Offshore wind pact OK’d for Delaware; $800 million deal leaves room for more investors 

Delmarva Power signed a landmark offshore wind power deal with Bluewater Wind on Monday, agreeing to buy enough power to light 50,000 homes in Delaware for the next 25 years.

The long-awaited, $800 million deal could make Delaware the first state in the nation to build a wind farm off its shores. An array of as many as 70 towering windmills would rise in a tract east of Rehoboth Beach by 2012.

The farm also could be expanded in coming years if other electricity buyers are found. Bluewater has said it also intends to build a regional construction hub in Delaware.

The pact comes after dozens of public hearings and legislative debates and growing pressure on lawmakers from grassroots citizens groups that backed a shift to clean, locally generated power to meet the state’s future electrical needs.

That theme was picked up and pressed by the four leading candidates for governor: Lt. Gov. John Carney and Treasurer Jack Markell, both Democrats, and Republicans Bill Lee and Mike Protack.

The surge in support for the wind power project developed as oil prices increased and evidence of the environmental damage from carbon dioxide and other power plant emissions mounted. Federal support has grown for alternatives to fossil fuels, including wind, solar and nuclear power.

Delmarva vigorously fought an earlier version of a wind deal with advertisements and political pressure.

Delmarva has agreed not to sue the state if the contract receives the blessing of lawmakers. The deal signed Monday allows Bluewater to back out within two years if the developer can’t find enough other buyers to make the project economically feasible.

Both parties agreed the contract will cost average residential customers about $5 a month more – over the 25 years – than they would have paid for electricity without offshore wind power. With volatile fossil fuel prices, no one can predict how much additional cost – or savings – customers may see over the life of the contract.

The contract is contingent on lawmakers relaxing Delmarva’s responsibility for buying clean power from other sources. A bill also will be introduced to spread out the added costs among all Delmarva customers, including large industrial users.

Right now, wind-generated power costs more than electricity produced using fossil fuels such as coal or natural gas. The extra cost would be passed along to everyone hooked up to Delmarva’s Delaware grid, whether they buy their electricity from Delmarva or not.

Senate Majority Leader Anthony DeLuca, D-Newark, who brokered the deal, said it was a pragmatic solution allowing the project to go forward.

“The best plan on paper that’s never enacted doesn’t do anything for you,” DeLuca said at a news conference Monday at Delmarva headquarters. “We get a project that actually starts. We’re very serious about going forward with this.”

Now that the contract is in hand, Bluewater and its parent company, the Australian investment firm Babcock and Brown, will try to find other buyers, including other utilities, businesses or governmental entities.

The company also has a long list of local, state and federal permits to win before it can build – approvals that will require it to prove the wind farm will comply with laws protecting birds, sea life, shipping lanes and even shipwrecks.

Bluewater and Delmarva have been fighting over the contract for more than a year, and state agencies nearly ordered Delmarva to sign a larger deal in December.

In recent months, DeLuca brought the two parties back to the negotiating table, seeking a compromise. The delicate dance continued until the contracts were signed just 20 minutes before the 1 p.m. news conference.

“Not many people thought we’d be here,” said Hunter Armistead, the head of Babcock’s North American Energy Development Group. “We’re committed to seeing this all the way to the finish line.”

Delmarva Region President Gary Stockbridge said the smaller size of the contract makes it more manageable for his customers. The utility does not see itself as the wind farm’s primary buyer, Stockbridge said.

“It will be regionalized,” Stockbridge said.

As envisioned in the December contract, the project required Delmarva to buy about 28 percent of its power for residential and small-business customers from Bluewater. Delmarva would have bought up to 300 megawatts of power when the wind was blowing hard, or about 1.1 million megawatt hours a year. It was estimated to be a $1.6 billion project.

The new contract would have Delmarva buy about 14 percent of its power from Bluewater. Delmarva would now buy no more than 200 megawatts when the wind is blowing hard, averaging about 605,000 megawatt hours a year.

The December contract would have required about 150 turbines. Now, between 55 and 70 turbines are envisioned. The project will cost about $800 million to build.

A small amount of the output would go to the Delaware Municipal Electric Cooperative, which serves an assortment of cities and towns, which signed a contract with Bluewater last year.

Additional turbines could be built to accommodate more buyers. It will be up to Bluewater to expand the project up to 600 megawatts.

The cost of the wind electricity is the same as it was in the December contract: $9.893 cents per kilowatt hour. A capacity surcharge remains the same.

The deal includes a clause that allows Bluewater to back out, without penalty, if the numbers don’t work for the company at the end of a two-year period. The moment of truth could come when Bluewater commits to buy the nonrefundable turbines. That’s expected to happen before the two years elapse.

“We’ll all be counting down for two years,” said University of Delaware associate professor Jeremy Firestone, a longtime Bluewater supporter. “They’re going to spend a boatload of money, but they did give themselves that out.”

A big difference in the two contracts revolves around renewable energy credits, a subsidy to wind developers. For each unit of electricity produced, the developer of a wind farm earns a credit, which is a certificate that is tradable on Wall Street. In the December contract, Delmarva would have bought all of the credits associated with the project – 1.1 million a year at $19.75 apiece.

In the new contract, Delmarva buys just 200,000 credits – a concession the utility says will save ratepayers $100 million over the life of the contract.

The new contract also makes it much easier for Delmarva to fulfill a state requirement, passed last year, that 20 percent of its power come from renewable sources by 2019. The deal requires legislation that would allow Delmarva to get 350 percent credit for each renewable energy unit from an offshore wind farm in Delaware.

Sen. Charles Copeland, R-West Farms, said he was concerned about that portion of the contract. “I want to make sure we don’t water down our laws as they relate to renewable energy,” Copeland said.

Nathaniel Bullard, a Washington-based senior analyst with New Energy Finance of London, said the clause means Delmarva won’t have to spend as much to support renewable energy projects, likely wind farms in other states. “It’s a sweetener,” said Bullard.

Delmarva still has land-based wind power contracts tallying 170 megawatts a year expected to go before the Public Service Commission in the coming weeks.

The pact comes about two years after rate caps on Delmarva Power residential customers expired, leading to a 59 percent increase in bills and a directive from legislators to four state agencies to seek in-state power sources.

In May, the agencies recommended Delmarva buy power from a Bluewater offshore wind farm, backed up by a natural-gas plant. Delmarva resisted, saying the wind farm’s power would be too expensive.

Lawmakers blocked a resolution mandating a contract and nearly six months of debate began.

The wind farm would be built near the coal-burning Indian River Power Plant, but the coal plant won’t power down when the wind is blowing hard, Delmarva officials have said. Plants burning more expensive fuels such as oil would power down first, they said.

Nevertheless, environmentalists recognized the historic nature of the agreement. “Today’s a day to celebrate,” said Pat Gearity of Citizens for Clean Power, which played a key role is pressing for wind power. “We have actually broken through decades of resistance from the fossil fuel industry.”

By Aaron Nathans

The News Journal

24 June 2008