No need to panic

The News Journal ( http://www.delawareonline.com/apps/pbcs.dll/article?AID=/20090209/NEWS/90209025 ) reports this morning that the collapse of Australian-based parent company Babcock & Brown ( http://www.babcockbrown.com/), owners of Bluewater Wind ( http://www.bluewaterwind.com/) since September 2007, threatens the Delaware offshore wind project.

The announcement from Babcock & Brown is here (http://www.babcockbrown.com/# and basically says they have to sell off their assets to pay off their bankers, and are doing so under current management.

Offshore wind projects are capital-intensive (expensive to build, but relatively cheap to operate), and thus sensitive to the cost and availability of money.  The baseline Delaware Bluewater project, 200 MW of nameplate capacity contracted to Delmarva Power, costs around $800 million.  A full 600 MW project would cost around $1.5 billion.

They are also sensitive to the cost of natural gas, considered a placeholder for the cost of fossil energy, which has tanked due to the depression.

The bigger picture was well put by a commenter on the News Journal story:

“The argument for our need to achieve independence from oil has been going on since I can remember {for me, beginning in High School in the 60’s} and no doubt earlier. … the interest in alternates to oil will abate as the price of oil remains low and demand for such returns. This issue might well be compared to the never ending struggle for peace in the Middle East. There is optimism with each new administration on both the issue of alternate energy and peace in the Middle East. It seems that positive steps are always abandoned at the first sign that maybe the problem is not as bad as one thinks {i.e. a lapse in violence, oil becomes cheap again because its use is being temporarily threatened, an economic rebound, etc.} and we forget all about our concerns until the next crisis.” (“idlewide”)

A Bluewater official told us:  “We’re still here, moving ahead in Delaware and New Jersey.  Obviously we’ll soon have a new owner.”  He pointed out that the project timeline doesn’t require financing to be in place for two more years.

Government financing as a last resort?

The present “stimulus” bills have some provisions favorable in general to the wind industry but no direct financing for offshore wind.

Offshore wind doesn’t yet seem to be registering very clearly on the national level as a major future component of the US energy mix.  Many Atlantic coast states, however, are showing serious interest, as are some Great Lakes states.

Funding projects such as Bluewater with direct loans or guarantees would be a far better use of funds than, for example, shovelling hundreds of billions at venal bankers.  See, for example:

Wall Street Robber Barons Ride Again

and Despite Federal Aid, Many Banks Fail to Revive Lending .

Conclusion:  No need to panic.