Top state and federal officials are scrambling to keep Delaware’s offshore wind project alive with a range of financial and regulatory incentives on the eve of a contract deadline that could spell the end for the high-profile renewable energy plan.
The state’s congressional delegation is working to extend federal tax credits and revive a loan guarantee program in the hope of dissuading the project’s developer, NRG Bluewater Wind, from pulling out of its contract with Delmarva Power to begin producing power by 2016.
In late May, NRG announced it was halting construction on a meteorological tower –a next step in the process – because cuts in federal loan guarantees had created uncertainty over offshore wind projects. The company is required to say by June 23 whether it will comply with the contract or cancel and pay a $2 million penalty.
The project was touted as the nation’s first offshore wind farm in 2008 when Delmarva Power and Bluewater signed a 25-year power purchase agreement (PPA). The project’s backers said it could establish Delaware as a national leader in U.S. offshore wind technology, and create thousands of jobs. NRG Bluewater’s plan is to build as many as 150 wind turbines 13 miles off Rehoboth Beach, generating up to 200 megawatts of electricity.
But now even supporters of the project say it will be difficult to create the financial incentives required to convince NRG to stick with the project.
One of the supporters is U.S. Senator Tom Carper (D), who is trying to persuade federal lawmakers to extend tax credits for investment and production in offshore wind projects beyond their scheduled expiration in 2012. “In order to interest people to make the investments, we need to extend the investment tax credit now,” said Carper.
The proposed financial incentives would help overcome the uncertainty that has caused NRG to halt work on the project for now, Carper said. “They want certainty,” he said. “They don’t want to be crucified by their shareholders.”
Carper hopes to introduce legislation in coming weeks that would extend tax credits for the first 3000 megawatts of offshore wind generated.
He conceded that the proposal faces an uphill battle in the Senate but predicted it will eventually prevail. “It’s not going to be easy but most people understand that we need to wean ourselves off fossil fuels, especially foreign oil,” said Carper.
It’s helped by bipartisan support from governors of several Atlantic states that are considering wind projects off their own coasts, Carper added.
Asked whether the project will succeed, Carper said: “I believe that it will. The administration wants it, the governors want it, and there is bipartisan support for it.”
Delmarva Power spokeswoman Bridget Shelton said officials are discussing a possible extension to the June 23 deadline, but she declined to provide details.
NRG spokesman Dave Gaier declined to comment on whether the June 23 deadline could be extended in anticipation of any incentives emerging from behind-the-scenes talks in Washington and Dover.
Delaware Natural Resources and Environmental Control (DNREC) Secretary Collin O’Mara said the Markell administration is working with the state’s congressional delegation to explore possible alternative sources of financing and other potential partners for NRG in the Bluewater project.
“The real problem is that the cost of capital is so high,” O’Mara said in an interview. “It’s going to be very difficult to reach a resolution until there is a path forward that is financeable.”
The availability of capital is now much tighter than it was in 2008 when Bluewater Wind – now owned by NRG – signed a power purchase agreement with Delmarva Power. State and federal representatives are looking at other ways of encouraging the wind farm’s construction, O’Mara said.
Among them is the possibility of cooperation with other proposed wind farms off Maryland and New Jersey to achieve economies of scale in areas such as purchase of equipment.
“If the timing was aligned, that would make some sense,” O’Mara said.
In addition, O’Mara said the state has had “some preliminary discussions with people that have expressed interest” in the Delaware wind farm project, including some of world’s leading turbine manufacturers. “We’ve got a relationship with all the major players.”
He said the project was hampered by “fairly low” rates that were negotiated under the PPA, and it is now challenged by the low price of natural gas as a power-generation fuel, raising questions about the economics of the Bluewater project.
While NRG cited the loss of federal loan guarantees as the reason for the suspension of the wind project, O’Mara said other factors are involved as well.
“It’s difficult to blame the program for being the sole reason that [the project] can’t be developed,” he said.
The latest congressional budget agreement rescinded $18.1 billion out of an original $18.5 billion in loan guarantee authority for renewable energy, but left $1.18 billion available for any project that can pay a subsidy fee. The fee, which is assessed based on the degree of risk associated with the proposed project, has deterred many applicants because it is seen as too high.
The original loan guarantee program, known as 1703, was followed under the federal Recovery Act by another program that provided loan guarantee money without a subsidy fee. The second program, known as 1705, expires in September 2011.
But projects would qualify for 1705 money only if they begin construction before 2012, a deadline NRG Bluewater will not meet, even if the project goes forward.
Bluewater is also hampered by having made its loan guarantee application under the first program, for which funding to both the guarantee authority and the subsidy fee was cut.
Delaware’s Congressional delegation is now working with fellow lawmakers and the Obama administration to increase 1703 funding and to increase the chances of a renewable-energy project like NRG making a successful application.
U.S. Rep. John Carney (D) said he was cautiously optimistic that NRG could be persuaded to stay in the Bluewater contract.
“I would like to believe there is a better-than-even chance that we can make something work,” Carney said. “Officials at NRG have told me that they are committed to offshore wind in Delaware.”
But he said the project faces “significant challenges” because of the cutbacks in federal loan guarantees in an environment of tight credit availability.
Carney said some Republican lawmakers had voted against proposed cuts in federal subsidies to the oil and gas industry rather than promoting sources of renewable energy such as the planned Delaware wind farm.
If the project fails or is further delayed, Delaware could miss the economic opportunity that would come from being the state to host the first U.S. offshore wind farm, Carney said.
But if the project moves forward, local businesses will be tapped to build towers, cabling and turbines for the wind farm and would be well positioned to supply such components to future wind farms off neighboring states like New Jersey or Virginia.
“The biggest benefit has always been the opportunity to get in on the ground floor,” he said.
Regardless of whether the Bluewater project proceeds, O’Mara predicted offshore wind will eventually become a reality. “We are confident that at some point in the future, offshore wind resources will be harnessed in Delaware,” he said.
