NRG Gets U.S. Lease for 450-Megawatt Delaware Offshore Wind Farm

Andrew Herndon, Bloomberg
October 24, 2012 | 20 Comments

The U.S. Interior Department awarded a lease for more than 96,400 acres of ocean off the coast of Delaware for an offshore wind farm, while NRG Energy Inc., the project's owner, contemplates selling it.

NRG’s Bluewater Wind unit received a commercial lease for its proposed 450-megawatt wind farm about 11 nautical miles (12.7 miles) from shore, the Interior Department said yesterday in a statement, enough to power more than 100,000 homes.

This is the second offshore wind project to get a U.S. commercial lease, after Cape Wind Associates LLC’s 468-megawatt project in Nantucket Sound received approval in October 2010. The Interior Department oversees energy development in federal waters more than 3 miles from shore.

NRG suspended development of the Delaware project in December and began seeking a buyer for the Bluewater unit after failing to find investors, though it continued to pursue the U.S. lease.

Receiving the lease will make the project “appealing to strategic and financial investors” as Princeton, New Jersey- based NRG seeks partners or a buyer, David Gaier, a company spokesman, said by e-mail yesterday.

The lease gives Bluewater rights to “conduct activities in support of wind-energy development in the lease area,” including collecting wind-speed data and preparing a construction plan, according to the statement.

The project doesn’t have a customer lined up for the electricity, Amy Grace, an analyst with Bloomberg New Energy Finance, said in an e-mail. Bluewater’s power-purchase agreement with Delmarva Power & Light Co. expired at the end of 2011, and “I doubt they’ll be rushing to sign another one.”

Project Uncertainty

Wind development in the U.S. is slowing because the federal Production Tax Credit is set to expire at the end of the year, Grace said. The credit pays 2.2 cents a kilowatt-hour for electricity produced from wind and other renewable sources.

“There’s still a lot of uncertainty regarding the PTC and an offtake agreement for the project,” she said. “The bottleneck now is really on the revenue side. How do you get paid for your expensive wind energy?”

It costs about 21.8 cents to produce a kilowatt-hour of electricity at sea-based projects, compared with 8.3 cents for turbines installed on land, according to Joe Salvatore, an analyst with New Energy Finance.

“We are one step closer to making offshore wind a reality,” Senator Tom Carper, a Delaware Democrat, said in a statement. “Offshore wind is an untapped energy resource.”

Lead image: Offshore wind via Shutterstock

20 Comments

Gary Richardson
October 27, 2012

At least this type of move to niche markets can help accelerate the development of offshore wind and tidal/wave power due to the large amount of vessel traffic throughout many straights and fjords around the world. However, I think a near monopoly would be necessary to bring costs down from economy of scale manufacturing. Perhaps a joint agreement to share and standardize production of the niche market will the bring rapid maturation and distributed market share. Otherwise, you end up with too many losers and lost investments.

Cliff Claven
October 27, 2012

"Niche" is the key word. There are certain customers today whose needs can be met with wind--onshore and offshore. But the vast majority of people have needs that are much better served by conventional electric power grids and the plants the feed them. Solar and wind work best at smaller scales, when co-located with their customer, and when their power is consumed directly. When their EROIs each become truly competitive with the current alternative of large power plants feeding a national grid, the relative prices will reflect it. Solar and wind electricty, which have intrinsically less value because of their variability, will be cheaper than grid power, and people will naturally migrate as their power needs permit. As this article just posted illustrates (http://www.renewableenergyworld.com/rea/news/article/2012/10/how-much-do-u-s-tax-benefits-cost-per-kwh-of-solar-production?cmpid=SolarNL-Saturday-October27-2012), today we are subsidizing solar at more than 200% the cost of grid electricity. Wind is also exorbitantly subsidized. We are not even at grid price parity yet, let alone at relative EROI price parity.

