National Grid late Thursday rejected Deepwater Wind LLC's initial proposal to supply electricity from a planned wind farm off Block Island, throwing a monkey wrench into the Carcieri administration's efforts to boost renewable energy in Rhode Island. Both the governor and the R.I. Economic Development Corporation (EDC) have urged the Grid and Deepwater to keep talking.

PROVIDENCE - National Grid late Thursday rejected Deepwater Wind LLC's initial proposal to supply electricity from a planned wind farm off Block Island, throwing a monkey wrench into the Carcieri administration's efforts to boost renewable energy in Rhode Island.

Both the governor and the R.I. Economic Development Corporation (EDC) have urged the Grid and Deepwater to keep talking.

"Deepwater Wind's project will act as a catalyst to elevate Rhode Island as the hub for the Northeast's offshore-wind industry, generating jobs at every level of the state's economy," EDC Interim Director J. Michael Saul said in a statement. "The RIEDC encourages National Grid and Deepwater Wind to continue dialogue so that we can meet this critical milestone for Rhode Island's economy."

The proposal came to National Grid after the state's largest utility requested proposals to procure renewable energy. The General Assembly mandated such a request under legislation passed in June and required National Grid to enter into "commercially reasonable" contracts subject to approval from the R.I. Public Utilities Commission (PUC).

But in a letter to the PUC, Grid called Deepwater's proposal "not commercially reasonable" and said "in pure financial terms, [it] is uneconomic by a significant margin for Rhode Island customers for the entire term."

National Grid estimated the cost of electricity generated by Deepwater's wind farms at 30.7 cents per kilowatt-hour, more than triple the current rate for traditional electricity, which in Rhode Island is mostly generated using natural gas. Deepwater put the cost closer to 20 cents per kilowatt-hour.

On Friday morning Deepwater CEO Bill Moore said the privately held company was "disappointed" by National Grid's letter, but the project was not dead in the water.

"Their letter's a little funny," Moore said. "They kind of take a whack at us for no good reason."

Moore said the letter to the commission did not accurately portray Deepwater's proposal. Moore disputed the 30.7 cents, and the characterization of the 20-year contract, which includes a 3.5 percent annual increase. The increases, he said, are necessary to recoup the $168 million to $200 million in estimated construction costs for the project and to reward investors, who Deepwater said can expect a non-guaranteed 12 percent return.

Moore added that the cost of wind power would understandably be above market rates because offshore wind energy projects are new to the United States and the supply chain does not exist here.

Moore and Chief Development Officer Paul Rich said Deepwater is willing to continue to negotiate with National Grid, including a proposal that would link the price of electricity to anticipated costs rather than set a fixed-price contract that National Grid sought.

"We want to continue these discussions," Rich said. "We want to get to the table again and we feel like we are only a business point or two away."

Besides price, the utility and developer must agree on how many turbines the farm will contain (Deepwater has proposed eight) and who will own an electric cable running from Block Island to the mainland.

Moore and Rich said the two parties must reach an agreement this fall if the Block Island wind farm is to remain on track for a scheduled 2012 operation date.

"If Rhode Island hiccups on this and this really takes more time to play out than the Legislature planned, Rhode Island may lose the golden opportunity to be the first in the water and lead the way in this offshore wind industry that's going to come" to the United States, Rich said.

Ronald T. Gerwatowski, an attorney for Grid, acknowledged such positive aspects of the Deepwater project, including that it would make Rhode Island the first state in the country to have an offshore wind farm.

"Without question, this would be a worthy achievement, but National Grid believes that the aspiration to reach this goal needs to be tempered by the reality of cost," Gerwatowski said.

In addition to the initial wind turbine plan, Deepwater wants to build a larger development with 100 turbines in the middle of the next decade. Executives have said they need a long-term purchasing agreement with Grid both to ensure they have a buyer for the electricity the turbines generate and to attract investors.

Additional information is available at ripuc.org.

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