Deepwater doubles size of proposed U.S. wind farm

BOSTON (Reuters) - The developer of a proposed wind farm off the Rhode Island doubled its project's size, saying greater scale -- which could boost its price tag to $5 billion -- would allow it to sell electricity at a lower price.

Deepwater Wind said it now plans to install 200 wind turbines some 20 miles off the coast of the smallest U.S. state. The project could generate enough electricity to meet the needs of 800,000 typical American homes.

The expansion pushes the project's estimated cost to as much as $5 billion, which could make it challenging to finance, according to an energy analyst who has advised the company.

The high price of electricity generated by proposed offshore wind farms has generated fresh public opposition to the projects as developers reach agreements to sell their power to utilities at more than double local prevailing rates.

"We need to get to large scale to get to competitive pricing," Deepwater Chief Executive William Moore said on Wednesday.

Cape Wind, which intends to start building a wind farm off Massachusetts next year, signed an agreement to sell its power to utility National Grid at 18.7 cents per kilowatt hour and a smaller Deepwater project reached a deal to sell electricity to the same utility for 24.4 cents per kilowatt hour. Those are more than double local prevailing rates.

Deepwater said it expected the larger wind farm to sell electricity in the "mid-teens," referring to a rate of cents per kilowatt hour.

Securing a long-term contract to sell power is a key step in obtaining financing for a wind farm.

"It's a big project and it's going to take some creative financing," said Richard Tabors, a vice president at Charles River Associates, the analyst who has advised Deepwater.

All six New England states, as well as New York, New Jersey and Pennsylvania have renewable energy portfolio standards in place that will require utilities to buy a portion of their power from renewable sources over the next decade.

Business interests ranging from Wal-Mart Stores Inc to the lobbying group Associated Industries of Massachusetts protested the price in Cape Wind's contract, saying it would push up costs at a time when companies can ill-afford it.

ECONOMIES OF SCALE

Providence, Rhode Island-based Deepwater, backed by hedge fund D.E. Shaw, said it expects to begin building the facility, which will include a transmission line connecting southern New England to eastern Long Island, in 2014 with the turbines beginning to run by 2015. The larger project would be capable of producing a 1,000 megawatts of power.

Deepwater now plans to use turbines capable of generating five to six megawatts of power, about double the size it initially planned, reflecting advances in turbine design. That lowers the cost of constructing by allowing to produce more power while building fewer foundations and connections to transmission lines.

"That boosts our economics and lowers the cost of power," Moore said.

The United States leads the world with installed wind capacity, with some 35,600 megawatts of turbines installed. That's all on land, though.

About a dozen offshore projects have been proposed off the eastern United States -- waters off the West Coast become too deep too quickly to make offshore wind practical there.

Turbine makers including Siemens AG, which will supply Cape Wind, General Electric Co and Vestas Wind Systems stand to benefit from a growth in U.S. offshore wind installations.

(Reporting by Scott Malone; Editing by Dave Zimmerman, Bernard Orr)