Gary Richardson
October 27, 2012

@cliff claven,
I agree with your points on the problems with offshore wind but do see niche markets where offshore wind can compete with shipping fuel espenses, avoid penalties for operating polluting engines in harbors and create extra jobs by making the windmills easily towed in for maintenance.

Cliff Goudey
October 26, 2012

Oh my, I sense you really are in a dream world. To your nine points:

1. The intermittent nature of wind is included in EROI calculations.

2. Transmission lines are needed to tie all sources to demand. Reducing the distances involved is one of the motivations for wind farms directly off our coasts.

3. Transformers and power conditioning is all that is needed for grid connection.

4. Maintenance costs per MW of wind is less than many conventional power sources, especially aging coal plants.

5. Wind intermittency imposes far fewer challenges to grid operators compared to demand fluctuations and the ever-present risk of one large plant suddenly trippng off.

6. More utility-scale energy storage technologies are needed to improve the operation of all power sources. They will be particularly useful in increasing the per MW value of intermittent renewables. Bring them on.

7. Power variability less of an issue when geographically disperse wind farms are brought on line.

8. Aging coal plants and nukes where the workers are on strike cannot be trusted when computing reserve margins.

9. Any power source can go to zero.

There is no need to over complicate EROI. If the power from a wind turbine is worth less than from another source, it will be reflected in its price per MW and that will be reflected in the $ROI. But in general that is not the case as zero-emission power is in higher demand.

Cliff Claven
October 26, 2012

A reasonable average EROI for wind from experts at computing EROIs of all forms of energy (Murphy & Hall), that consciously excludes all the above real-world considerations is 18:1. I'll even accept Kubiszewski's 19.8:1. Items 1, 3, 5, 6, and 9 above crush that EROI down in the real world. Unfortunately their impacts are not typically quantified in studies. In fact, I have not yet been able to find a single study that takes these into account other than to recognize that they are not addressed and should be someday. Instead one is left to infer real-world EROI from real-world prices and costs. In 2010, wind was being subsidized by the federal government alone at a rate of $31.33 per barrel of oil equivalent energy output in addition to state subsidies. Compare this to the government collecting $5 per barrel of oil and one can get an idea of the relative EROIs. It is possible to do a more refined estimate by comparing retail and wholesale costs, etc. but it's not worth the effort to know exactly how negative wind's energy balance is. If it was positive, it would be a profitable enterprise, would be paying taxes instead of getting handouts, and people would be lining up to get on board without the government having to take money out of their pockets to make it happen.

Cliff Claven
October 26, 2012

From your post, 'wind power turbines, aside from its construction and decommissioning, leaves a zero carbon footprint.' Caveats like these are typical of alternative energy studies, and they leave holes a truck can drive through, but are just the tip of the iceberg of things usually left out. At least Gary will appreciate the need to address the following real-world things in one's computations. 1. The uncontrolled, intermittent, diurnal, seasonal, and weather-dependent nature of wind mismatches power supply to demand. 2. The geographical dependency often makes supply distant from demand 3. The dispersed and low voltage nature of wind generators is fundamentally not compatible with current grid architecture designed for concentrated, high-voltage inputs 4. Installation and maintenance of wind turbines is often in difficult terrain and remote from the services needed for maintaining industrial equipment such as roads, rail, cranes, parts warehouses, etc. 5. Wind imposes demands on dispatchable power to accommodate its variability (spinning reserve, unpredictable local grid saturation, dumping unwanted surplus power when it exceeds demand or grid capacity) 6. Trying to match uncontrolled supply to conventional demand requires expensive technology not yet available (e.g., storage) 7. Power variability gets worse, not better, with more wind turbines, as whole regions follow the same wind patterns and they all quit at the same time when the wind stops 8. Wind cannot be trusted when computing reserve margins, so excess capacity must be maintained 9. Wind power can got to zero, so 100% backup power options must be purchased and maintained. EROI is not just a function of the quantiy of energy something can supply, but how well that supply matches the need in terms of usability and quality. The real-world limitations above actually make wind electricity less valuable and less usable on the grid than electricity from EVERY OTHER source. It has to be forced on us.

