Rhode Island law mandates renewable energy use

* National Grid committed to 90 MW of renewables

* Gov. says smooths the way for planned offshore wind farm

* $1.5 bln project would generate 1.3 mln MW electricity

WARWICK, R.I., June 26 (Reuters) - Rhode Island’s governor signed a law on Friday that requires the state’s largest electric utility to buy power from renewable energy producers, a move intended to smooth the way for what could be the first offshore wind farm in the United States.

The legislation requires National Grid Plc NG.LNGG.N to make long-term contracts to buy 90 megawatts of renewable power, a step that Governor Donald Carcieri says should help Deepwater Wind to secure the $1.5 billion in funding it expects to need for two offshore projects.

Ninety megawatts is enough power to meet the electricity needs of roughly 72,000 typical American homes. But it will represent just a sliver of Deepwater’s planned capacity.

“This project is going to be privately financed,” Carcieri told reporters after signing the bill into law. “For them to get their financing, they’ve got to have a buyer for the power and be sure that that buyer will be willing to enter into a long-term contract.”

Deepwater, which is backed by hedge fund DE Shaw and wind developer First Wind, will need to secure construction financing to build the projects, said Paul Rich, the company’s chief development officer.

Deepwater plans to build two wind farms off Rhode Island, first a small site with five to eight turbines off the coast of Block Island, followed by a much larger 100-turbine farm at least 15 miles (24 km) off the state’s coast.

The Block Island project could become the first offshore commercial wind farm to operate in the United States. It would be located in state waters and thus not require federal approval, Deepwater officials said.

Together, the two farms would produce about 1.3 million megawatts of power, enough to meet 15 percent of the state’s electric demand.

The other contender to become the first U.S. offshore wind farm is Cape Wind, a larger, 130-turbine, $1 billion wind farm planned off the coast of neighboring Massachusetts.

Cape Wind initially faced opposition from wealthy landowners in the Cape Cod resort area who said it would spoil their ocean views. While it has received state approval to move forward, it still needs a federal permit.

National Grid has also committed to buying power from renewable sources in Massachusetts, said Mike Ryan, the company’s president for Rhode Island distribution. The duration of the Rhode Island agreement is yet to be negotiated, he said.

Most wind development in the United States is concentrated in the nation’s Central Plains region, where wind is abundant but the population is sparse. The problem lies in transmitting the power to population centers along the coasts.

By focusing on offshore wind development along the densely populated East Coast, the electricity industry can reduce the transmission challenge, Carcieri said.

Rhode Island, the smallest U.S. state, is struggling with one of the highest unemployment rates in the nation. It lost most of its manufacturing industry in the 1960s and 1970s and has struggled to find a new economic engine.

Deepwater plans to build a staging area on Quonset Point, which will eventually employ about 800 people, Carcieri said. As part of the deal, the company committed to use that site as an assembly point for any other offshore wind farms it constructs from Delaware to Maine.

The legislation “seriously identifies offshore wind as the most significant resource in this state,” said Deepwater’s Rich. (Reporting by Scott Malone; Editing by Lisa Von Ahn)