Will the nation’s first offshore wind farm, off Block Island, spark an industry?

STANDING TALL: Deepwater Wind LLC's operations and maintenance crew travels to and from work aboard the Atlantic Pioneer, a vessel built specifically to service the offshore wind industry. / COURTESY DEEPWATER WIND
STANDING TALL: Deepwater Wind LLC's operations and maintenance crew travels to and from work aboard the Atlantic Pioneer, a vessel built specifically to service the offshore wind industry. / COURTESY DEEPWATER WIND

Skimming above the water heading south toward Block Island aboard the Ava Pearl, a high-speed catamaran, in mid-October, a line of offshore wind turbines begins to grow ever-larger on the horizon.

The excitement among the nearly 100 passengers – mostly environmentalists, politicians and union members – is palpable.

“This is a historic moment,” says Sen. Jack F. Reed, D-R.I. “We are going to turn a page in U.S. history. This is going to be the first offshore wind farm in the country.”

Indeed, the five offshore wind turbines off the coast of Block Island have the local, national and international energy sectors abuzz. And it’s largely thanks to one company: Deepwater Wind LLC.

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The offshore-wind enterprise, based in Providence, is poised to turn on the 30-megawatt offshore wind farm to power about 17,000 homes in Rhode Island. The small and costly project marks the first in the United States, and comprises five, 6 megawatt turbines with rotors spanning roughly 492 feet in diameter.

The development, about three miles off the coast of Block Island, is expected to come online before year’s end, and marks a historic milestone in a country where 86 percent of electricity generation comes from coal, natural gas and nuclear energy, according to 2015 data from the U.S. Energy Information Administration.

But as Rhode Island celebrates being first in the nation – and all of North America, for that matter – the question of whether that status will amount to anything more than temporary bragging rights for the state in a rapidly evolving industry is on the minds of many business leaders and state and local officials.

“We suddenly have a really large market,” acknowledged Jeffrey Grybowski, CEO of Deepwater Wind.

If the market grows at the pace industry advocates project, 30 megawatts could become 3,000 megawatts in a decade, translating into a potential economic boom for the region’s economy.

Such potential growth has leaders in neighboring states already making bets on the industry’s future, and large energy companies are getting in at the ground level, which begs the question: What role will Rhode Island play in the future of offshore wind?

“The state needs to make sure they don’t lose sight of the ball here,” said Charles A. Donadio Jr., president and CEO of Rhode Island Fast Ferry Inc., which owns the Ava Pearl. “They helped jump-start the industry, but why let everyone else take it off to the races?”

EMERGING INDUSTRY

After more than a decade of uncertainty about whether the nascent industry would ever get off the ground here in the United states, the wheels, or rather the blades, are suddenly turning fast.

Deepwater Wind’s original mission with the Block Island project was to demonstrate to Rhode Island and the country that offshore wind could work in the United States, as it has for decades in Europe.

In 2015, there was about 11 gigawatts of installed offshore wind capacity in Europe, according to the trade group WindEurope. According to estimates provided by the U.S. Bureau of Ocean Energy Management, that’s enough energy to power 2.5 million to 3.3 million U.S. homes annually.

Deepwater Wind has succeeded in its original mission, as state, regional and national leaders are advocating for the industry to move forward.

“Rhode Island just built America’s first offshore wind farm, which will create clean energy and fight climate change,” President Barack H. Obama tweeted on Aug. 24.

Building off that success, other states are positioning themselves to tap into the potential economic and environmental benefits offshore wind represents.

Massachusetts, for instance, passed an energy bill this year mandating utilities contract for 1,600 megawatts of offshore wind energy over the next decade. That’s enough energy to power 360,000-480,000 homes, according to BOEM assumptions.

Massachusetts, home to nearly half of New England’s residents, is one of the region’s largest energy consumers and was originally poised to beat Rhode Island in becoming the first state with an offshore wind farm. But its leading company, Cape Wind LLC, after years of fending off court challenges to build a wind farm in Nantucket Sound, derailed in 2015 after failing to secure financing and losing two utility contracts.

