December 8, 2010 - Deepwater Wind proposes expansion of Rhode Island Sound project

Wednesday, December 8, 2010

Renewable developer Deepwater Wind has announced today its plans to double the size of its proposed Rhode Island Sound offshore wind project.  Under the current proposal, Deepwater's second-generation development will now consist of 200 turbines to be installed in federal waters off Rhode Island and Massachusetts.  Deepwater hopes to commence construction of the project in 2014, bringing the first turbines into operation in 2015.

A recent sunset over Maine's
Merrymeeting Bay.
What price will Deepwater get for its power?  Looking at other offshore wind projects is illustrative of the kinds of pricing we might expect.  For example, Deepwater Wind is also developing a smaller 8-turbine demonstration project in Rhode Island state waters, the Block Island Wind Farm.  The developer has already secured one major state approval to construct the project, although this approval is currently being challenged in state Supreme Court.  The Rhode Island PUC has approved a contract with utility National Grid establishing a maximum starting price of 24.4 cents per kWh, with 3.5 percent increases over the the 20-year life of the deal.

Interestingly, back in March 2010, the Rhode Island PUC rejected a similarly priced contract between Deepwater Wind and National Grid, on the grounds that the price was not "commercially reasonable".  In recognition that long-term contracting for renewable power is crucial to facilitate the financing and development of projects, the Rhode Island legislature enacted laws providing a statutory definition of "commercially reasonable" ("terms and pricing that are reasonably consistent with what an experienced power market analyst would expect to see in transactions involving newly developed renewable energy resources") and giving the PUC greater scope in its analysis.  In response, the PUC approved the Block Island contract at 24.4 cents per kWh.

The recent approval by the Massachusetts Department of Public Utilities of a contract between National Grid and Cape Wind is also illustrative of the current pricing of New England offshore wind contracts.  Under that deal, National Grid will buy half of Cape Wind’s output for 18.7 cents per kilowatt-hour, with a 3.5% annual escalator in each of the 15 contract years.

For the Rhode Island Sound project, Deepwater Wind suggested in a press release that its price might be in the "mid-teens" per kWh, provided that federal tax incentives are maintained.  This relatively lower price (compared to the Block Island project) may arise from economies of scale.  As the Massachusetts DPU observed in its analysis of the Cape Wind contract, the nameplate capacity of the 28.8 MW Block Island project is just 6% of the capacity of Cape Wind's 468 MW, "presumably providing the Deepwater Block Island facility with fewer economies of scale" as compared to Cape Wind.  I suspect Deepwater Wind's larger project will benefit from its greater experience in project development by the time it gets to the Rhode Island Sound project.  It will be interesting to watch as the Rhode Island Sound project moves forward, and Deepwater Wind lines up a buyer for its power.

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