NJ approves offshore wind funding mechanism, rejects demonstration project

On December 18, the New Jersey Board of Public Utilities took two actions affecting offshore wind: approving the state’s Offshore Wind Renewable Energy Certificate (OREC) funding mechanism, but rejecting a petition by Nautilus Offshore Wind, LLC to install a 25 MW offshore wind demonstration project in state waters off the coast of Atlantic City. Meanwhile, developers have formed a new joint venture to develop offshore wind in federal waters farther offshore New Jersey.

New Jersey Governor Phil Murphy has set a goal of 3.5 gigawatts of offshore wind capacity by 2030, and in May 2018 he signed into law a renewable energy bill codifying that goal into statute. On September 17, 2018, the NJBPU opened the nation’s largest single-state solicitation to date, seeking 1,100 megawatts of offshore wind. Applications will be accepted through December 28, 2018. Winning projects will be compensated through the OREC mechanism approved this week, which requires electric companies to buy defined quantities of ORECs from offshore wind developers, much like a traditional renewable portfolio standard mechanism.

Also on December 18, the BPU rejected a 25 megawatt demonstration project proposed by Nautilus (under development by EDF Renewables and Fishermen’s Energy). The Nautilus project would feature three turbines in state waters about 2.8 miles offshore Atlantic City. But the BPU found the Nautilus project did not demonstrate the economic and environmental benefits required under the Offshore Wind Economic Development Act for the state to commit ratepayer funds. In particular, the BPU found that Nautilus didn’t provide sufficient information to substantiate claimed economic benefits, and further that Nautilus demanded a price that was too high given the unsubstantiated benefits.

But offshore wind development may soon occur farther offshore New Jersey. On December 19, 2018, EDF Renewables North America and Shell New Energies US LLC announced the formation of a 50/50 joint venture, Atlantic Shores Offshore Wind, LLC to co-develop offshore wind generation in federal waters offshore New Jersey. The site is about 8 miles offshore Atlantic City. At issue is the 183,353-acrea OCS-0499 lease area, the rights to which were initially auctioned by the federal Bureau of Ocean Energy Management in 2015. That auction was won by Toto Holding Group subsidiary US Wind Inc., with a winning bid of $1,006,240.

More recent federal auctions for offshore wind site leasing rights have brought much higher winning bids -- for example, a December 2018 auction for sites offshore Massachusetts brought in about $135 million for each of three lease areas, totaling over $405 million in winning bids for about 390,000 acres.

NJ board to decide on offshore wind project

Will New Jersey regulators approve key support for an offshore wind project proposed off the Jersey shore?

Many coastal states and nations are placing new focus on energy projects designed to generate electricity from offshore winds.  A project off New Jersey, first proposed in 2011, appeared to make some initial progress, but has since seemed to stall -- due in part to regulatory delays at the state level.  With a decision by the state Board of Public Utilities (BPU) expected this week, will the Fishermen's Energy offshore wind project move forward?

Fishing boats in a small harbor along Maine's midcoast.

The New Jersey coast offers a fairly unique combination of wind resources and proximity to customer demand.  To capitalize on this combination, the New Jersey legislature and government adopted measures promoting the development of the state's offshore wind resource.  For example, New Jersey's Energy Master Plan calls for an ambitious target of 1,100 megawatts of offshore wind installed by 2020.

In response to the opportunity, in May 2011,  Fisherman's Energy submitted an application to the BPU under the Offshore Wind Economic Development Act for an offshore wind demonstration project.  The Cape May, New Jersey-based developer proposed five, five-megawatt wind turbines in state waters about 2.8 miles off the Atlantic City coast, with a total capacity of 25 megawatts and an estimated cost of $200 million to $300 million.  By the end of 2012, the project had won substantially all of the permits necessary for its development and operation, including approvals by the New Jersey Department of Environmental Protection and Army Corps of Engineers -- but a key piece of the regulatory and financing puzzles remains missing.

Under New Jersey law, the BPU may select one or more qualified offshore wind  projects for financial support in the form of a long-term contract to buy Offshore Wind Renewable Energy Certificates, or ORECs, from the developer.  This revenue stream is viewed as essential to enable a developer to finance and construct a project.

But nearly 3 years later, the state OREC review process remains ongoing. Last year, BPU Staff recommended the BPU reject Fishermen’s project on the grounds that it demonstrated no economic benefits but bore unnecessary technology risk due to its selection of XEMC turbines.  But project advocates, including the New Jersey Rate Counsel, support the project for its apparent consumer benefits.  Nevertheless, the BPU has yet to approve an OREC program.

Meanwhile, crucial federal tax incentives such as the renewable energy business investment tax credit have ended.  Many renewable project developers have found these credits essential in building financing packages for their projects over the last years; while the credits may be reenacted in some form, their loss may mean Fishermen's Energy needs to revise its financial projections.

Fishermen's Energy -- and the many other stakeholders following the project -- may soon learn the project's fate.  The New Jersey BPU is scheduled to vote today on whether to approve the project and authorize it to produce and sell ORECs.  Will the BPU grant Fishermen's Energy's request?