With the enactment of the recent legislation, however, Massachusetts made the largest commitment to offshore wind of any state, signaling a strong desire to reassert itself as a leader in the industry.

“The ability to procure … offshore wind is another important milestone in the commonwealth’s transition to a diversified energy portfolio,” said Matthew Beaton, secretary of energy and environmental affairs for Massachusetts.

Likewise, New York Gov. Andrew Cuomo this year introduced an aggressive mandate to have 50 percent of the state’s electricity be generated by renewable-energy resources by 2030. (Rhode Island’s renewable energy goal is to reach 38.5 percent by 2035.)

The Long Island Power Authority is currently reviewing bids to contract for 90 megawatts of offshore wind power to come online by 2022, and Deepwater Wind is on the short list of companies under consideration, according to Grybowski.

The Empire State is looking to grow the industry, as Cuomo in September released the “New York State Offshore Wind Master Plan,” saying wind turbines – on and off shore – in the Atlantic Ocean could provide up to 38 gigawatts of energy for the state.

“By developing a viable offshore wind energy source, we will continue to provide New Yorkers with clean, affordable power and lay the foundation for a thriving clean-energy economy,” Cuomo said.

The federal government is also pushing for offshore wind, as top cabinet members in September introduced a new offshore wind strategy calling for 86 gigawatts of offshore wind power by 2050. Later in the month, 20 U.S. governors – including Gov. Gina M. Raimondo – sent Obama an open letter urging him to expedite the deployment of offshore wind, and to improve permitting processes.

So where does all the movement in the industry leave Little Rhody?

“We’re going to look at all the things that we can to support the industry,” said Carol Grant, commissioner of the R.I. Office of Energy Resources. “The tactics of what we have to do moving forward will have to evolve.”

WORTH THE COST?

How those tactics evolve, however, could depend greatly on the financial cost to ratepayers and political support.

Rhode Island – similar to what Massachusetts did this year – previously passed legislation that mandates National Grid PLC, the state’s largest utility company, to buy power from the Block Island project.

In the first year of operation, National Grid will pay Deepwater Wind 24.4 cents per kilowatt hour, which will increase 3.5 percent yearly for two decades. To compare, National Grid’s standard rate for residential users in September was 8.6 cents per kilowatt hour.

Renewable energy and environmental advocates argue paying more for renewable energy is worthwhile in the long-term, as it moves consumers away from fossil fuels and helps mitigate the negative effects stemming from climate change.

Natural gas and ratepayer advocates – including businesses that use a lot of electricity – argue cheaper energy resources are essential to the financial health of companies, consumers and the long-term economic prowess of the state.

Deepwater’s plan was heavily fought in state Superior Court from opposition groups that argued the entire process didn’t properly take into account the potentially negative economic impact of the wind farm. Those challenges, however, were rejected in court.

Rhode Island officials, who advocate on the one hand for the advancement of renewable energy, but on the other for the protection of ratepayers, are caught somewhere in between.

“The question moving forward will be how do we put together the right mix,” Grant said.

But it could also be a question of political appetite, says Wendy J. Schiller, chair of the political science department at Brown University. She says state politicians – especially in an election year – are wary to advocate too strongly on behalf of anything remotely controversial, or that might ask taxpayers to pay more.

“Rhode Island has a population that’s in no mood for special deals for anybody,” Schiller said.

But the industry’s potential makes it worthy of continued attention from state leaders and the public, she says.

“I don’t think we should go in any direction just because other states are,” she said. “But if it works, and generates electricity at a reasonable price, and also generates jobs, I think it’s a logical strategy with a limited window of opportunity.”

The state’s long-term contracting legislation, passed specifically for Deepwater Wind, does give the state authority to further mandate contracts between approved offshore wind developers and utilities for 100-150 megawatts of power at a time. This leaves the door open for buying more offshore wind power in the future. It’s also a tool that could force utility companies to disregard their profit interest (and the economic interest of their customers) in purchasing the cheapest electricity on the market, which in this region typically comes from natural gas.

