WIND MONEY MOVING OFFSHORE

An interview with veteran wind builder Hunter Armistead reflected the momentum behind offshore wind development in the Mid Atlantic Bight, the waters off the U.S. Atlantic Coast from Rhode Island to the Carolinas. Anticipating an opening up of a huge, undeveloped resource, multinational energy giant Babcock & Brown - Armistead’s corporate boss - this year bought Bluewater Wind, one of the most aggressive and dedicated regional offshore developers.

Armistead, head, North American Energy Development Group of Babcock & Brown: "We became convinced that the offshore technology had been maturing in Europe and there was good market fundamentals in the Northeast for offshore wind…The time is arriving for offshore wind in the U.S. and the Bluewater team had a head start."

Right on schedule, Bluewater Wind signed the first U.S. power purchase agreement (PPA) for electricity generated by offshore wind energy with Delaware utility Delmarva Power and moved into a stronger position to become the first builder of offshore wind in the U.S.

The Mid Atlantic Bight is possibly the most ideal U.S. region for offshore wind because the continental shelf there is wide, making waters far out to sea, beyond Not In My BackYard (NIMBY) objections and in the path of strong, 24/7 winds, ideal for development. Installations there will find high-priced and boundless demand from the large, East Coast cities for any and all the electricity they generate.

In recent weeks, Bluewater Wind and other offshore developers have been moving ahead with preliminary steps for offshore projects in New Jersey, New York and Rhode Island.

Irony: One thing that could make the economics of offshore wind more competitive is the availability of old oil industry drilling rigs. The oil industry is moving to deeper waters and the wind industry is moving into the very depths for which the oil industry technology is ideal.

Brian Uhlmer, senior analyst with Pritchard Capital Partners: "A lot of oil service firms have old rigs that could possibly hold a wind turbine...The jack-up rigs can go in up to 400 feet of water. Some of the proposed offshore wind farms are only in 200 feet."

Investing-minded readers titillated by all the potential in this budding opportunity may be curious about how they can get in.

According to the Dow Jones/MarketWatch interview with Armistead, the answer is: Not easily. There is “no pure-play” in wind companies on U.S. markets.

Reportedly, utility giant FPL Group is the only U.S.-based turbine manufacturer.

Vestas, the biggest wind turbine manufacturer in the world, and Nordex, another turbine builder, are on the Copenhagen Exchange. Mitsubishi trades in Japan.

There are “green” mutual funds and exchange traded funds. One mentioned is First Trust ISE Global Wind Energy ETF.

Babcock & Brown Wind Partners trades publicly in Australia.

Despite the difficulty finding any buy-in, nevermind the right buy-in, it could be worth the effort.

Armistead, head, North American Energy Development Group of Babcock & Brown: "The U.S. is kind of like a lumbering giant that's waking up to the fact that they need to come into the world of energy independence…In the U.S., there's tons of wind."

Technically accurate computer visualization of the Delaware offshore project planned by Bluewater Wind. (click to enlarge)

Green-collar pioneers eye offshore riches
Steve Gelsi, October 8, 2008 (MarketWatch)

WHO
Hunter Armistead, financier and wind installation developer, Babcock & Brown; Bluewater Wind, offshore wind developer, subsidiary of Babcock & Brown; other companies moving into U.S. offshore wind (Energias de Portugal (EDP Group), Iberdrola Renewables, FPL Group, Gamesa)

WHAT
Money is continuing to flow into U.S. onshore and offshore wind development.

A GE spot shows what an offshore wind installation looks like. From tayhey8 via YouTube.

WHEN
- 2001-2008: Cape Wind development, 5 miles off the Massachusetts shore in Nantucket Sound, stymied by NIMBYs.
- 2007: Babcock & Brown bought Bluewater Wind
- 2008: Offshore Europe has a 1,110-megawatt capacity. U.S. has zero.
- 2008: Bluewater Wind-Delmarva Power PPA
- 2009: Delaware project and others move forward when the U.S. Minerals Management Service completes leasing rules for offshore projects.

WHERE
- The U.S. gets ~1.1% of its electricity from wind but its potential has been described as the Saudi Arabia of wind.
- Babcock & Brown is a multinational corporation that originated in Australia.
- Bluewater Wind is based in Hoboken, NJ, selected to negotiate a contract to provide offshore wind power in Delaware.
- Other projects off the Atlantic coast are also under review: Rhode Island, New York and New Jersey.

WHY
- Renewable Electricity Standards (RESs) in over half the U.S. states requiring their utilities to obtain a designated portion of their power from New Energy sources by a date certain are driving wind development.
- Recent extension of the production tax credit (PTC) through 2009 will also buoy construction of projects.
- Challenges: More transmission and more access to it, conquering remaining intermittency issues, getting a long-term extension of the PTC.
- Offshore projects also face a shortage of turbines and equipment, problematic government regulations and NIMBYism.
- Offshore turbines will likely cost 50% to 70% more to build but may generate 100% more revenue.
- The new 10-state Regional Greenhouse Gas Initiative and the coming initiative in the west will auction emissions and give wind power-generated electricity a market advantage.
- Delaware: 440-foot towers planned 12 miles out at sea will be less visible and meet less NIMBYism than others.
- Babcock & Brown's biggest land-based project: Gulf Wind in Texas: ~ $600 million, 118 giant turbines, 283-megawatt capacity. With the PTC and a cost of ~$5 million/ turbine, investment pay off is 7-to-9 years.
- Demand remains strong for onshore wind due to the value of emissions-free electricity and PPAs with utility companies. Offshore wind economics are similar economics, especially b/c East Coast electricity prices are high.
- Best way for Americans to support wind power: Utility green power programs. Rates will be more competitive when emissions-generating power sources are required to pay for them (through a cap-and-trade system or an emissions tax).

The Mid Atlantic Bight. (click to enlarge)

QUOTES
- Hunter Armistead, head, Babcock & Brown North America: "We're concentrating on the East Coast because the shallow sea floor makes it ideal for offshore wind development…The continental shelf goes out pretty far and that's really attractive. The wind is strong and the visual aspects are negated."
- Armistead: "Wind is very fascinating…It's very capital intensive. It requires a background in finance to arrange capital and get the construction done, but projects come quickly on the development side. For me, it's an excellent combination of development and finance that happens relatively quickly."