Project developer Bluewater Wind hopes to build the first offshore wind farm in the United States, but bureaucratic hoops, project financing and technical logistics will test the company’s abilities to pull it off.
The company, a subsidiary of Australian global investment and advisory firm Babcock & Brown, announced Monday it had signed a contract to sell up to 200 megawatts of power from an offshore wind farm to Delaware utility Delmarva Power.
Bluewater said the wind farm, which could produce up to 600 megawatts of power, will be built 11.5 miles off the coast of Rehoboth Beach in Delaware. However, Bluewater said it hasn't determined the project’s final size, and it plans to make that decision within two years, once the company has signed more long-term customers.
The company already has wrangled up some additional takers. Bluewater also announced Tuesday it had entered into a tentative agreement with Delaware Electric Municipal Corp. for the sale of about 100- to 150-gigawatt hours of power and 17 megawatts of capacity to its nine cities.
The wind farm is expected to start producing power in 2012, the company said. But the checklist of things to do before then is long and arduous.
The agreement with Delmarva requires legislators to approve changes to the state's renewable-portfolio standard – which requires a certain percentage of the state's energy usage to come from renewable sources – to allow the offshore wind farm to sell renewable-energy credits to help defray the cost.
Bluewater and Delmarva said they would take the issue to the Delaware State Legislature before it adjourns this month
The offshore wind project will also need to get approval from various government agencies and clear its land lease on the Outer Continental with the U.S. Department of the Interior's Minerals Management Service.
While working to gain government clearance, Bluewater said it would begin the wind farm's initial planning stages, which includes conducting studies and figuring out the wind farms design, as well as determining which companies will actually provide the wind turbines.
Although Bluewater doesn't know how much the final project will cost, a 450-megawatt project usually costs about $1.6 billion, according to Mattt Dallas, a spokesman for Babcock & Brown.
Bluewater has also secured a limited safety net of sorts. The company can pull out of the contract with Delmarva for up to two years without suffering a penalty, Dallas said.
According to Barry W. Yerger, managing director of the alternative energy group at Jesup & Lamont Capital Markets, some of the biggest challenges to Bluewater's offshore wind farm have already been removed.
"The major impediment to this project being fully approved and finalized was the disagreement between Bluewater and Delmarva Power directly," he said.
The two have been trying to hash out a deal for more than a year.
According to The News Journal, it took public outcry demanding a wind deal – and involving State Sen. Anthony DeLuca, D-Newark and Lt. Gov. John Carney – to prompt Bluewater and Delmarva to finally reach an agreement.
"The main loggerhead is over," Yerger said. "The project should proceed in a more diligent and timely manner."
With Bluewater's subsidiary, Babcock & Brown, at its side, the company should be able to come up with enough project financing to build the project, he added.
But building wind farms off the coast of United States hasn't exactly been smooth sailing.
Local residents have managed to wreak havoc on efforts to develop wind farms off the cost of Cape Cod, Mass., and Cape Wind, which has proposed offshore wind projects has been fending off lawsuits.
The visual obstruction of wind turbines floating off the coast are among the issues that have contributed to holding up offshore wind projects in the United States.