With Cape Wind Associates LLC’s massive wind-energy project off Massachusetts derailed – at least for now – Rhode Island’s Deepwater Wind LLC may have the race won to build the first U.S. offshore wind farm.
But while Deepwater’s planned five-turbine demonstration project off Block Island could go a long way toward legitimizing both the company and the industry in a nation unaccustomed to seeing giant turbines spinning offshore, it’s far from the scale needed to make a difference in the regional energy supply and make good on the company’s promise of bringing hundreds of jobs to Rhode Island. And yet, many see this project as a key to the region’s prosperity going forward.
That’s at least partly because constrained infrastructure limits the region’s ability to consume cheap natural gas for both heat and electricity generation. Politicians and gas advocates lobby for pipeline expansion – calling it the key to cost stabilization – but public and
environmental pushback has grown, pinning a question mark over the predicted completion date of November 2018 for the $3 billion Access Northeast pipeline expansion project, which would expand capacity in Rhode Island.
The region’s natural gas dependency is staggering.
Ninety-eight percent of the electricity generated in Rhode Island is created using natural gas, compared with 43 percent throughout New England, according to electricity regulator ISO-New England.
In part to combat this over-reliance on a single source of energy, Rhode Island has set an ambitious goal to have renewable resources make up 16 percent of its retail electricity supply by 2020.
But for anyone thinking the Block Island project is the solution by itself, it is not. Still the company does believe – emphatically – it has a place in Rhode Island’s long-term solution.
WHERE ARE THEY NOW?
Deepwater this spring will break ground – or water, if you will – on its five-turbine, 30-megawatt Block Island Wind Farm project about 3 miles southeast of Block Island in state waters. The company projects it will generate more than 125,000 megawatt hours annually, enough to power more than 17,000 homes, which will go toward meeting about 90 percent of Block Island’s demand and about 1 percent of Rhode Island’s.
Deepwater is among a handful of companies trying to set up offshore wind farms along the Eastern Seaboard, and if it succeeds, the project will be the first fully operational, offshore wind farm in the country.
Cape Wind Associates – a Massachusetts company that’s spent more than a decade trying to build a 130-turbine wind farm in Nantucket Sound – was long expected to be first, but ran into a crippling roadblock earlier this year. The company purportedly failed to obtain required financing agreements, allowing two utility companies – National Grid PLC and Northeast Utilities Inc. (parent company of Nstar) – to bow out of separate commitments to purchase a combined 77.5 percent of its energy generation.
Deepwater, on the other hand, began its journey in 2008. And today, with all the necessary permits in hand, it is in year one of its two-year construction plan. Company CEO Jeffrey Grybowski expects to be fully operational by the end of 2016 and believes the five-turbine demonstration project could be the catalyst needed to springboard Deepwater – and perhaps other companies – into good graces with the public. He also has his eyes set on the next project – a 1,000 megawatt, $5 billion wind-farm project in federal waters more than 12 miles off the coasts of Rhode Island and Massachusetts called “Deepwater One.”
“I think one of the challenges in the U.S. is that there is no U.S. experience in offshore wind. Whether it’s policymakers or utilities, there is a hesitancy from most folks dealing with a brand-new technology that isn’t understood very well,” Grybowski told Providence Business News.
Deepwater’s Block Island project is expected to cost the company – backed by private investors – about $225 million.
National Grid, Rhode Island’s dominant utility, has a contractual obligation to purchase energy produced by the five turbines for 20 years. In the first year, National Grid will pay 24.4 cents per kilowatt hour, which will increase 3.5 percent yearly through the two decades. In comparison, the utility currently pays a blended rate of 10.7 cents per kilowatt hour from power plants fueled by natural gas, nuclear and other sources across the region.
Ratepayers also will be subject to National Grid’s incurred infrastructural costs. The utility is slated to build a bidirectional transmission line from Block Island to the mainland, which it estimates will cost $107 million. National Grid announced the cost during a January R.I. Public Utilities Commission meeting, which raised some eyebrows as it was 43.7 percent – $32 million – more than originally predicted.
David Graves, National Grid spokesman, said the original number didn’t include the actual cost of the transmission line, which – at the time – was just a request for proposal. In a 2014 filing with the PUC, National Grid estimated that its original predicted cost of $75 million could fall short by 50 percent of the actual. Graves said the utility company has since signed a letter of intent with a vendor, but wouldn’t disclose the name of the company.
Businesses, largely dependent on electricity for production, are wary of this deal and in general of any increase to energy costs.
Douglas W. Gabliske, executive director of the nonprofit energy group TEC-RI, examines energy issues for a group of manufacturers and other large businesses in Rhode Island. He says many of his members oppose Deepwater, primarily because of cost, arguing that businesses that pay five- to six-figure energy bills get hit hardest as costs increase.
“It just so happens that it’s just more and more costly for renewables,” Gabliske said. “It’s a problem for our businesses because we compete on a countrywide and international basis, but with [increased costs] we aren’t going to have any businesses here because they aren’t going to be able to compete.”
Grybowski, however, says the Block Island project costs more because it’s small. Looking down the road to Deepwater One, he predicts construction and operation costs could fall in comparison by about 40 percent, which would ultimately decrease the cost of its energy.
“The cost of offshore wind will come down dramatically,” Grybowski said. “A small project has a higher unit cost because this is a complicated project to install, but going from a small to large project – we’ll see a drop in cost.”
Applying Grybowski’s estimates to Deepwater’s Block Island rates, energy produced from the Deepwater One project could cost 14.6 cents per kilowatt hour, which is 3.9 cents more than National Grid’s current standard rate.
