'If we don't believe in US offshore wind, then who will?'

Italy's Renexia, a pioneer from the sector's earliest days, is still brimming with confidence, country manager Salvo Vitale tells Richard Kessler

Alongside giants such as Orsted, Equinor and Shell, Italy’s Renexia is something of an American offshore wind curiosity – but Salvo Vitale, country manager for its US Wind subsidiary, is brimming with confidence over his company’s Maryland project and the future direction of the industry.

With barely a decade of corporate existence, a modest project portfolio at home and in North Africa, and limited name recognition in the US, Renexia would seem an unlikely leader in an industry full of giant electric utilities, global independent power producers and major oil companies.

However, Renexia, the renewables arm of Chieti-based Toto Holding Group, is proving nimble and savvy with the ability to spot economic value and the next big opportunities along the Atlantic coast before most others. This has already paid off nicely and promises to continue doing so in the future.

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“We were one of the first developers to see the potential of the US offshore wind market,” Vitale told Recharge in an interview. Incorporated in 2011, US Wind took part in the nation’s first competitive offshore wind lease sale in July 2013 won by Deepwater Wind (since acquired by Orsted) for two zones in federal waters facing Massachusetts and Rhode Island.

Passing on the next later that year won by Dominion for an area off Virginia, US Wind was successful in the third in August 2014. It ignored prevailing opinion and bid a then-record $8.7m for commercial development rights in two areas – since merged – off Ocean City, Maryland.

The move drew smiles from some analysts and onshore renewables developers who felt the European newcomer had overpaid – the bid was more than twice Deepwater’s for half the acreage – in its eagerness to enter a new market that, while potentially interesting, was rife with economic, political and regulatory uncertainties.

No one is laughing now. In 2017, US Wind won a contract from Maryland that it values at about $3.3bn over 20 years for offshore renewable energy credits (ORECs) to subsidise an initial 235-248MW project phase, depending on turbine choice.

The levelised $131.04/MWh price per OREC is a whopping 34% to 101% higher than OREC or PPA prices obtained by projects from Connecticut, Massachusetts, New Jersey and New York. That premium rewarded US Wind for having taken a bigger risk as a first mover in the market, according to Vitale.

"The fact the OREC is a good price is a main selling point for our project."

“The fact the OREC is a good price is a main selling point for our project. Undeniably, that is what banks look for with financing – a good rate of return,” he said. Atlantic states, meanwhile, now have 28GW in offshore wind policy commitments – 70 times the 400MW in 2014 – including 1.2GW more in Maryland.

In another shrewd move, US Wind in 2015 won rights off southern New Jersey, paying only $1m for control of the second-largest area under lease along the east coast. At the time, interest among offshore investors in the state was at a low ebb with former Governor Chris Christie trying to thwart development for economic and political reasons.

US Wind’s bet that the industry would launch after Christie left office in January 2018 and the area’s value would skyrocket proved a winner. Last December, it sold the lease for $215m and other considerations to EDF Renewables North America, to focus entirely on Maryland.

Marwind project status

US Wind intends to build the project, which it is calling Marwind, in multiple stages aligned with awards of ORECs and how much capacity the Bureau of Ocean Energy Management (BOEM) will permit in its 322.5 sq km area – fourth smallest among 15 held mainly by European companies that stretch 1,000km from Massachusetts to North Carolina.

It doesn’t make financial sense at today’s prices to deploy turbines and sell capacity on a merchant basis into the PJM wholesale electricity market comprising all or parts of 13 states including Maryland, said Vitale.

The application window will open 1 January for project developers to submit proposals for supply of a minimum 400MW capacity and up to 1.2GW that could be eligible for ORECs. Given its strong commitment to job creation and economic development in Maryland, US Wind expects to do well.

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A lower subsidy cap for ratepayers and likely greater competition will reduce the price of ORECs awarded versus the initial round, but they are expected to remain attractive versus those elsewhere.

The developer believes there is 1.3GW potential nameplate capacity in its zone, while the National Renewable Energy Laboratory now estimates 966MW versus 850MW to 1.45GW when the lease sale was held.

In first quarter 2020, it expects to submit a Construction and Operations Plan (COP) for the entire 1.3GW to the Bureau of Ocean Energy Management (BOEM), which oversees wind development on the federal outer continental shelf.

"If we as developers don’t believe in this industry, who will?"

The COP describes all proposed activities and planned facilities for a project’s construction, operation and decommissioning under a commercial lease. He doesn’t see the present delay in BOEM permitting Vineyard Wind, the first large US offshore project, as lasting long and impacting Marwind.

“If we as developers don’t believe in this industry, who will? I must be optimistic, but I am a sincere optimist about the future of offshore wind in the US. Things are already too developed to stop now,” he said.

Vitale is upbeat that BOEM will go along and permit the full 1.3GW or something close, and this would facilitate multi-stage buildout and financing.

“By the time permitting would be finished, we will likely have received another OREC order so that we could use the scaling out of the project in order to schedule construction in a rational way,” he said. “For example, when the first tranche is finished, immediately start with the second ORECs phase.”

During the COP review, any concerns over impacts will be aired and addressed before BOEM issues a final permit within two years – the Trump administration’s goal for large energy infrastructure projects.

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The main one remains Marwind’s visual impact on the local tourism economy and property values in Ocean City. In response, US Wind moved the array further from shore and reduced the number of turbines from 64 to 32 or fewer. Plans now call for a 2023 commercial start for the $1.5-1.6bn first stage.

Ocean City officials still aren’t satisfied, asserting that the 8MW to 12MW turbines under consideration are several hundred feet higher than 4MW units approved by the state Public Service Commission (PSC) when it awarded ORECs and would change the horizon “forever.” Earlier this month, PSC agreed to seek additional public comment on the issue.

“This is yet another attempt to jeopardise the project in, I would say, a disingenuous way,” Vitale told the Baltimore Sun. City leaders insist they are not anti-wind or trying to scuttle Marwind but want it out further in deeper waters, setting the stage for a likely solution.

Financing, other positives

Otherwise, Vitale sees positives for Marwind. Global banks are “extremely interested” in financing at least 80% debt in the first phase project capital stack. Sponsor capital and tax equity – it has prequalified at 18% federal investment tax credit value – would likely comprise the rest. US Wind retained Natixis as its financial advisor.

“I have to say that the banks literally are calling us to jump on board in the financing pool,” he said, noting there is a lot of liquidity and a willingness to deploy it in the market. US and Canadian pension funds have also contacted the developer.

“Once the permitting and construction are done, it is the perfect investment for pension funds and insurance firms - those prudent investors,” he added.

Aside from the ORECs price and firm long-term off-take, potential lenders and investors like that US Wind has taken advantage of its early bird status to lay the groundwork – it has spent $50m thus far - for a successful project, according to Vitale.

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Permitting is advanced and critically, Marwind has an injection point onshore for interconnection at the Indian River substation in Delaware, unlike some other proposed Atlantic arrays. It also is well-advanced with evaluation of port facilities for staging construction and O&M activities.

Renexia is also leveraging parent Toto’s expertise over four decades as developers and constructors of large-scale infrastructure projects such as aqueducts, bridges and tunnels, something the banks also like. “This matters a lot in reducing the risk of construction,” said Vitale.

With US Wind, Renexia will partner with a big local EPC company. “The experience up until now is that is the way to success here,” he said.

What about an equity partner for Marwind? After all, various much larger developers have formed joint ventures to advance US projects. “The short answer is no. We think we have wide enough shoulders to do this project ourselves,” said Vitale.