How a $5 billion power 'backbone' was born on a ski lift

The Atlantic Wind Connection, a visionary $5 billion transmission line intended to bring 6,000 megawatts of offshore wind power into the mid-Atlantic region, has raised the bar for potential risks and rewards in the renewable energy world.

That is why the underwater line appeals to a $500 million venture capital fund called Good Energies, an investment group that is an outgrowth of the Brenninkmeijer retailing family of the Netherlands, says John Breckenridge, managing director of the Good Energies venture fund in North America.

In a story Breckenridge enjoys telling, he was in Vail, Colo., last March for an energy conference with an opportunity for a quick ski excursion. On the first chairlift ride, he wound up seated next to another conference participant, Robert Mitchell, the head of Trans-Elect, an independent transmission developer, who was trying to hatch the offshore project.

"I didn't know Bob, and he didn't know me, but by the end of the chairlift ride, we realized he was looking for an investor who liked to do development equity, and we were looking for development equity opportunities that had a renewable bent to them, and it was perfect. It went very rapidly from there," Breckenridge said.

In October, the Atlantic Wind Connection project was announced, with Good Energies and Google committing major shares of the funding. Good Energies and Google now have a 37.4 percent stake in the first of the project's five phases. The Japanese global trading firm Marubeni has 15 percent, and Mitchell's Trans-Elect and other partners share the rest.

Breckenridge said the decision to invest in this project was based on Good Energies' belief that the market for funding renewable energy projects has changed significantly and permanently. Traditional investors and wind farm buyers are no longer comfortable with the risks of developing major projects, he said.

"What's needed in the market is people to fund developers, which is high-risk -- that's what Good Energies is focused on." Its other equity investments include SolarReserve, a U.S. developer of utility-scale solar energy generation; Sequoia Energy Inc., a diversified Canadian developer; and Champlin Windpower in California.

The money comes from Cofra Holding AG in Switzerland, created by the Brenninkmeijer family, owners of the global C&A fashion and clothing retailing group.


'People, planet, profit'?

The family has a long tradition of addressing societal concerns, Breckenridge said. "Good Energies was founded around three key principles: 'people, planet, profit.' The Cofra business has always had this dual purpose: You make a profit but also do things that are helping the legacy."

But a sharp debate has broken out over the planet-profit trade-off. Citing the project's engineering and technological risks, Atlantic Wind Connection has asked the Federal Energy Regulatory Commission to approve an upfront "incentive" return of 13.58 percent, as well as the right to recover the project's construction costs as they occur from electricity ratepayers throughout the region (FERC Docket No. EL11-13).

The dominant utilities in the region, including Dominion Virginia Power, Baltimore Gas and Electric Co., Pepco Holdings, the PPL companies, FirstEnergy Corp. and Jersey Central Power & Light, have joined to protest AWC's rate request. The "incredibly expensive" project has not been submitted to state regulators nor gone through the PJM transmission project approval process, the group said. (FERC can approve an incentive payment whether or not these other actions have taken place.)

The contending filings at FERC describe a struggle between incumbent utilities with a long-established process for approving regional transmission projects, facing a challenge from a massive project that if it succeeds could dramatically alter the status quo. There is no indication when or how FERC commissioners may respond, although they have proposed a new rule that would assist major transmission projects that support state renewable energy mandates.

The developers propose to bury a 250-mile backbone transmission cable network 20 miles off the Atlantic Coast to collect power from other developers' wind farms in the federally controlled outer continental shelf. That would be enough power for nearly 2 million homes, and the new power would inject more competition into the high-priced mid-Atlantic power markets, benefiting consumers, AWC says.

The energy would be transmitted via direct-current cables to shore at four locations in New Jersey, Delaware and Virginia. Advanced power conversion technology would enable the mid-Atlantic grid operator, the PJM Interconnection, to control dispatch of the offshore wind energy through its network.

AWC said it would build the first phase between Indian River, Del., and southern New Jersey, beginning in 2013, with power flowing by 2016.

The concept of an offshore transmission backbone was supported by 10 of the region's governors in a 2009 letter to congressional leaders.

Governors like it; some utilities object

Interior Secretary Ken Salazar endorsed the idea in October, in signing the offshore lease for the Cape Wind project off Massachusetts. "Rather than develop transmission infrastructure plans on a piecemeal basis, we should -- in close coordination with the private sector, states, and tribes -- lay out a smart transmission system, up front," he said.

But the PJM Industrial Customer Coalition and several power cooperatives protested that the award of high incentive returns would shield developers from the risks of "unreasonably speculative" projects that have not been vetted properly by state authorities.

The PJM utilities group said FERC should not approve the incentive return in advance, but should require the project to go through the normal PJM process and state reviews. PJM's policy requires that costs of additional transmission required to link new generation to the grid are to be paid by those generator companies, not by transmission customers, the utility group said. AWC's plan violates that policy, the group's protest said.

"AWC's project currently has no anchor tenant -- nor even one of the many actual anchors that it would need if it were to build at sea," economist David Dismukes of Acadian Consulting Group wrote in an affidavit filed with FERC on behalf of the New Jersey Division of Rate Counsel and the District of Columbia's Office of the People's Counsel.

The project has drawn support from several wind developers, and Deepwater Wind in New Jersey said it might or might not seek to tie in. Current plans call for wind developers to link their projects separately to the existing onshore high-voltage transmission network, in what is called a "radial" design, Dismukes commented.

Some developers see additional risk

"We've talked to all the developers," said Breckenridge. "Of course, the biggest sound bites are from a few developers that are really hedging their bets. And I can't blame them."

"If I'm a wind developer, I've spend several years developing a site. I've got a radial line interconnect agreement" to the site, he said. "Even if this line is going to reduce the costs of my project by a couple hundred million dollars, the fact is that it brings in additional risk -- can I go ahead with my project assuming this line is going to be there?"

As the battle plays out, Breckenridge said he hopes that the jobs issues will be a trump card. "If you can create a 6-gigawatt industry on the mid-Atlantic coast, that is a 20-year build-out, maybe 15 years of construction. Fifteen years of construction is an industry.

"People build factories for that kind of thing -- turbine manufacturers, wire manufacturers. If you have a 1.5-gigawatt industry, which we think it will be with the radial lines, that's not a permanent industry. That's ad hoc. ... I'm not sure one or two projects a year without a backbone ever gets that going." The project's opponents see the economics differently.

Substituting wind for coal- or gas-fired generation removes an equivalent amount of greenhouse gas emissions from several million motor vehicles, AWC says. "I personally believe it is also about CO2, but that's not really important in today's political environment," Breckenridge said. "It's about jobs."

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