Offshore Winds Idles off Virginia Coastline

Bill Opalka | May 08, 2012

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Gamesa and a development partner are suspending further development of an offshore wind turbine off the coast of Virginia, citing the massive amounts of capital needed to pursue a project with a cloudy future due to uncertain federal support.

Since September 2010, Spanish turbine manufacturer Gamesa, with operations in Pennsylvania,  has been working with Newport News Shipbuilding to design a 5-MW prototype with plans to erect a test turbine off the mid-Atlantic coast. The design phase is expected to be completed this year.

The collaborative effort has focused on turbine reliability, low maintenance and servicing requirements, civil engineering efficiencies in infrastructure development, and cost of energy. The companies said on May 7 they are approaching the end of the critical design review (CDR) for the turbine.

 

“An analysis of current conditions indicates that a viable commercial market in the United States is still farther out, as much as three or four years away, at the earliest,” the companies said in a statement, making further investment impractical.
Developers in New England said they don’t expect the news in Virginia to impact their own plans in Massachusetts and Rhode Island.

“Every project is different as Cape Wind continues to move forward.  We have selected our construction contractors, and with our two power purchase agreements, we have entered our project financing phase, assisted by our financial advisors at Barclays Capital,” Cape Wind Associates Spokesman Mark Rodgers told EnergyCentral.

In Rhode Island, Deepwater Wind's Chief Administrative Officer Jeffrey Grybowski told GenerationHub its Northeast projects are full speed ahead.

“The Block Island Wind Farm has a fully-approved power purchase agreement and we expect to receive final governmental approvals in early 2013.  In addition, our Deepwater Wind Energy Center represents the best utility-scale wind farm opportunity on the Atlantic coast and as the State of Rhode Island's preferred developer of that site, we are also developing this project aggressively," he said.
Deepwater already has a contract with Siemens for five 6-MW turbines for its Block Island Wind Farm.

Gamesa and Newport News said the regulatory climate has improved in recent years, but the lack of an offshore grid, uncertainty surrounding the production tax credit (PTC) extension, which will expire at the end of the year without congressional action, and the lack of a federal energy policy, hamper companies’ ability to secure financing for projects.

After the design is completed, plans to build the prototype near Cape Charles, Va., which the Virginia Marine Resources Commission (VMRC) approved in March, have been postponed. The joint Offshore Wind Technology Center, opened in February 2011 in Chesapeake, Va., will be closed at the end of the year.

“I want to commend Virginia Gov. Bob McDonnell and his administration, especially the VMRC, for the time and effort they put into approving the permit for this project,” said David Flitterman, Chairman, Gamesa North America. “The Governor is a leader for his vision to utilize clean, renewable energy, and his team did everything in their power to fast track this offshore wind development.”

Gamesa said it remains committed to offshore wind globally.  If favorable conditions return, “Gamesa has an advantage to act quickly on future opportunities for a 60 Hz version should the U.S. market develop,” its statement said.

Meanwhile, the American Wind Energy Association lamented the continued policy quagmire and its effect on wind development, offshore and onshore.

“Businesses need certainty to invest and this is another example of how policy uncertainty is affecting business decisions.  Wind power is an American success story, supporting nearly 500 manufacturing facilities in 43 states and employing 75,000 Americans. Urgent extensions of the production tax credit for land-based wind energy and the investment tax credit for offshore wind will allow the American wind energy success story to continue.  Without such extensions, tens of thousands of jobs and tens of billions of dollars of private investment in the U.S. will be lost,” it said in a statement.

This story first appeared in Generation Hub, a unit of Energy Central. www.generationhub.com

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Comments

Why idle it? Just turn off the PTC engine.

As a non-stakeholder in wind, but a small business owner and taxpayer, I object to the suggestion of renewing the PTC - $14 billion dollars to a mature technology is just way over the top! Get rid of tax breaks to Big Oil AND Big Wind! What business owner wouldn't want to eliminate paying taxes and also get a big check from the government in the mail every month? Wind cannot provide needed baseload generation. That should be the focus. China is backing off from wind due to poor performance. The Netherlands had similar results this year and will put the burden onto their taxpayers. Offshore wind is an extreme expense that is totally unnecessary with the abundance of other choices. If wind jobs that cost taxpayers $135,295 per job are lost, oh well. Those of us who are trying to make do, and run our businesses wisely cannot foot the bill for this excessive hand-out. Just fire them!

"Businesses need certainty...Urgent extensions..." of PTCs

The ERCOT region is facing a shortfall of reserve capacity causing 2100MW of gas-fired steam facilities that were moth-balled due to poor efficiency to be reactivated.  That shortfall is, to my way of thinking, a direct result of federal government subsidies of non-dispatchable windfarms with unpredictable, long term generation output.  Developers of gas, coal, and nuclear facilities are reluctant to spend any money enhancing existing facilities or adding new ones because the unbridled expansion of wind has seriously screwed up the strictly competitive generation market in ERCOT.  In the midnight to dawn hours, wholesale electric prices will dip below $20/MWh and even go negative in some areas while peak prices soar.  But, the unpredictability of wind over the long term has the investors in a position where they cannot accurately predict returns so few new, more efficient facilities get built.  Net result, we end up wasting gas running older, lower efficiency gas-fired boiler facilities to take up the slack resulting in increased CO2 emissions as well.  One should never burn gas to make steam if you can avoid it.  The inherent inefficiencies of the straight steam cycle compared to combined cycle are quite large.

Let us also take a look at what PTCs do to the economy.  At a typical corporate income tax rate of 35%, each $1 of PTC is worth $2.86 of pretax earnings.  A typical manufacturing business running at 8 to 10% margin would have to engage in economic activity (read jobs in their own ranks or in those of their suppliers) of roughly $28.60 to $35.75 to get that margin while the more high tech electronics related industries with margins more like 20 to 25% would have to engage in $11.44 to $14.30 to get those earnings.  So the Feds are giving away taxpayer money to a wind industry that must have the PTCs to be economically competitive but is causing us to waste fuel, put unnecessary quantities of CO2 into the environment, and discourages development of new plants that would generate more jobs within the facilities and among suppliers.

Wind energy in its present state of technology is a BOONDOGGLE.  Extension of the PTCs will result in further bloating the federal debt and budget deficits for no good results.

Mark Wooldridge