(Reuters) - Privately held Deepwater Wind expects to win a federal lease to build a wind farm of up to 1,000 megawatts (MW) in federal waters south of Rhode Island and Massachusetts, the company’s chief executive said in an interview.
The Department of Interior’s Bureau of Ocean Energy Management (BOEM) will hold the competitive lease sale for renewable energy on July 31.
Since Rhode Island has already selected Deepwater as the state’s preferred offshore wind developer, the company has an advantage in the federal lease auction. Deepwater was picked as the preferred developer in 2008 after a competitive process.
“We’re going to win the lease,” Deepwater CEO Jeffrey Grybowski told Reuters, noting they are the preferred developer.
As U.S. consumers demand cleaner sources of energy, federal and state governments are encouraging power companies to build renewable sources of generation, like offshore wind farms.
By being built on the ocean, a wind farm can take advantage of better wind speeds off shore versus on land, which generates more electricity. A wind farm of 1,000 MW could power about 300,000 homes.
Deepwater is in a race with Cape Wind, another privately held offshore wind farm developer, to build the first offshore wind farm in the United States.
Deepwater’s most advanced site is a smaller, 30-MW project in Rhode Island state waters on the south side of Block Island, which will cost about $250 million, including a transmission link from Block Island to the mainland. The company has also proposed building wind farms offshore from New Jersey and New York City.
If all goes according to plan, Grybowski said Deepwater expects to have all permits for Block Island by late summer and start construction of the five Siemens AG (SIEGn.DE) 6-MW turbines - each about 600 feet tall - or on the foundations that anchor the towers to the seabed, by the end of 2013, allowing the project to qualify for federal tax credits.
Block Island is expected to enter service in late 2015.
“That will make us one of the first,” Grybowski said, noting, “I think Cape Wind is the only other project that is close to commercial operation, so I would say we are neck and neck.”
A 468-MW Cape Wind project south of Cape Cod in Massachusetts, which has been in development since 2001, won the first federal lease for a commercial offshore wind farm in 2010.
Cape Wind expects to start construction by the end of the year, with the turbines entering service in 2015 and 2016.
In July, BOEM will auction 164,750 acres located about 9.2 nautical miles (17 miles) south of Rhode Island as two leases - a 97,500-acre north lease and a 67,250-acre south lease.
The north lease has the potential for 1,955 MW of installed capacity and the south lease up to 1,440 MW, according to the U.S. National Renewable Energy Laboratory. Together, they could supply enough electricity for more than 1 million homes.
Grybowski said Deepwater wants a lease to build a wind farm of up to 1,000 MW in federal waters, which would could cost up to $5 billion, including transmission links to New England and Long Island, New York.
Grybowski could not say how much the federal leases will cost, but the minimum bid for the North Lease is $2 an acre or about $195,000, and $1 an acre for the South Lease or about $67,250.
Most of Deepwater’s money comes from its principal owner, investment firm D.E. Shaw, which has provided more than $50 million to develop the projects, Grybowski said.
The earliest that Deepwater could install turbines in federal waters is 2017, with the project entering service in 2018.
“Our interest is to be a long-term owner, but we’re a development company. Our job is to secure the lease, do the environmental work, put a team together, and select the right set of partners both financial and operational,” he said.
Deepwater has an agreement to sell the power from the smaller Block Island project to National Grid Plc’s (NG.L) Rhode Island unit, and is seeking buyers in Rhode Island, Massachusetts and New York for the power from the bigger 1,000-MW project.
“We think we are quite competitive with other new sources of generation when you consider environmental, economic and reliability benefits,” Grybowski said.
Depending on the ultimate size of the project, Grybowski said Deepwater could sell power from the wind farm at around 14 cents per kilowatt-hour, making it competitive with a new natural gas-fired power plant on Long Island.
By connecting to both New England and New York, Grybowski said the project would enhance system reliability by enabling access to power from the wind farm or from other electricity producers via the new transmission links.
Additional reporting by Joe Silha in New York; Editing by Jeffrey Benkoe