Rhode Island Offshore Wind Demonstration Project Voted Down

The Rhode Island Public Utility Commission (PUC) yesterday rejected the Deepwater Wind proposal to build an offshore wind power demonstration project. The Providence Business News reports that the proposal was just too expensive:

WARWICK – The R.I. Public Utilities Commission on Tuesday rejected as too expensive a proposed power-purchase agreement between Deepwater Wind LLC and National Grid Plc, dealing a heavy blow to Deepwater’s plan to build a wind farm off Block Island.
The three commissioners unanimously voted down the 20-year contract despite strong support for it from Gov. Donald L. Carcieri. They said the deal’s projected cost of electricity did not qualify as "commercially reasonable" under a test required by state law.

The starting price of 24.4 cents/kWh is more than twice the price of power in the Bluewater Wind power purchase agreement. Why such a sharp difference?
The Deepwater proposal has been billed as a demonstration project. It would have only eight turbines and a 20 megawatt capacity, less than one-tenth the size of the Bluewater Wind project, and would have been built in state waters, circumventing the need for federal approval. The cover letter to the power purchase agreement (PPA) filed with the PUC openly recognizes the failure to achieve economies of scale:

If, on the other hand, the objective is to facilitate a small-scale off-shore wind demonstration project for Rhode Island, and also establish a transmission link to Block Island, there may be a rational basis for the Commission to approve the agreement.
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On a larger scale basis, we would expect the unit price to be lower, but Deepwater was not able to achieve sufficient economies of scale to bring the price down further, despite increasing the number of turbines to eight.

The problem isn't so much with the technology as with the structure of the deal. The demonstration project was intended as the first step towards a much larger utility scale project in federally controlled waters. I would guess that the location in state waters was less advantageous than the site in federal waters.
I have said it all along: I'm in favor of wind power, but not at any price. The Rhode Island proposal was poorly structured and did not deserve to be approved. It was billed as a demonstration project, but what it chiefly demonstrated is that scale and location matter.
I hope that Rhode Island Governor Donald L. Carcieri won’t give up on wind power, but get to work designing a project that makes economic sense. Two PUC member said they would be disposed to approve such a project:

"I wanted so badly to help the state get this initiative off the ground," said [PUC commissioner Paul] Roberti. Still, he and fellow commissioner Mary Bray offered support for the larger utility-scale Deepwater project proposed for 17 miles off the coast of Rhode Island.

Those who closely followed the debate on wind power in Delaware will recognize the idea of starting with a demonstration project.
Two years ago the Senate Energy and Transit Committee issued a report that urged that the Bluewater Wind proposal be scrapped in favor of the creation of "a task force to investigate the feasibility of a demonstration project for an offshore wind facility financially supported by the federal government and the states of Delaware, Maryland, New Jersey, and Virginia." This was an idea that Charlie Copeland was pushing two years ago.
What would such a demonstration project demonstrate? The engineering is fairly well known, having been tested in Europe for years. As for the economics, we have learned that small scale offshore wind makes no sense. It takes utility scale projects of hundreds of megawatts to make offshore wind competitive.