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Block Island is finally moving from dream to reality

Block Island is finally moving from dream to reality

Since it was first lit up in 1875, the Southeast Lighthouse has always had an enviable view of the enchanting, shipwreck-prone waters off the coast of Block Island. But its vista is about to get even more interesting.

This summer, at the height of the island’s all-important tourist season, five enormous steel jacket foundations will arrive on barges from the Gulf of Mexico and be piled into the seabed three miles (5km) from the lighthouse’s perch.

Over the next year, in perfectly timed bursts of activity, the Block Island project will be constructed, and by autumn 2016, electricity generated at an offshore wind farm will make landfall on US soil for the first time.

At 30MW, the Block Island wind farm is essentially negligible in the context of the overall US power market, or even the nation’s wind industry, which erected 2,500 turbines onshore last year alone. But developer Deepwater Wind’s five-turbine pilot will have the potential to be far more valuable than any electricity they ever produce.

Block Island will spark the most intense debate yet over whether the US should follow Europe’s lead in tapping its offshore wind resource. The project will be built at the height of the 2016 presidential election, meaning hyperbolic candidates will use it as an example of everything right — or wrong — with US energy policy. The pressure has become even more acute since Cape Wind — a far larger and more high-profile offshore project off the coast of Massachusetts — lost its power-purchase agreements (PPAs) earlier this year after failing to secure finance.

Deepwater Wind is intensely aware of what is riding on the project.

“It’s critical that this project be successful,” acknowledges chief executive Jeffrey Grybowski.

“Offshore wind is a theoretical thing for policy makers in the US; they have no experience in it,” Grybowski tells Recharge. “Having a project that is operating, that we can show policymakers, is, in my mind, the critical step to getting this industry started.”

Project development is an extreme exercise in patience, persistence and paperwork. All figure heavily in Block Island’s groundbreaking journey.

The tiny, densely populated state of Rhode Island — the Ocean State — has long recognised offshore wind as one of its most promising potential sources of renewable energy. In 2008, then-governor Donald Carcieri, a Republican, offered up the zone off Block Island to prospective developers. Later that year, Deepwater was named the preferred bidder.

Grybowski had served as Carcieri’s chief of staff from 2003-07; he joined Deepwater in 2010 and was named chief executive in 2012. A lawyer by training, Grybowski had no idea he would end up leading the US offshore wind sector into the water. He saw Block Island — and offshore wind more broadly — as an interesting challenge and “jumped in”.

“Suddenly it took over my career,” he tells Recharge.

Deepwater Wind has two primary financial backers: DE Shaw, a New York private-equity firm with $36bn of capital under investment; and SunEdison, the global renewables developer, which entered the picture through its acquisition last year of First Wind.

Last September — six years after winning the zone — Deepwater received its final federal permit for Block Island. This March, it reached financial close, becoming the first US offshore wind farm to do so.

In terms of the permitting, approvals and financing stages, Block Island has gone “from A to Z”, says Jerry Petros, head of the energy practice at law firm Hinckley Allen, which has spent more than seven years working with Deepwater Wind on the project. But it wasn’t easy.

All told, the developer had to obtain 26 different permits from nearly a dozen government agencies. In many cases, entirely new regulations had to be created from scratch before it could even apply. “In general, the permitting process progressed in a manner we anticipated,” Petros says, “but it was a longer path, a more detailed path, and it required a great deal of outreach and education.”

Aside from permitting, the most challenging part of the project has been assembling a viable supply chain, Grybowski says. “We don’t have a supply chain for offshore wind in this part of the world,” he notes. Inevitably, European companies will play a large role.

Block Island was originally conceived as using turbines in the 3-3.6MW range but as the project’s planned timeline drifted, a new generation of larger models became an option.

Deepwater “spent time with most of the major turbine suppliers”, says Grybowski, who tellingly pronounces the word “turbine” the way most Europeans do — tur-byne — rather than the standard American tur-binn.

In 2011, Deepwater announced an agreement with Germany’s Siemens for five of its 6MW turbines. But that deal was never came to fruition, and in February 2014 the turbine order was handed instead to France’s Alstom. It was a high-profile win for Alstom and its 6MW Haliade platform; at present there is only one such turbine spinning at a commercial offshore wind project, in Belgian waters. GE is in the process of acquiring Alstom’s wind-energy assets.

In contrast to the turbines, the foundations were relatively easy to secure, with manufacturing work currently being wrapped up by Gulf Island Fabrication, in Houma, Louisiana.

“There’s an enormous offshore oil and gas industry in the US in the Gulf of Mexico, with many fabricators who build jackets significantly larger than the ones we’re building,” Grybowski explains. “This is quite an easy job for the Gulf of Mexico and the US.”

Most of the onshore staging work and future O&M activities will be done out of ports around Rhode Island — principally Quonset and Providence. In terms of future offshore wind-related work, those early Block Island contracts may give Rhode Island a leg up on neighbouring states.