Cliff Goudey
October 26, 2012

Three reasons, Fred. 1) It makes economic sense to put them where the wind blows. The wind blows harder and more consistently offshore. 2) There are folks who don't like to look at wind turbines (preferring, I suppose, belching smokestacks)and have successfully opposed land-based projects. 3) It is preferable to generate power near the demand. 50% of the US population lives in coastal counties.

By the way, do you have the same misgivings about drilling for oil offshore?

fred wittenberg
October 26, 2012

Too bad the wind farm isn't up now, to be destroyed by Hurricane Sandee & a NorEaster! Inquiring minds want to know why we have this desire to place wind turbines off our coast lines, or the shore lines on our Great Lakes, especially with the threats of mother nature?
Remember the Titanic and the Edmund Fitzgerald? At what design cost is the worst case scenario? Why don't we just stick with dry land applications.

Gary Richardson
October 26, 2012

@Cliff Claven,
Yes, I agree....
Sounds like the making of another great article for Renewable Energy World to write about.

Cliff Goudey
October 26, 2012

Cliff, what a preposterous supposition. Can you cite one source for your 1:1 claim? I thought not.

From the paper I cited: "In relation to their expected lifetime power production, an EROI of between 28.3 and 36.7 is calculated for the GE turbine and between 30.5 and 39.6 for the Vestas turbine."

Troubled by a hypothetical? Try: http://altenergysources.webs.com/windpower.htm

"The average EROI of a study of 60 past operational wind farms was 19.8 with a standard deviation of 13.7 (6), which serves to show wind power to be a good choice for long term investment. In addition, wind power turbines, aside from its construction and decommissioning, leaves a zero carbon footprint."

Cliff Claven
October 26, 2012

@Gary, the things you point out are just the kinds of real-world costs that are not accounted for in many models and studies. Sometimes the false assumptions are easy to spot (e.g., the price of oil is going to go up monotonically while the costs of everything dependent on oil like their favorite technology and raw materials are not). But often it's what's left out of a given analysis that dooms these predictions, and that's hard to spot except by comparing many different studies or models against each other.

Cliff Claven
October 26, 2012

The key to survival of any living thing in a resource-constrained environment is efficiency. We have to use our resources more efficiently, not less efficiently. That's why EROI is the most critical parameter for would-be energy sources. Petroleum EROI is between 8:1 and 24:1. Coal is between 20:1 and 80:1. Nuclear is between 4:1 and 10:1 because of the unsolved waste issues and the restrictions placed on it for justifiable environmental concerns and nuclear weapons proliferation concerns, but has the potential to be much higher than all others. Solar and wind are both below 1:1 in their current iterations. Current deployments of solar and wind represent huge up-front consumption of fossil fuel energy to mine materials and manufacture and install the hardware, and that entails all the associated GHG emissions and environmental damage and health costs and other externalities that go with fossil fuels. The theory is that they will amortize those costs with clean and green energy over their lifetimes and eventually pay back more benefit than they cost. The truth is that solar is not quite at break-even yet, and when it does get there, it will be limited by its low power density to localized applications like suburban residential and some niche purposes. Wind and wave power are about a factor of 5 and 10 behind solar respectively. Tesla did the math on the theoretical limits of tapping these energy sources at the turn of the last century and his numbers still hold up today. The worst thing to do for our children if oil is imminently running out is to accelerate use of it today by deploying millions of acres of energy-intensive manufactured hardware that returns over its lifecycle less energy than it took to make it. When the 'good' solar panel technology finally does arrive, it will be better if the roofs are empty and ready than if millions of parasitic, negative net energy panels have to first be ripped off and land-filled, becoming a giant monument to our folly.

