"The experimental days of offshore wind development are over."

So writes Bluewater Wind president Peter Mandelstam in response to two legislators who think the state is moving too fast to complete an agreement to bring wind power to Delaware.
Last week Harris McDowell and Deborah Hudson wrote their colleagues a letter offering reasons to not complete a deal to bring wind power to Delaware. Their letter asserts that offshore wind power is "experimental" and pointed out that the price of electricity in the Netherlands is 30 cents per kWh.
Yesterday, Mandelstam wrote a letter refuting the key points McDowell and Hudson made:

October 9, 2007

Dear Members of the General Assembly,

I just spent a few days with Senator McDowell and Representative Hudson in Amsterdam, touring offshore wind park facilities, and I must say, after having read their October 2nd letter to you, I was disappointed. In an effort to provide proper context to this critical issue, I offer this letter in response.
First, as a general matter and as we carefully document below, relying upon the Netherlands’ electricity price of 30 cents per kWh as an argument that offshore wind is too expensive is misleading, especially when one considers that Bluewater’s proposal to Delmarva Power set the price at 10.59 cents per kWh. Similarly, offshore wind power generation is a proven technology that has moved well past the experimental stage. To suggest otherwise is not accurate.
Importantly, Bluewater’s Atlantic North Offshore Wind Park will provide clean, renewable, and stable-priced power to more than 100,000 Delaware households. We will protect the environment, support the fight against global warming and sea level rise, and ensure that birds and marine life are fully protected. At a distance of at least 11.5 miles from the coast, our turbines will be barely visible on clear winter days; in the summer time the haze will render the turbines virtually impossible to see.
In response to the letter from Senator McDowell and Representative Hudson (“the Letter”), I offer the following point by point observations and comments:
1. The price of electricity. The Letter points to Dutch electric rates costing 30 cents per kWh. The Bluewater Wind bid already submitted to Delmarva Power is 10.59 cents per kWh, nearly one-third of the Dutch price. Indeed, our price was submitted to Delmarva Power in our September 14, 2007 term sheet and is available on line at the Public Service Commission’s website:
http://depsc.delaware.gov/electric/irp/termsheets091407.pdf
In regard to the cost of electricity in the Netherlands, it is also important to note that according to Statistics Netherlands, Voorburg/Heerlen 2007, “The Netherlands is among the countries where the highest tax rates are imposed. Energy tax and VAT (Valued Added Tax) account for more than 40 percent of the electricity price.” Of course, Delaware does not impose an Energy Tax or a VAT in residential electric bills; in fact, there is no line item tax on residential electric bills. Accordingly, the reference in the Letter to an electricity cost of 30 cents per kWh does not provide the reader with an accurate “cost to compare”. To begin to get to that number, the 30 cents per kWh would have to be reduced by 40% which comprise the Energy Tax and VAT. In addition, other costs related to Dutch social policy decisions may be reflected in this cost to compare so it may be that the actual cost to compare is even lower. Simply put, this is not a relevant comparison.
Dutch offshore wind parks. The Letter states that the Dutch have “started only one off-shore wind power plant and it is experimental….” In fact, the Dutch have started two offshore wind parks. One, the Egmond aan Zee, is completed and operating; the other, Q7, is under construction and Senator McDowell and Representative Hudson saw the staging area for this project. (They would have taken a boat or helicopter to the actual wind park site, but it was too windy.) In addition, seven other European countries have built 27 operating projects with dozens more in various stages of development. These countries continue to build these facilities because they are great sources of affordable, stable-priced energy and because they help fight against climate change and sea level rise. Governor Minner, Senator McDowell, Representative Hudson and the rest of the Delaware delegation received briefings on the robust state of European offshore wind.
The Letter also argues that offshore wind is still in its experimental stage. Nothing could be further from reality. In 2006, there were 877 MW of energy being generated by offshore wind parks. By the end of 2007, that number will rise to 1,077 MW. The next four years will see equally impressive increases in the amount of energy generated by offshore wind parks:
Cumulative Totals of Energy Generated by Offshore Wind Parks
2009 1,250 MW
2010 2,605 MW
2011 4,970 MW
2012 7,600 MW
The experimental days of offshore wind development are over. Indeed, offshore wind technology is well established and fully commercial.
The offshore wind team at Shell’s Renewable Energy group (the Dutch partner cited in the Letter) has moved well past the experimental stage too. In fact, Shell is a 33% owner of the 1,000 MW London Array project, a development that, once completed, will be one of the world’s largest wind parks – offshore or on land. The London Array will be nearly three times larger than the wind park Bluewater has proposed for 11.5 miles off of the Delaware coastline. Shell states that major expansions in wind power require the development of offshore wind projects where the “winds are stronger, larger turbines can be used and the chance of visual disturbance is smaller.”
It should be noted that the structure of the sales arrangement, which is a PPA with predefined escalation, leaves the technical risk with the owners. Further, consider that Babcock & Brown is a highly experienced wind investor (fourth largest owner in the world) and would not have been interested in purchasing Bluewater if offshore wind were an experimental technology. Babcock & Brown did extensive due diligence on the project and the state of the technology and is comfortable that the project will be a technical success.
For more information see Shell’s web site:
http://www.shell.com/home/content/rw-br/about_shell/wind/wind_1017.html
2. Wind resource assessment. The Letter also states that “the Dutch completed a detailed off-shore wind study with actual data ….” Bluewater Wind already has extensive offshore wind speed data for our Atlantic North Wind Park and we will have even more data by the time construction begins. To date, Bluewater has expended over five million dollars ($5,000,000) on our bid to provide Delaware’s residents with stable-priced energy. Before making this investment, we reviewed eight (8) years of publicly available wind data that is maintained by the National Oceanographic and Atmospheric Administration (NOAA). This is the same data that the University of Delaware has relied upon in its 2005 – 2007 thorough and detailed research papers that it has published on the potential for offshore wind in the state.
