Less than two years after it launched a process to finally bring offshore wind power to the Atlantic Coast, the U.S. Department of the Interior has completed its first lease agreement through the program, for 96,430 acres about 11 nautical miles of Delaware.
It’s a feather in the cap for the Obama administration and its “Smart from the Start” offshore wind strategy, but help from elsewhere – Congress, namely – will likely be necessary if the lease is to be built out.
NRG Energy, through its Bluewater Wind subsidiary, holds the lease and now owns the rights to build on the site, but last December the company announced it was putting a planned 450-megawatt project on hold. Although it had a 200-MW power purchase agreement with Delmarva Power & Light Company – since terminated – NRG was unable to find the investment partner it needed to move forward on the project.
At the time, NRG said it was stymied by the demise of funding for the U.S. Department of Energy’s loan guarantee program, which it was counting on when it purchased Bluewater Wind in 2009, as well as Congressional failure to extend the investment tax credit and production tax credit for offshore wind. Both of those key tax advantages are scheduled to expire at the end of 2012.
None of those circumstances has changed, so don’t look forward to NRG suddenly turning around and restarting the project. However, the lease could enhance the value of the project, either for NRG to entice a buyer or a big investor (a scenario only likely if the tax incentives are around).
The Associated Press reported that NRG will pay $300,000 annually to hold the lease.
Whomever holds the lease would have the “exclusive right to submit one or more plans to (the Bureau of Ocean Energy Management) to conduct activities in support of wind energy development in the lease area,” the Interior Department said.
Nobody doubts that offshore Delaware is a terrific wind resource – as is much of the Atlantic Coast – and unlike other utility-scale renewable energy sources (think: Wyoming wind farms), wind development there would have the advantage of being in close proximity to a vast market of energy users.
But the cost of energy from offshore wind makes it a tough sell. As Greentech Media reported recently, citing the two U.S. wind projects that might actually be be built in the next few years: “Only their benefits in meeting peak demand and state mandates justified state regulators’ approval of Block Island’s $0.24 per kilowatt-hour power purchase agreement (PPA) and Cape Wind’s $0.187 per kilowatt-hour PPA.” These are prices that are at least two or three times what onshore wind costs.