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Wind Projects at a Standstill
Despite Washington's Enthusiasm, Recession and New Regulations Slow Firms

By Jonathan Starkey
Washington Post Staff Writer
Saturday, July 11, 2009

The Obama administration has made offshore wind energy a priority and an important part of its plans to create jobs and combat climate change, but even such favorable political breezes have not been strong enough to propel the nation's first projects.

The economy has intervened, and an unfamiliar federal approval process could hold up leading projects.

Just last month, Interior Secretary Ken Salazar distributed leases to explore five possible wind farm sites off Delaware and New Jersey on the outer continental shelf. The leases were the first ever, and Salazar proclaimed "a new day for energy production in the United States."

But that day may be years in the dawning.

Developer Bluewater Wind won two of the leases for sites 14 miles off Delaware and 15 to 18 miles off New Jersey. The company seemed to be barreling toward being first in the emerging industry, with plans to plant a wind farm into the seabed at Rehoboth Beach, Del. A year ago, it had even struck an agreement to sell power from the giant windmills to Delmarva Power.

But now, its parent company, Australian investment firm Babcock & Brown, has buckled under the weight of the global economic downturn and is selling off its assets to reduce debt. Bluewater is looking for investors to keep its projects moving.

"They're just reapproaching all of the other players out there, hat in hand," said Brian Yerger, chief executive of Aerca Advisors, a consulting company focusing on renewable energy. "There are a lot of balls in the air."

Hundreds of large and small wind farms have been built on U.S. land, but that sector also is feeling financing frustrations. This week, oilman T. Boone Pickens backed off of his plans to build the world's largest wind farm in the Texas Panhandle, citing tight credit markets and lower natural gas prices.

Pickens could not find financing to pay for the transmission lines that would hook up his wind farm to the Texas grid. Offshore developers face a similar problem. They need to find customers to buy their power and must do so before they can get financing to build. They must also navigate an untested federal permit process that was scheduled to take effect late last month, putting projects many years away from completion. Construction on even the most promising projects in Rhode Island, along with those in Delaware and New Jersey, won't begin for at least four years.

"I guess I would say there's a lot of uncertainty out there in the industry," said Matthew Kaplan, a senior wind analyst at Emerging Energy Research.

Ed Feo, a partner specializing in renewable energy projects at law firm Milbank, Tweed, Hadley & McLoy, said the fact that offshore developers are entering uncharted waters inevitably increases the level of uncertainty.

"This is relatively high on the difficulty scale," said Feo, who said he is working with a pair of companies developing offshore wind projects. "Five years from now, it will be a lot easier. But right now, every issue requires a lot of thought and discussion. There's just not a policy manual to pull off the shelf."

Yet there have been strong signals of support from Washington. In April, the Interior Department broke through a regulatory logjam and issued rules governing how to gain federal approval to build wind farms offshore. The stimulus plan included a cash grant program and federal loan guarantees meant to spur investment in renewable energy projects. The Treasury said Thursday that it expects to hand out $3 billion in direct payments.

Additionally, federal legislation making its way through Congress would cap greenhouse gas emissions and establish a nationwide renewable electricity standard, requiring utilities to meet a certain percentage of energy needs with renewable sources. Theoretically, that would make traditional sources of energy more expensive and open up markets for companies developing renewable energy projects, including offshore wind. Individual states already have similar measures in place mandating the use of renewable energy.

How that will ultimately speed offshore development is uncertain.

Fierce opposition has all but consumed a plan to build a wind farm in Nantucket Sound that was proposed in 2001 and has since become the subject of legal challenges and a multimillion-dollar lobbying campaign.

Cape Wind Associates is still awaiting federal approval to move forward with its $1 billion-plus plan to build 130 turbines -- each as high as 440 feet from sea level -- six miles off Cape Cod, Mass. Renewed legal challenges, however, could further delay the project.

Kaplan said Cape Wind's troubles send bad signals to an industry attempting to grow out of infancy.

"That in itself makes investors cringe, when they see the first offshore wind project has taken this long and is still not over the hurdles," Kaplan said.

Other projects continue to inch forward in New Jersey and Rhode Island, some also dependent on critical negotiations to sell power.

As for Bluewater, President Peter Mandelstam said the company is moving forward and has identified interest among investors. Its two meteorological towers -- each costing $6 million -- will be built by next summer, he said. Necessary data should be in hand by the end of 2011, at which time the company would be ready to secure more than $2 billion needed to build its projects off Delaware and New Jersey. Under the company's current plans, construction would begin by the spring of 2013, and the windmills would be in the seabed sending power inland through undersea cables by that fall. Mandelstam said the company's financing situation should not delay progress.

"I've been in business long enough to understand that sometimes companies fail," Mandelstam said. "I'm not disappointed, it's simply business. One meets a new challenge, and one overcomes it. I've raised capital before, and I'm raising capital again."

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