Early project aims for tax credit with turbine supply agreement

Source: Nick Juliano, E&E reporter • Posted: Tuesday, February 11, 2014

A offshore wind farm being developed off the coast of Rhode Island has qualified for a lucrative federal tax credit by signing a turbine purchase contract.

The 30-megawatt Block Island project being developed by Deepwater Wind will use five 6 MW turbines supplied by French manufacturer Alstom, the companies announced today. The purchase should allow Deepwater to qualify for the federal investment tax credit (ITC), which would cover 30 percent of its costs, said Jeffrey Grybowski, the company’s CEO.

While the company technically won’t know whether it can claim the credit until after the project is complete, Grybowski said Deepwater has spent more than the 5 percent investment threshold the Internal Revenue Service established to secure “safe harbor” for the credit.

“This is not just any old contract,” Grybowski said in an interview, noting turbines make up a substantial chunk of total project costs.

The turbine contract was signed in December, before the ITC expired, along with a separate agreement for Alstom to provide long-term service and maintenance. Alstom will manufacture the turbines in Europe but is investigating opportunities to assemble the turbines in Rhode Island, and it also plans to hire local workers to fulfill its long-term service obligations, the companies said in a news release.

The contracts are being announced today to coincide with French President Fran├žois Hollande’s state visit because several Alstom executives also are visiting Washington, D.C. The Block Island project is being developed in state waters about 3 miles from shore.

The wind industry remains hopeful that Congress will reinstate the ITC and its companion production tax credit, both of which expired Dec. 31. Incoming Senate Finance Chairman Ron Wyden (D-Ore.) has said those and other tax credits should be extended soon to provide a “bridge” to comprehensive tax reform, but House Republicans so far have shown little enthusiasm for such an approach.

“I’m very optimistic that something will happen to continue the federal government’s support of clean energy,” Grybowski told E&ENews PM, although he said he was less clear on what that would be or when Congress would act.

Grybowski would not offer specifics on what his company would need, aside from saying it should be “roughly comparable” to existing policy and noting that the offshore wind industry is still in its infancy compared to other sectors, including onshore wind. Not a single offshore wind project is operating in the United States, compared to more than 60,000 MW worth of onshore wind projects.

Deepwater last year won a Bureau of Ocean Energy Management auction to develop a wind farm in a nearly 260-square-mile parcel of federal waters offshore Rhode Island and Massachusetts (Greenwire, Aug. 1, 2013).

Grybowski said the company is planning a 1,500 MW facility for that location, but it is still early enough in its development that tax credit uncertainty has not hindered the company’s activities. The earliest it could come online is 2018, he said.

Deepwater is among the projects racing to become the first offshore wind farm built in the United States.

The highest-profile such project is the 130-turbine Cape Wind facility planned for offshore Massachusetts. Cape Wind also believes it has qualified for safe harbor status to claim the tax credit, spokesman Mark Rodgers said today.