Specialty Diving Services (SDS) has been one early beneficiary. Based in Quonset, SDS has about 15 workers engaged in making smaller components for Block Island’s foundations, things like access platforms and ladders, chief executive Nick Tanionos tells Recharge.

Other Quonset businesses have already benefited from Block Island, and more will in future, Tanionos predicts.

The $290m of project finance Deepwater Wind announced this spring comes from French bank Société Générale, which has previously invested in European offshore wind, and Ohio-based Key Bank, which has no prior experience in the sector. Block Island had several advantages over Cape Wind when it came to securing financing, including its small size and the fact that its PPA with National Grid covers its full 30MW output.

Before losing them earlier this year, Cape Wind had two PPAs in place — including one with National Grid — but they covered only 77.5% of its 468MW of planned output.

“Cape Wind’s challenges, I think, stemmed in part from them not being able to sell — as of yet, at least — all of their power,” says Petros. “All of [Block Island’s] power was sold, and that was a big advantage when it came to financing the project.”

Block Island, which lies 13 miles (21km) to the south of mainland Rhode Island, is a green-minded, tourist-centric place. An array of solar panels sits behind the town hall in New Shoreham, the island’s hub, and another on top of the school. About half of the 9.6-square-mile (25sq km) island is given over entirely to nature.

But Block Island has a dirty secret: it sources 100% of its power from fossil fuel. Just beyond the town hall, and partially obscured behind a chain link fence, Block Island Power Company noisily runs a series of diesel-fired generators. The fuel is shuttled over on the ferries that connect the island to the mainland.

Aside from the obvious image problem such a power-generation strategy brings, Block Island also suffers from some of the most cripplingly expensive power prices in the US, especially during summer, when the daytime population surges to more than 20,000. Brownouts are not unheard of.

But things are about to change.

Block Island wind farm will be connected to the island, while another subsea power cable is installed by utility National Grid, linking the island to the onshore network. That connection to the mainland — slated for completion in early 2016 — will represent a leap into modernity for the island.

In the future, 90% of its power will come from the wind farm, with the balance coming from cleaner power plants on the mainland on days when the wind is not blowing. The arrangement will lead to a dramatic reduction in power prices on Block Island — a boon for its 1,000 or so permanent residents.

“Attitudes on the island have changed over time,” Grybowski says, adding that most islanders are “quite well informed” about the project.

“There are still some opponents, who are generally opposed to the view,” he says. “But the overwhelming majority are supportive.”

The island will soak up just 10% of the power generated by the wind farm, with Deepwater selling the remaining 90% to National Grid.

There is little reason to think the Block Island project will have any major problems during its construction phase. Although groundbreaking in the US, such projects are more or less routine for some of the European companies building it.

Last year, Europe installed 400 turbines offshore, many of them in deeper waters much farther from shore. Block Island’s project manager, Jens Hansen, was also project manager at Europe’s first commercial offshore wind farm — Denmark’s 40MW Middelgrunden — which was switched on 15 years ago.

When Block Island’s turbines begin spinning next year, champagne corks will be popped and politicians will crowd into celebratory photos. But the question remains whether Block Island will ultimately represent a quirk on the US energy landscape, or be the first step towards a larger industry.

The major barrier for offshore wind in the US is the same as in Europe: cost.

Deepwater Wind’s PPA will see it selling its output for $0.24/kWh in the project’s first year of operation, rising by 3.5% annually. If the project operates at a capacity factor above 40%, as is likely, then that extra electricity will be sold at a 50% discount.

Still, that is expensive even by the standards of New England, which has some of the highest and most volatile power prices in the US.

But many analysts believe costs of offshore wind will come down steadily, with the European industry leading the charge. The cost of other energy sources, such as natural gas, may rise, and emitting carbon will become more expensive, especially in places like New England, which is already covered by a regional cap-and-trade programme.

If and when those things happen, offshore wind will become increasingly competitive in North America, with New England likely to be the first major market, given its dense coastal populations, high power prices, generally green ethos and strong offshore wind resources.

The future US market recently received a major vote of confidence when Denmark’s Dong — the world’s leading offshore wind operator — agreed to take over more than 1GW of project rights off the coast of Massachusetts.

Aaron Klein, vice-president for utilities, power and renewables at KeyBanc Capital Markets, tells Recharge that his bank would not be funding Block Island if it did not expect the US market to take off in the years ahead.

Many observers think it is smart for the US industry to kick off with a modestly sized project like Block Island, rather than a huge one like Cape Wind. Smaller projects give a new industry the chance to reduce financial and technical risks, while spurring the development of local infrastructure and a supply chain, says Bruce Hamilton, director at analyst Navigant Consulting.

“Block Island may only be 30MW,” Hamilton says, “but it gets people thinking about building the next one.”

By Gerald J. Petros of Hinckley Allen

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