Rhode Island regulators reject $390m offshore wind power deal

April 7, 2010

The Deepwater offshore wind demonstration project proposed for Rhode Island waters has been put in doubt after the state’s Public Utilities Commission rejected the project.

The Commission voted unanimously last week to reject a power purchase agreement between developers Deepwater Wind and power company National Grid.

Commissioners said the 24.4 cents per kWh deal, rising by 3.5% a year, was not “commercially reasonable” at twice the price of conventional power.

The rejection follows months of negotiations between the developers and National Grid, which has seen the power company refusing previous offers that had been as high as 30.7 cents per kWh.

That price was lowered by Deepwater on the understanding that it would split the benefits if the wind project delivered more energy than expected.

That would have seen the project costing around $390 million.

However, last week’s vote by the PUC may have now torpedoed the project.

PPAs

National Grid’s testimony in last week’s hearing suggested that offshore wind farms in Europe have PPAs in place based on prices of 19.6-23 cents per kWh, while the Bluewater project proposed for Delaware is based on a PPA of around 13.9 cents per kWh in 2013.

This compared to around 4.8 cents per kWh for onshore wind projects in the US, according to the Commission.

Deepwater’s testimony stated that the small scale of the project would mean a $6.98 million per megawatt capital cost – expensive, it said, because the project would be the first in the US.

Deepwater Wind’s David Nickerson said the 28.8MW project would enjoy a capacity factor of 40%, and that the PPA value would be more like $274.3 million over its 20-year term.

The company said during last month’s hearings that it accepted the PPA was high-priced, but that it was aiming to use the project as a stepping stone to build a supply chain that could then support larger offshore wind projects from a Rhode Island base.

Within their testimony, the project developers said that as a demonstration project, Deepwater was not being used to prove the technical viability of offshore wind turbines, but to demonstrate that offshore wind projects are viable in the US regarding community support, permitting and other regulatory obstacles.

The main aim of the project was to get something in the water that permitting agencies and financial markets could “understand and accept”, said Deepwater Wind Holdings CEO William Moore.

Nevertheless, the Commission concluded following the hearings that the price for the PPA was higher than an analyst would expect for the development of new renewable energy resources.

Benefits

While the Commission took the point that there would be benefits to the state of Rhode Island from the Deepwater project above and beyond the renewable energy produced, it said the pricing of the PPA “must stand or fall on its own”.

The Commission suggested there was not enough evidence that the jobs created in Rhode Island and other benefits would be worth the extra cost of the project compared to market rates for electricity.

It also suggested that the direct jobs created by the Deepwater project would mostly be out of state, with turbines to be built in the Gulf of Mexico.

The Commission concluded its ruling by stating that it is not opposing the Deepwater project itself, just the pricing. It also said that it accepted that renewable energy projects would need to be developed based on prices above those seen in fossil fuel usage.

“The Commission’s decision in this matter should not and must not be read as a rejection of Deepwater or of the State’s desire to invest in off-shore wind technology,” it said.

“All indications… are that a utility scale project could achieve better economies of scale that might result in a PPA with commercially reasonable terms and pricing.”