Offshore Wind Farm Leases Draw Few Bids From Wary Industry

View Original Source at The New York Times

By DIANE CARDWELL
JANUARY 29, 2015

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ANDREW YATES / REUTERS

Not too long ago, in 2013, the Obama administration began auctioning off leases for offshore wind farms up and down the Eastern Seaboard, hoping to spur a nascent industry.

But now, the industry is languishing. Projects off the coast of New England, New Jersey and Delaware are dead, moribund or struggling.

And an auction on Thursday for parcels off the coast of Massachusetts — some of the windiest areas of the country — drew little interest from developers. Two of the four parcels drew no bids at all, and the ones that did attracted substantially lower prices than other auctions in recent years.

Of the 12 companies qualified to bid, only two — OffshoreMW and RES America Developments — took part, snatching up the parcels for around $1.50 an acre or less, below the overall average paid in earlier auctions and far less than the roughly $109 an acre that US Wind, a division of an Italian company, pledged last year for almost 80,000 acres off the Maryland coast.

Abigail Ross Hopper, director of the Bureau of Ocean Energy Management, which oversees the leasing, nonetheless expressed satisfaction.

Because the Massachusetts development area has deeper water than other areas, officials knew it would be more expensive to develop wind farms there, she said, so they set the minimum bid price lower.

“We are happy with the results of this auction,” she said in a conference call with reporters. “We are working hard to set up an offshore wind industry in the United States, and so I am very encouraged by the fact that two experienced wind developers have chosen to bid.”

But many more skipped the auction, and some were blunt about where they saw opportunity in wind energy. “We continue to pursue the myriad onshore opportunities in the U.S. market,” said Art Sasse, a spokesman at Iberdrola Renewables, a division of Iberdrola, the Spanish energy group. Land-based wind projects are booming, so much so that the United States became the top wind energy producer in the world last year, according to the White House.

Developers installed 4,854 megawatts of capacity last year, according to figures released Wednesday by the American Wind Energy Association, bringing the total capacity to 65,879 megawatts, or enough to supply 18 million homes. “The industry is coming on strong,” Tom Kiernan, the association’s chief executive, said at a news conference.

But offshore, the list of struggling projects is growing. Cape Wind near Nantucket, Mass., the ambitious wind farm that has struggled to reach fruition for more than a decade, now faces a new set of hurdles. It failed to close on its financing late last year, leading the two utilities that had agreed to buy the bulk of its power to cancel the contracts.

“Cape Wind is reviewing its options for moving forward,” said Mark Rodgers, a company spokesman, adding that it believes the contracts remain in force, as does its lease for the site and all necessary permits.

Fishermen’s Energy, which is looking to sink foundations for its turbines near Atlantic City, is stymied by wrangling with state regulators over rules for the renewable energy credits that are issued as the electricity is produced, an important part of its income. And NRG has put an indefinite stop to its offshore development in the United States, suspending a project in Delaware.

Some in the industry are skeptical that offshore wind can start moving ahead as the Obama administration has envisioned.

States need to help create markets for the electricity, developers say, by devising rules for the new pricing mechanisms as well as other incentives like mandates. Ms. Hopper echoed that sentiment after the auction, saying that parcels have fetched higher prices in states where there were already financial supports like power purchase agreements, offshore wind energy credits or other mechanisms already in place.

“That obviously has value and can impact the price that companies are willing to pay,” she said.

And the federal government needs to help ensure longer-term financial support by extending important subsidies like an investment tax credit worth 30 percent of a project’s cost, proponents say. Given the huge expense of building the farms, offshore wind is, in the short term, more expensive than many other forms of electricity, but offers other potential benefits and cost savings in the long term, its proponents say.

“There needs to be some kind of push to buy this stuff,” said Dan Renshaw, chief executive of Sea Breeze Energy, which qualified for the Massachusetts auction.

“There are a lot of fundamental reasons that this is a good idea,” he added, but enthusiasm among potential project investors is in short supply.

Still, at least one project is moving forward: the Block Island Wind Farm that plans to begin sinking the foundations for five huge turbines near the coast of Rhode Island this summer. The project, developed by Deepwater Wind, has its blades ready for delivery from Denmark and the foundations are under construction on the Gulf Coast.

“We’re a go,” said Jeffrey Grybowski, Deepwater’s chief executive. The company has three other projects in various stages of planning and development near the coasts of New England, New Jersey and Oregon, and Mr. Grybowski expressed a rare optimism that offshore wind would take off once the first farm was complete.

“Bringing the industry from theory to reality will be a huge step forward,” he said. “It’s really difficult for utilities in the U.S. to take that step of procuring power from offshore wind when they simply have no experience with it and can’t see it and feel it.”

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