Financing may be an obstacle to wind development 

PROVIDENCE – Selling the United States as a viable market for the offshore wind industry to investors is hobbled by uncertainty – most notably uncertainty over the federal government’s financial commitment through federal tax credits or other financing options to help the industry grow.

During the American Wind Energy Association’s Offshore Windpower Conference & Exhibition Oct. 22 and 23, “tax credits” was an oft-repeated term throughout the halls and meeting rooms of the Rhode Island Convention Center. Investment and production tax credits are scheduled to expire Dec. 31. Whether the U.S. Congress will extend the deadline is uncertain, which gives pause to potential investors.

Bryan Martin, managing director of D.E. Shaw & Company, Deepwater’s chief financial backer, made light of the buzzword.

“It’s not often you hear someone say, ‘Offshore wind: economic.’ Usually you hear people say, ‘Offshore wind: Are the subsidies going to get extended?’” he joked, referencing the fact industry leaders focus on the credits instead of potential long-term cost decreases.

In spite of Deepwater Wind’s plans for a five-turbine demonstration farm off the coast of Block Island and its recent victory for development rights for a 200-turbine wind farm off the coast of Rhode Island and Massachusetts, “market challenges do remain at both the state and federal level,” said Senior Vice President Sebastian Chivers of PMSS, a London-based international consulting agency that works exclusively in renewable energy, in an editorial distributed during the conference. “None are more critical to investor and supply chain confidence than securing greater policy incentive stability through an extension to the federal investment tax credit, without which there is a growing danger of alienating investors and reducing financier confidence.”

But are federal tax credits enough? Some industry officials think the government could do more.

“What can policymakers do to really help advance [the industry], through a variety of tools not just the investment tax credit?” Cape Wind Chief Financial Officer Christopher Smith asked during a session on Oct. 23.

In other countries, there is public-private cooperation on wind projects. A delegation from Scottish Development International – bureaucrats, bankers and company officials – presented a model of such cooperation in the United Kingdom, where law mandates the country produce 100 percent of its electricity from renewable sources by 2020.

To achieve this goal, the government opened the UK Green Investment Bank, based in Scotland, with offices in London, which is charged with investing public money in green energy projects and making returns on those investments. A year ago, the government made an initial deposit of three billion pounds ($4.8 billion) and currently has assets of 3.8 billion pounds ($5.9 billion).

But the Green Investment Bank has a long way to go before it reaches its goal of investing $20 billion pounds a year in green energy. Part of the problem is the bank cannot identify enough proposed offshore wind projects for investment, which is limiting the returns, said Robert Cormie, group operations director for the bank.

“We’re long cash and short projects. I know that sounds a bit perverse, but it’s true,” Cormie said.

With that in mind, European companies are turning to the United States to find projects to invest in, and officials from companies like Deepwater Wind and Cape Wind lauded their upcoming New England projects as signs the U.S. market will succeed.

Martin pitched New England as ideal for expansion because it has some of the highest electricity costs in the country; there is little land available to develop new coal or natural gas plants; there is a low-storm risk for the Atlantic waters; and East Coast has a high concentration of the country’s population among the Boston, New York City, Philadelphia and Washington D.C. markets.

If it receives its permits, Deepwater’s demonstration-scale wind farm could bolster investor confidence in the potential of the American market and become a case study for other companies learning to navigate the permitting and construction process.

“We are starting with a small project, so we know what the challenges of offshore wind in the U.S. are,” Martin said. “We get one project done, then you can do two, which turns into four. That’s how an industry builds.”

In the interim, Martin remains optimistic, as he noted the sparsely attended audience seated before him.

“I found it ironic that the population in this room is so small compared to past years because oftentimes it is darkest before dawn. I feel like that’s where we are with offshore wind right now,” he said.