U.S. Awards Second Offshore Wind Farm Lease But Uncertainty Remains

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October 23, 2012

(Bloomberg) — The U.S. Interior Department agreed to lease more than 96,400 acres of ocean off the Delaware coast for an offshore wind farm, while NRG Energy Inc., the project’s owner, considers selling it.

NRG’s Bluewater Wind unit received a commercial lease for a proposed 450-megawatt wind farm about 11 nautical miles (12.7 miles) from shore, the Interior Department said today in a statement, enough to power more than 100,000 homes.

This is the second offshore wind project to get a commercial lease from the federal government, after Cape Wind Associates LLC’s 468-megawatt project in Nantucket Sound, Massachusetts, received approval in October 2010. The Interior Department oversees energy development in federal waters more than 3 miles from shore.

NRG suspended development of the Delaware project in December and began seeking a buyer for the Bluewater unit after failing to find investors, though it continued to pursue the lease.

The lease will make the project “appealing to strategic and financial investors” as NRG seeks partners or a buyer, David Gaier, a company spokesman, said by e-mail.

The lease gives Bluewater rights to “conduct activities in support of wind-energy development in the lease area,” including collecting wind-speed data and preparing a construction plan, according to the statement.

The project doesn’t have a customer lined up for the electricity, Amy Grace, an analyst with Bloomberg New Energy Finance, said in an e-mail today. Bluewater’s power-purchase agreement with Delmarva Power & Light Co. expired at the end of 2011, and “I doubt they’ll be rushing to sign another one.”

Project Uncertainty

Wind development in the U.S. is slowing because the federal Production Tax Credit is set to expire at the end of the year, Grace said. The credit pays 2.2 cents a kilowatt-hour for electricity produced from wind and other renewable sources.

“There’s still a lot of uncertainty regarding the PTC and an offtake agreement for the project,” she said. “The bottleneck now is really on the revenue side. How do you get paid for your expensive wind energy?”

It costs about 22.6 cents to produce a kilowatt-hour of electricity at sea-based projects, compared with 8.7 cents for turbines installed on land, according to data compiled by Bloomberg.

“We are one step closer to making offshore wind a reality in Delaware,” Senator Tom Carper, a Delaware Democrat, said today in a statement. “Offshore wind is an untapped energy resource.”

-By Andrew Herndon. Copyright 2012 Bloomberg.
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