Our investors would never allow us to bid, let alone build, the wind park without knowing what the wind resources are at our site. That data is the key piece of information that informs us whether there is adequate wind to provide the amount of electricity that we will guarantee to Delmarva Power – a guarantee that provides for penalties if we fail to meet it.
In fact, we have already provided Delmarva Power with our own hour-by-hour, year-round wind resource assessment.
Some of the penalties that we could be subject to include $68,000,000 in delay damages and termination fees if we do not fulfill our contractual obligations. Thus, we can say with a great deal of confidence that we have extensively studied all details of our proposed wind park. We are confident that the wind resources will allow us to meet the terms we have proposed in the Term Sheet.
3. Project size. The Letter notes that the Dutch wind park is “one-third the size” of what Bluewater has proposed. Whether you choose to develop an offshore wind park with 36 turbines (Egmond aan Zee), with 60 turbines (Q7), or with 150 turbines, the technology is the same. Turbines are modular and wind parks can have any number to match required output. Turbines connect to an offshore transformer by armored submerged cabling, which then connects via larger, armored submerged cable to an on land substation.
The Dutch teamed up with Shell Renewable Energy to build Egmond aan Zee, the first offshore wind park in the Netherlands. By the time the Bluewater Wind Park is built off the Delaware coast, offshore wind parks will have been operating for more than twenty years – and each year generating more than enough electricity for over 871,000 households. That’s a lot of data and experience upon which our development team can rely.
Let me also point out that members of our development team have been directly involved in 868 Megawatts, or 95%, of the 918 Megawatts of offshore wind energy capacity that had been installed when our proposal was submitted last year. This represents 21 of the 27 offshore wind parks that were operational at that time. In the short time since the proposal was submitted, even more projects have been advancing through the design and construction process, and members of our team have been participants in those projects as well.
4. Subsidies. The Letter reports that the Dutch “government agreed to provide large subsidies” for the project. While that may be true, Bluewater Wind will receive no state subsidies. Our price is set.
5. Turbine service period. In the Letter, reference is made to a comment made by Vestas, a turbine manufacturer, which is also Bluewater’s expected turbine manufacturer. The Vestas comment, as reported in the letter to you, was that “turbines should not be in service for more than 20 years.” Bluewater has negotiated a 25-year term with Delmarva Power and our financial model includes all costs for operation and maintenance of the facility and insurance for the entire 25-year period. All costs to maintain or replace turbines will be borne by Bluewater at no risk to Delmarva’s ratepayers.
I would now like to respond to the steps recommended by Senator McDowell and Representative Hudson:
* Wind parks utilize well-established technology. The Bluewater Wind project will be a fully commercial, privately financed offshore wind power plant. There are now 877 MW of electricity generation through offshore wind parks; by 2011, more than 4,500 MW of generation capacity are planned to be installed. Offshore wind technology is indeed mainstream technology.
* Bluewater Wind has completed a wind resource assessment of actual data. In addition to the existing wind resource assessments that we have, we are awaiting approval from the U.S. Department of Interior’s Minerals Management Service to install a hub-height meteorological tower (met mast) to take additional wind speed measurements for at least one full year. We will also begin conducting avian studies as well as marine research issues by using the met mast base as a research platform; our goal is for this in-depth research to begin in the spring of 2008.
* Green energy options for Delaware. HB 6 mandated that Delmarva Power consider a long-term contract through a competitive bid for in-state generated power.
Bluewater Wind was selected unanimously by four state agencies – the Controller General, the Office of Management and Budget, the Department of Natural Resources and Environmental Control and the Public Service Commission – to be the primary source of that power. The competition was not for green power, per se, as the competitors for the long-term contract included a coal facility and a gas facility.
Bluewater Wind fully supports efforts to expand development of green energy for Delaware’s citizens. To that end, we are participating fully in the Integrated Resource Planning process, as established by the General Assembly, and as recommended to you in the Letter. We also continue to support Senator McDowell’s Sustainable Energy Utility (SEU) and view the conservation benefits of the SEU as being fully compatible with our offshore wind park.
* Competitive bidding for green energy. Bluewater Wind participated in a competitive bid for the long-term contract with Delmarva Power. All green energy bidders, including any other offshore or on land wind energy developers, were welcome to compete. In fact, this process, which began in August of 2006, may have been the most open and competitive procurement process in the state’s history -- with millions of dollars spent by the competing companies and thousands of hours of public testimony and written comments provided by Delaware citizens.
In the end, we are pleased that Representative Hudson and Senator McDowell stated that “wind power is certainly an exciting and intriguing form of alternative energy….” and that “… an affordable form of wind power should be factored into Delaware’s Renewable Portfolio Standard.” This is exactly what Bluewater Wind has proposed to Delmarva Power and we look forward to providing that clean, renewable and stable-priced power to over 100,000 Delaware households.
In addition, Bluewater has committed to providing approximately 500 union jobs in each of the three years of staging and construction of the offshore wind park and an additional 80 – 100 operational and maintenance jobs during the 25-year term of the contract with Delmarva Power.
I would be delighted to speak with any of you either in person or by telephone to address any questions or comments that you may have. I hope you will feel free to contact me. I can be reached at Peter@BluewaterWind.com or at our Delaware office at 302.731.7020.
Thank you very much for your consideration.

Sincerely,

Peter D. Mandelstam, President
Bluewater Wind Delaware, LLC

Cc: The Honorable Russell T. Larson, Controller General