Gabliske has his doubts though and argues that tomorrow’s solutions don’t necessarily solve today’s problems.
“It’s imperative – politically – that we all get together and get gas-pipeline expansion moving yesterday,” he said.
At the same time that the cost of offshore wind power is being scrutinized, stricter environmental regulatory standards, paired with the increasing unpopularity of producing electricity from coal and nuclear fission, are driving some large regional power plants off the grid.
The result of this change is greater dependence on natural gas, a cleaner-burning fuel but a fossil fuel nonetheless. But only so much gas can be imported at once, so during peak demand, there’s less to go around. At times of shortages, electricity producers are forced to purchase whatever resource is available.
The effect: volatile electricity bills, to which ratepayers can attest have been expensive in the last few winters.
Several Rhode Island businesses were forced to absorb increased electricity costs in January after National Grid’s “standard offer” for commercial customers jumped 24 percent. Residential customers saw a 14.2 percent increase and industrial customers saw a 79 percent increase for the first three months of 2015.
ISO-New England, electric grid operator of the six-state region, examines energy capacity three years in advance and is troubled with projections for Rhode Island and Massachusetts, especially with coal-fired Brayton Point Power Plant in Somerset slated to shutter in 2017.
Because power plants buy gas on the spot market and gas for heat is secured through longer-term contracts, fuel becomes scant during cold spells – like the ones this winter in Rhode Island.
Because only two primary gas pipelines supply New England, its governors have supported the idea to build new natural gas pipelines, but they have faced opposition from environmental groups and neighboring Massachusetts residents.
Grybowski says Rhode Island’s looming capacity issue is precisely why businesses should care about Deepwater.
“More pipelines, transmission lines or hydro are all good and bring useful resources – and we should tap into them – but we should be diversifying our local fuel sources that are abundant,” he said.
While offshore wind is new to the Ocean State energy scene, other alternatives, including solar and onshore wind, have been in Rhode Island for years, offering businesses other – albeit expensive – options.
Frederick J. Hodges III, president and CEO of Hodges Badge Co. Inc., in Portsmouth, made the decision about eight years ago to take advantage of a couple grants and timely incentives to purchase a wind turbine, which the company erected in 2012.
The company – a manufacturer of custom ribbons, rosettes, buttons and medals, among other products – today generates about 250,000 kilowatts per year and after an upgrade slated for this month, will meet about 90 percent of its entire yearly demand. Hodges says the turbine will pay for itself in five years.
Although Hodges’ situation sounds like an enticing option for a company trying to manage costs in a volatile market, he points out that his scenario is unique because he was awarded grant money – about $391,000 – and has a business located where the 100-foot turbine can easily get a fair amount of wind.
He would not, however, do it again today if the incentives were not offered. Alternative energy isn’t going to make a huge impact on the region’s energy issues, he says, unless systematic changes are made.
“I don’t see us making it up with renewables with the current incentives,” Hodges said.
PROMISE OF JOBS
Deepwater currently employs 12 full-time workers, but if the Block Island project progresses as Grybowski would like, he anticipates it could employ 200 people throughout the construction phase ending in 2016.
The larger economic impact, however, would come with Deepwater One, which it projects will employ about 1,000 people during construction. The company predicts that 200 full-time operations and management jobs would be filled during an expected 20-year operation phase.
Being first, Grybowski cannot reference any successful U.S. offshore wind projects to back up his claims, so he points to northern Europe, where about 60,000 people are employed in the industry.
Deepwater One, however, is still a long way off and before anyone is hired, the company will undoubtedly face a whole new set of hoops to jump through. A spokeswoman for Deepwater said that the large project could begin construction as early as 2017, but timing would be dictated by power-purchase agreements. And currently, National Grid has no agreement to buy energy from Deepwater One.
A political action committee called Deepwater Resistance PAC officially formed in the summer of 2013 with a mission to fight offshore wind power in Rhode Island.
Robert Shields, committee chairman, says what started as an environmental dispute eventually turned into an economics argument after the group delved further into the finances of Deepwater.
Shields told PBN the PAC’s current options to fight the Block Island project have largely been exhausted, but given the exorbitant cost associated with offshore wind, he suspects the marketplace will derail Deepwater Wind before it’s ever successful in its expansion.
“I can’t see Deepwater Wind finding the financing – at such an unreasonable cost to the ratepayers – for anything larger than the Block Island project,” Shields said.
And it’s already happening, he says.
The Long Island Power Authority in December rejected Deepwater’s bid to secure a purchase agreement to sell more than 200 megawatts from its Deepwater One project. The authority said at the time that they wouldn’t agree to the project “primarily because of their total cost relative to other alternatives,” and instead chose to buy 122 megawatts from 11 new land-based solar projects.
“I think it was blatantly obvious to [Long Island Power Authority] that the cost per kilowatt hour is unreasonable and no state or region should be forced into it,” Shields said. “This gets down to what would benefit Rhode Island.”
Grybowski, however, has heard the doubts about his company and industry for years and he’s no stranger to criticism. In 2008, Deepwater retained Grybowski’s legal services and questions arose when then-Gov. Donald L. Carcieri later named Deepwater the state’s preferred offshore wind developer, as Grybowski had previously served as Carcieri’s legal counsel and chief of staff.
Looking beyond his critics, however, Grybowski is steadfast in his mission operating largely in uncharted waters.
“I think Block Island is important for the U.S. industry because it is the project that will take offshore wind from a theory to a reality,” he said.
Indeed, Deepwater’s success could go a long way toward proving the theory of offshore wind in the U.S., but time – ultimately – will determine its reality. •
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