Gary Richardson
October 26, 2012

Lake Ontario is a less corrosive environment than offshore areas due to lack of salt in the water. Perhaps this one factor makes the big difference between profitablity and failure.
I know from my own experience in doing marine electrical repairs with salt water vessels that corrosion is the #1 cause of damage.
Second and third problems respectively is marine related organisims (such as algae and barnacles) and photo-degradation(UV exposure).

Cliff Goudey
October 26, 2012

Excellent question and one that either gets answered now, while we still have enough fossil fuels to build the energy sources of the future, or we leave the question to our children and when there may not be enough of those fuels available (economically) for an orderly conversion. It sounds like you favor waiting.

Cliff Claven
October 26, 2012

@Cliff-G: One question: Where does the US get the primary energy it needs to power a $12T economy that consumes 98 quadrillion BTUs of energy a year? You and many others claim fossil fuels are subsidized. Most people that use those words are claiming that fossil fuels receive more than they give. 81% of US energy is consumed as fossil fuels. If that represents a loss of energy, then there is something else that must be the real primary energy source of America, and it must be huge. My question for you is, what is the largest true US primary energy source? I've already shown by the Government's own accounting that it takes in over $5 in taxes for every 27 cents it spends on oil (per barrel consumed). That's a pretty good indicator that oil, at least, is is a net giver. But I want to hear your explanation of what energy source has brought civilization from slave labor and oxen carts to jet aircraft and space travel.

Cliff Goudey
October 26, 2012

EROI = energy return on investment. In many ways that is unrelated to $ROI. And you are absolutely right, it's hard to beat conventional subsidized energy, particularly when it is able to externalize so much of its costs onto the rest of us.

Cliff Claven
October 26, 2012

I guess the Dutch just didn't read your link. They're still suffering for systems they installed in 2006. In the world of facts, reality trumps hypothetical every time. If there was a one-year payback, you would have to beat investors back with riot police. As it is, it looks like NRG won't even use the lease they just won. People are finally becoming less inclined to throw their money away on clean and green promises and are actually starting to look at the numbers.

Cliff Goudey
October 26, 2012

This is beginning to sound like a presidential debate, complete with baseless statements. Let's not argue over the facts, one of which is that the energy pay-back period of an offshore wind farm is less than one year. See the following article for a typical analysis: Energy return on investment (EROI), economic feasibility and carbon intensity of a hypothetical Lake Ontario wind farm http://www.eoearth.org/article/Energy_return_on_investment_%28EROI%29,_economic_feasibility_and_carbon_intensity_of_a_hypothetical_Lake_Ontario_wind_farm

If you must argue against wind power, stick to the debatable points associated with their aesthetics or the societal value in providing incentives to allow them to compete with the subsidies conventional energy has enjoyed for decades.

Cliff Claven
October 26, 2012

The Dutch, the world's experts in wind power, found offshore wind electricity cost twice as much as onshore wind electricity and had to emplace subsidies of 18 cent/kWh! Their subsidies alone are twice what we pay for power on average here. Why exactly would we want to repeat that mistake? BTW, if the numbers in the article are right, this farm will yield only 1.15 W/m2 in peak power, and only 0.45 W/m2 with 39% capacity factor (the average for offshore wind). And each of these monster turbines represent huge up-front debts of fossil fuel energy and emitted greenhouse gases and environmental damage from the mining and manufacturing and installation required to put them into operation. At 0.45 W/m2, they are never going to pay that debt back before the end of their service lives, nor are they going to pay back any investors except through massive subsidies and massive increases in rates paid by the utility customers. (Sekularac, Ivana. 'Dutch Fall Out of Love with Windmills', November 16, 2011. http://www.reuters.com/article/2011/11/16/us-dutch-wind-idUSTRE7AF1JM20111116).

Cliff Goudey
October 26, 2012

With zero domestic experience in constructing and operating an offshore wind farm, how does analyst Savatore come up with 21.8 cents/kW? Does that number really reflect the greater availability of wind offshore?