NJ offshore wind project faces dilemma

Fishermen's Energy's proposed offshore wind project off the New Jersey coast has essentially all its permits in place to start construction -- but the project's future is in doubt over a question of financial support from electricity ratepayers.

Fishermen's Energy has proposed building a 25-megawatt wind project about 2.8 miles off the coast of Atlantic City.  The $200 million project would be connected to the mainland electricity grid, enabling the power it produces to be sold to New Jersey electric customers.  The project has already received key permits, such as approval by the Army Corps of Engineers to begin construction.

Building what could be the nation's first commercial offshore wind project will be expensive.  While future offshore wind projects could be cost-competitive against more traditional electric generation resources, the New Jersey pilot project's finances rely on a portfolio of federal and state financial incentives.  These include federal tax credits, a grant from the U.S. Department of Energy, and a state commitment that utility ratepayers will shoulder above-market costs.

A 2010 New Jersey law established an offshore wind renewable energy certificate program known as OREC that was designed to provide that ratepayer commitment.  For over a year, Fishermen's Energy has been waiting for the New Jersey Board of Public Utilities to decide whether to require mainland utilities to purchase the project’s renewable energy output.  But that case remains pending, with no clear state-law timeline for its resolution.  Issues in play include the project's cost to ratepayers, particularly if the project fails to win further competitive grants from the federal Department of Energy.

In the meantime, Fishermen’s Energy needs to spend at least $10 million on the project this year to remain eligible for the federal investment tax credit.  Yet the developer is presumably reluctant to commit those funds before learning whether it will also win ratepayer support.  As December 31 draws nearer, this dilemma makes it more challenging for Fishermen's Energy to sustain project development efforts.

National Park Service OKs transmission line on park lands

The National Park Service has given its final approval to a proposed high-voltage electric transmission line that would cross public lands in Pennsylvania and New Jersey, including the Delaware Water Gap National Recreation Area, the Middle Delaware National Scenic and Recreational River as well as the Appalachian National Scenic Trail.

The 500 kilovolt transmission line, known as the Susquehanna-Roseland line, has been proposed by utilities PPL Electric Utilities and Public Service Electric and Gas Co. It would run 145 miles from Susquehanna, Pennsylvania to Roseland, New Jersey.  Mid-Atlantic electric grid operator PJM, Inc. and national electric reliability organization NERC had called for the line to protect the grid's reliability by preventing existing power lines from facing overloaded conditions.  The line also received a fast-track review by federal agencies under the auspices of the Interagency Rapid Response Team for Transmission, a group formed to coordinate on an expedited review of transmission projects designed to increase grid reliability, integrate new renewable energy, and cut consumer costs.

While the line's route largely followed existing rights-of-way, environmentalists and park activists challenged the National Park Service's approval of expansions to the rights-of-way through these national parklands.  The New Jersey Board of Public Utilities' approval of the project was also challenged, on the grounds that the state board failed to give adequate consideration to non-transmission alternatives that could have met consumer demand, such as programs promoting demand response and energy efficiency.  That case remains pending.

On Monday, the National Park Service issued its record of decision approving the line (31-page PDF).  As a condition of approval, the NPS required the developing utilities to contribute at least $56 million to a
fund to mitigate the line's impacts on federal lands by purchasing or otherwise conserving land for public use, compensating for impacts to wetlands affected by the line, and funding cultural and historic preservation in the affected parks.

In a Facebook post issued yesterday, the New Jersey chapter of the Sierra Club vowed to challenge the NPS's approval of the line in court.  PPL and PSE&G plan to place the line in service by June 2015.

NJ-PA transmission line challenged

A New Jersey court is considering a challenge by environmental activists to a proposed high-voltage transmission line connecting Pennsylvania and New Jersey.

Proposed by PPL Electric Utilities and Public Service Electric and Gas Co., the Susquehanna-Roseland line would run 145 miles from PPL's Susquehanna substation near Berwick, Pennsylvania to Roseland, New Jersey.  The route, which is nearly finalized, would cross three units of land managed by the National Park Service: the Delaware Water Gap National Recreation Area, the Middle Delaware National Scenic and Recreational River and National Recreation Water Trail, and the Appalachian National Scenic Trail. 

The Susquehanna-Roseland project has received the approval of the New Jersey Board of Public Utilities, as well as federal support in the form of an expedited permitting process.  Regional grid operator PJM Interconnection, LLC has also said that the line is essential to improving reliability and reducing transmission line congestion in the region.

At the same time, the line has drawn opposition from environmental groups and others.  The Sierra Club and other organizations have challenged the line as continuing a "reliance on toxic fossil fuels by shipping coal-fired power into New Jersey." Instead, the Sierra Club calls for increased use of demand response, energy efficiency and renewable energy to meet peak energy demands.  Other have challenged the project's proposed route through National Park Service lands, including widening some existing transmission corridors and associated road-building activity.

This past Wednesday, the Appellate Division of the Superior Court of New Jersey heard oral argument over whether the New Jersey Board of Public Utilities' approval of the project was valid.  Among the challenges raised was whether the BPU fully considered non-transmission alternatives to the line, such as demand response and energy efficiency.

While the court process concludes, the utility proponents believe that construction should not be affected by the lawsuits.  The line is expected to be placed in service by summer 2015.