The mandated contracting legislation, however, compels utilities to buy energy from the more expensive offshore wind, which is vital to the offshore wind companies, because guaranteed returns represent a low-risk investment opportunity to financiers.

This dynamic is perhaps best exemplified by the dichotomy between Cape Wind – which collapsed after losing its contracts – and Deepwater Wind, which succeeded after securing investments from six major global banks.

“That [investment] was a great sign of confidence, and also a sign that the industry was becoming a commercial industry and not a [research and development] project,” Grybowski said.

Deepwater’s next project represents a much greater opportunity for power generation, but now – unlike before – the company has options for where it can sell its power, especially with states such as Massachusetts and New York champing at the bit.

Grybowski says the company is considering its options in Rhode Island, but that there’s no strategy currently in place for when he might seek another contract.

“The market has changed so dramatically over the last six months, so we’re still absorbing what it all means,” he said. “It’s something we’re considering … but we don’t have a definite time frame.”

Sen. Joshua Miller, D-Cranston, says the state should not lose sight of what’s at stake. He says the Ocean State could become the epicenter of the offshore wind-energy industry in the United States, similar to how Texas is widely considered the epicenter of the U.S. oil industry.

To achieve this, he says, the General Assembly could change the existing utility legislation to a number greater than the current 100-150 megawatts. Miller said he’d consider introducing such legislation during the next session.

“We don’t want to fall behind,” he said.

MONEY TO GO AROUND?

When all said and done, the Block Island project will have cost Deepwater Wind and its investors about $300 million.

For a 30-megawatt project, that’s roughly $10 million per megawatt of capacity. And if that sounds like a lot, that’s because it is. Offshore wind and other renewables – such as solar – are still much more expensive than traditional energy sources, including natural gas.

For example, Invenergy Thermal Development LLC, a Chicago-based company, has proposed to build a 1,000 megawatt, natural-gas power plant in Burrillville. The project, still under review, is expected to cost about $700 million. That’s about $700,000 per megawatt of capacity.

But the Block Island project is the most expensive offshore wind energy will ever be here, according to Grybowski. He says the cost for wind energy will fall as the industry matures and the projects get bigger.

“A bigger project will spread costs out more efficiently,” he explained.

Using what he calls conservative estimates, Grybowski calculates Deepwater Wind’s next project, a 1,000 megawatt wind farm about 18 miles southeast of Block Island, dubbed “Deepwater ONE,” will cost about 40 percent less per megawatt than the Block Island project. The company has already secured a lease with the U.S. Interior Department, and filed a site-assessment plan on April 1 that is under review by BOEM, according to its website.

If approved, Deepwater would then have to submit a construction and operations plan for federal approval.

Assuming all goes well, Grybowski says he’d like to bring the next project online by 2021, and following his cost estimates, developing Deepwater ONE would total about $6 million per megawatt of capacity, or $6 billion in total.

At the same time, there are two other offshore wind companies, DONG Energy Wind Power Inc. and OffshoreMW LLC, which have secured the rights to build wind farms of comparable sizes on contiguous sites to Deepwater ONE. All three projects will be sited in federal waters, and the three companies expect to enter into a bidding process for utility agreements in Massachusetts beginning as soon as next year.

Using Grybowski’s estimates, the additional 2,000 megawatts of capacity could bring development costs for the three projects to about $18 billion. How and where that money is spent could have significant economic effects on the region.

There’s already some infrastructure in place – mostly for staging at seaports – but the supply chain, including manufacturers, is mostly overseas, in areas where the industry is mature, which includes manufacturers.

“We see the potential to be part of the creation of an entire supply chain here in New England,” said Thomas Brostrom, general manager of DONG Energy.

Brostrom, whose Denmark-based company is one of the biggest offshore-wind players in the world, said it’s too early to put a dollar figure on how much its project will cost or say where the related jobs will be located. But he thinks Rhode Island will be a part of the advancement of the industry.

