Delaware offshore wind project faces deadline, uncertainty

Wednesday, September 14, 2011

Securing a power purchase agreement – a long-term contract by a utility or power marketer to buy electric energy from a generator – is often a key step in the finance and development of a new electric generation project.  Where the buyer is a state-regulated utility, as in the case of Cape Wind’s offshore wind PPA with National Grid, state approval of the contract may be required.

In 2008, offshore wind developer Bluewater Wind Delaware, LLC signed a 25-year contract with utility Delmarva Power for up to 200 megawatts of power from Bluewater’s proposed wind farm 11.5 miles off the Delaware coast.  That deal was approved by the Delaware Public Service Commission in 2008, and covers about a third of the project’s expected output.

Like most power purchase agreements entered into prior to project construction, the Bluewater-Delmarva contract contained a series of milestones and deadlines that each party must meet on schedule, or else the agreement may be terminated.  Many of these project milestones specified in the PPA were predicated on expectations that agencies like the former U.S. Minerals Management Service would develop regulations and programs allowing for the development of offshore wind projects.  As these regulatory developments took longer than expected, last year Delmarva got the Delaware PSC’s permission to extend a number of these deadlines.

While most of these deadlines were extended for two years, one date was extended for only three months.  Under the original PPA, Bluewater could recover $4 million of its $6 million development security deposit as late as June 23, 2011 if it cancelled the deal.  While the Delaware PSC partially extended this deadline, Bluewater only has until September 23, 2011 to withdraw from the agreement or else it will forfeit $2.75 million of its deposit.

Reports claim that Bluewater believes it needs a federal loan guarantee to complete the project’s finance – but funding for the Department of Energy’s loan program has been drastically slashed.  Will the offshore wind developer choose to press forward given this uncertainty?  Will the utility and the developer agree to seek a further deadline extension?  What will Congress do to the DOE loan programs?

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