BlockIslandOffshoreWind,US

JinjooLee
08/04/2015
OffshorewinddevelopmentintheUShasbeenanelusivepursuit.
OnlyDeepwaterWindhasclosedanoffshorefinancingforthe30MWBlockIslandwindprojectoffthecoastofRhodeIslandwhilelegalchallengescontinueto
thwartotherproposedprojects.
TheDEShawbackedDeepwaterWindclosedtheBlockIslandfinancingon27February2015,with$268millionintermdebtfromSocitGnrale(SG)andKey
Bank.Deepwaternowexpectstobegininstallingturbinesbymid2015,andplanstobeginoperationsbyendof2016.
SGpreviouslyhelpedfinancemultiplewesternEuropeanoffshorewindprojectstheloneregiontocloseoffshorefinancingsbeforeDeepwater.ButBlockIsland
isthefirstoffshorewindfinancingfortheOhiobasedKeyBank.
ThetermdebtforBlockIslandmaturesinDecember2021.SGtooka$218.5millionticket,whileKeyBanktook$49.5million.SGalsoprovided$29.5millioninletters
ofcredit,whichalsohasasixyeartenor.
DEShawsoughtfinancingfromrelationshipbanks.Theadvantageofaprojectofthissizeisthatwealwaysknewfinancingcouldbedonewithjustafewbanks,
saidJeffGrybowski,DeepwaterWindschiefexecutiveofficerinProvidence,RhodeIsland.
DeepwaterWindcontributed$70millioncashequity.Itholdsanundisclosedamountoftaxequity,butisopentosellingit.
DEShaw,DeepwaterWindsmajorityowner,formedDeepwaterWindin2005withanoffshoreprojectinmind.SunEdison,afterbuyingFirstWindinearly2015,
ownsasmallstakeinDeepwaterWind.
Newcontractingscheme
In2008RhodeIslandannouncedaprocurementfor30MWoffofBlockIsland,whichislocatedontheAtlanticOcean,about16kmfromthemainland.Thatsame
year,thestatenamedDeepwaterWindpreferredbidder.
DeepwaterWindappliedforstateandfederalapprovalinOctober2012,andreceivedallkeypermitsbySeptember2014.
Creatingacontractingscheme,however,wasmorechallenging.DeepwaterWindlacksanengineering,procurementandconstruction(EPC)wrap,whichiscommon
inUSpowerfinance,notesBenKoenigsberg,aNewYorkbasedpartneratChadbourne&ParkeinNewYork,whichadvisedthelenders.Instead,eachcontractoris
responsibleforitsportionofwork.Bynature,inoffshorewindyoudealwithmultiplecontractors,Koenigsbergsaid.
LenderspreferEPCbasedfinancings,butnotallpowerandrenewablesprojectshavesuchcontracts,andSGhasexperiencewithsuchmultiplecontractorschemes
inEuropeanoffshorewindprojects.
WehadtocombineexperiencefromboththeUSandEuropeinordertoputtogetherateamthatcouldbuildtheproject,Grybowskisaid.Thatalonetookus
severalyears.ParisbasedGreenGiraffe,whichhasexperienceinEuropeanoffshorewind,advisedDeepwaterWindonthestructuringofthecontractorcontracts.
ButtherelianceonEuropeanoffshoreexperiencedidntexpeditefinancingforDeepwaterWind.ThenoveltyofUSoffshorewindandthecountrysspecific
regulatoryregimeposeduniquechallenges.
Theoffshoreturbinesarealmostthreetimesthesizeofthelargestavailableterrestrialturbines,theconstructionsiteisinaccessibleduringmanytimesofthe
yearandpermittingforoffshorewindinvolvesdifferentagenciesthanlandbasedprojects,saysJohnSachs,aWashington,DCbasedpartneratLatham&Watkins,
whichadvisedDeepwaterWind.Combineallthesethings,andtherewerelotsoftwistsandturnsthathadtobeunderstoodtogetthefinancinginplace.
Legalhurdles
Comparedtootherproposedoffshorewindprojects,DeepwaterWindslegalchallengeswerelesspersistent,andwereresolvedmoreswiftly.
In2009theRhodeIslandPublicUtilitiesCommission(PUC)rejectedDeepwaterWindsinitial20yearpowerpurchaseagreement(PPA)withNationalGrid,after
deemingtheproposedpowerpricetoohigh.Ayearlater,PUCapprovedarevisedPPA,whichsetBlockIslandspowerpriceat$0.24perkWhinthefirstfullyearof
commercialoperations.

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TheaverageretailpriceofpowerinRhodeIslandwas$0.18perkWhasofJanuary2015,accordingtotheUSEnergyInformationAdministration.
ThirdpartiessubsequentlychallengedPUCsapprovals,buttheRhodeIslandSupremeCourtupheldthePPAin2011.
Formuchof2014,theCapeWindprojectoffthecoastofMassachusettswaspoisedtobethefirstUSoffshorewindfarmtoclosefinancing.CapeWinddeveloper
EnergyManagementInc.(EMI)hadlinedupmostoftheprojectdebt,buttheprojectwasderailedinearly2015afteritsofftakersterminatedthePPAs.CapeWind
hasbattledrelentlesslegalchallengesthroughoutits14yeardevelopment.
BlockIslandisamodestsizedprojectapilotprojectwhereasCapeWindisplannedasa468MWgenerator(ofwhich363MWisplannedforphaseone).Block
IslandalsobenefitedfromgreaterstateleadershipthanCapeWind;RhodeIslandchosethesiteforBlockIsland,whileEMIselectedCapeWindssite.Muchofthe
backlashagainstCapeWindarosefromtheprojectslocation.
ButevenFishermensEnergy,developerofthe25MWAtlanticCityprojectoffthecoastofNewJersey,continuestofaceitsshareoflegalcomplicationsdespiteits
smallscale.
TheNewJerseyBoardofPublicUtilities(BPU)hastwicerejectedtheAtlanticCityproject,citinghighenergyprices.AndtheBPUhasntbudgedsince.Inresponse
tothestateappellatecourtsruling,whichsaidtheBPUmustreconsideritspreviousrejectionsoftheproject,theBPUthisyearrespondedtothecourtbylisting
reasonsforwhyitsrejectionshouldbeupheld.
WhileBlockIsland,CapeWindandAtlanticCityhaveallencounteredlegalchallengesoverenergyprices,GrybowskisaidthatBlockIslandhadsubstantiallymore
publicsupport.TheConservationLawFoundationhadinitiallyopposedBlockIslandsPPAapprovalbythePUC,butthefoundationbecameasupporterafter
environmentalpermittingconcernswereaddressed.
AlstomisBlockIslandsturbineprovider.ContractorsincludeFredOlsen(jackupvesselsforturbineinstallation),LSPower(cables)andWeeksMarine(foundation
installationservices).MottMacDonaldwastheindependentengineer.

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