“Given the state’s location – and the fact that wind turbines are already constructed off the Rhode Island coast – it is clear the state will play a pivotal role in the development of a viable offshore wind industry here in the U.S.,” he said. He was vague, however, about whether he expects his company to have a presence in the Ocean State.

“We are committed to continuing our expansion in the U.S. and are exploring all options,” he said.

Regardless, the potential for billions of dollars to be spent regionally on an emerging industry is enticing to ancillary businesses and signals a potential payoff locally on the long-ago promised jobs tied to offshore wind energy.

LONG-AWAITED JOBS

In 2009, Deepwater Wind and Rhode Island entered into a joint development agreement, saying the state would help Deepwater Wind negotiate power contracts in exchange for the offshore wind company to – among other things – create 800 permanent manufacturing jobs.

At that point, the involved parties thought some version of the Block Island project would be complete by 2012, and a version of Deepwater ONE would come online as early as 2015. Neither happened. And despite having missed just about every agreed-upon project milestone, both Grant and Grybowski say the state and Deepwater still abide by the joint agreement.

The promised jobs, however, albeit lagging, are not unrealistic, insists Grybowski.

“The 800 jobs are a pretty realistic, if not a conservative, number,” Grybowski said, when asked about the agreement. “We’re talking about something now that’s much larger than one specific project.”

Brostrom agrees, saying DONG Energy expects to create 1,000 new jobs during construction and 100 new permanent jobs in New England to support the wind farm once operational.

Grybowski, a native Rhode Islander, says his company hired somewhere between 300-400 people during construction of the Block Island project, and he currently has about 18 people, including contractors, on payroll working in Rhode Island. And while the joint agreement requires Deepwater to procure services, equipment facilities from Rhode Island businesses and vendors at “commercially reasonable terms,” Deepwater is already looking to expand its footprint beyond the Ocean State. Last month, it announced plans to open a downtown office in New Bedford, a short distance away from the city’s port, the New Bedford Marine Commerce Terminal.

The ports are paramount to the staging and long-term operations of the offshore wind farms. Deepwater, DONG Energy and OffshoreMW earlier this year penned an agreement with the New Bedford port to negotiate an option to lease its 26-acre terminal for $5.7 million per year.

No such agreement exists at this time with ProvPort, in Providence, or Quonset, although Deepwater does use Quonset to support its operations. But Grybowski fully expects the Rhode Island ports to play a role should future projects succeed.

Steven J. King, managing director of Quonset Development Corp., also sees opportunity.

“We’ve been thinking about this for quite some time,” said King. “We know we have the capability, and we see it as a great opportunity.”

Quonset Business Park, which has 300 acres of pre-permitted land, could also become home to complementary businesses should the supply chain grow here, he added.

King and Grybowski are closely following a ballot measure this year that if approved would bring $50 million to rebuild Quonset Point piers.

“We know that the ports’ facilities will be used for these [offshore-wind] projects,” Grybowski said. “So it’s important for us to see that the port facilities are strong.”

The nascent R.I. industry has sparked some investment in related companies, including Rhode Island Fast Ferry. Donadio, president and CEO of the firm, has a 20-year contract with Deepwater Wind. Donadio invested $4 million into his new offshore-wind vessel, the Atlantic Pioneer, which can deliver 16 technicians, along with three crew and 12 tons of equipment directly to the base of the turbines.

There’s no doubt in Donadio’s mind that the jobs will continue to grow as the industry moves forward.

“Besides the laborers, electricians, technicians and engineers, there will be some sort of involvement from every aspect of the marine marketplace,” Donadio said.

Schiller says Obama’s tweet touting the Rhode Island demonstration project is a sign the state, at least for now, is in good position to reap some of the economic benefits that might come with regional development of an offshore wind industry.

“Rhode Island wants to stay ahead of the curve, so the next president takes notice,” she said. •