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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