the Bluewater contract was signed, making wind energy an attractive alternative. However, today’s boom in natural gas drilling, has brought down the cost of natural gas, resulting in more natural gas investment by power companies and reduced demand for wind energy.

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