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.

NY offshore wind lease auction set

The U.S. Bureau of Ocean Energy Management has issued a Final Sale Notice, setting December 15 as the date for auctioning the right to lease sites in federal waters off New York for commercial offshore wind development.

The U.S. federal government is pursuing a national strategy to facilitate the domestic development of offshore wind energy.  Under federal law, the Bureau of Ocean Energy Management is responsible for administering renewable energy project development on the offshore Outer Continental Shelf.  The strategy calls for BOEM to identify areas suitable for wind energy leasing, and to then offer leases through auctions or other sales.

BOEM is now moving forward with plans to auction leasing rights for an area offshore New York.  In June 2016, BOEM first issued a Proposed Sale Notice for leasing rights off New York.  BOEM solicited public comment on its proposal over the summer.

On October 27, 2016, BOEM announced the designation of a final New York Wind Energy Area, starting approximately 11.5 nautical miles from Jones Beach, NY, and running approximately 24 nm southeast.  The final New York Wind Energy Area differs from BOEM's earlier leasing proposal primarily in its removal of about 1,780 acres due to environmental concerns over sensitive habitat on a feature called Cholera Bank.

BOEM's announcement also identified 14 companies that it has deemed legally, technically and financially qualified to participate in the New York lease sale:

• Avangrid Renewables, LLC
• CI-II NY Inc.
• DONG Energy Wind Power (U.S.) Inc.
• Innogy US Renewable Projects LLC
• wpd offshore Alpha LLC
• Deepwater Wind Hudson Canyon, LLC
• Energy Management, Inc.
• Convalt Energy LLC
• Clean Power Northeast Development Inc.
• New York State Energy Research and Development Authority
• Statoil Wind US LLC
• EDF Renewable Development, Inc.
• Fishermen’s Energy, LLC
• Sea Breeze Energy LLC 

BOEM will offer the lease as Lease OCS-A 0512, using a multiple-factor auction format.  Changes to the auction rules originally proposed include a 10% bidding credit for entities that establish that they are a “government authority” as defined in the Final Sale Notice, along with an adaptation to the auction format allowing bidders a “limited opportunity to revoke” a provisionally winning bid without penalty if the next-highest bid was submitted by a governmental entity.

Meanwhile, state energy agency NYSERDA is pursuing the New York State Offshore Wind Master Plan to advance offshore wind development in the state.  NYSERDA has expressed interest in bidding in a BOEM auction for project leasing rights, and was included in BOEM's list of entities qualified for the December 15 auction. Moreover, NYSERDA could be a beneficiary of the "government authority" provision in BOEM's Final Sale Notice; if so, it could receive a 10% credit on top of its cash bid.

BOEM will conduct the auction electronically, through a contractor, starting at 8:30 EST on December 15, 2016.

NJ regulators reject offshore wind project

The New Jersey Board of Public Utilities has voted against extending ratepayer subsidies to an offshore wind project proposed by developer Fishermen's Energy, challenging the project's financial viability.

The New Jersey coast near Atlantic City, seen from above.

Back in 2011, Fishermen's Energy proposed a 25-megawatt offshore wind pilot project to be located off Atlantic City.  The developer applied to the Board of Public Utilities for ratepayer support under New Jersey's Offshore Wind Economic Development Act of 2010.  That law directed the Board of Public Utilities to develop a program to require utilities to source a percentage of the electricity they sell in New Jersey from one or more qualified offshore wind projects.  To track energy from offshore wind, the law envisioned the creation of offshore renewable energy certificates, or ORECs, that could be sold by qualified offshore wind projects to the load-serving utilities.  The concept was that given the relatively high costs and uncertainty of offshore wind, no project could be financed or built without a steady revenue stream from OREC sales.

But the New Jersey project appeared to stall before the Board.  Charged with creating the OREC program and evaluating whether the Fishermen's Energy project could qualify to produce ORECs, the Board was faced with serious technical tasks.  As the regulatory process for the Fishermen's Energy project lengthened -- ultimately stretching to over 1,000 days -- Board staff raised concerns over the financial viability of the project, as well as over the impact of the requested subsidy to ratepayer costs.  Despite trimming the project's estimated costs to $188 million, these concerns remained, leading Board staff to recommend denial of Fishermen's Energy's request for OREC certification.
  
Yesterday, the Board of Public Utilities rejected Fishermen’s Energy’s proposal by a unanimous 4-0 decision.  While the Board's formal written order has not yet been released, expect it to explain the Board's reasoning in more detail when it surfaces next week.  In the meantime, Fishermen’s Energy is undoubtedly considering its options, which may include dropping the project, appealing the Board's rejection, or finding alternative ways to de-risk and finance the project.

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.

Virginia offshore wind site leases to be auctioned

Next month the United States will auction off the rights to develop offshore wind energy projects off the Virginia coast.  The Virginia auction's results will shape the development of offshore wind in North America, as it will represent the nation's second competitive lease auction for commercial offshore wind projects.

As part of the Obama administration's efforts to promote the use of federal lands for the generation of renewable electricity, the federal Bureau of Ocean Energy Management is holding a series of auctions of the rights to lease sites in federal waters over the outer continental shelf.  On July 31, BOEM held an auction for sites off Massachusetts and Rhode Island.  In that auction, Deepwater Wind New England, LLC submitted the winning bid of about $3.8 million for the rights to lease two parcels covering 164,750 acres offshore New England.

BOEM will hold its second competitive lease auction on September 4 for sites off Virginia.  The Virginia auction will be for a single lease for a designated wind energy area covering about 112,799 acres.  The western edge of the lease area is located about 23.5 nautical miles off the Virginia Beach coastline.  If fully developed, BOEM expects the Virginia lease area to support more than 2,000 megawatts of wind generation.

The Virginia Wind Energy Area is outlined in blue in this map provided by BOEM.

BOEM's current offshore wind leasing program - known as "Smart from the Start" - features a process reliant on multiple rounds of proposals and calls for public feedback.  For Virginia waters, that process began in February 2012 when BOEM published a Call for Information and Nominations in the Federal Register.  The Call was designed to evaluate competitive interest for the area, as well as to seek public feedback on existing uses and other considerations relevant to leasing the sea space.  Simultaneously, BOEM published a Notice of Availability for the final Environmental Assessment and Finding of No Significant for commercial wind lease issuance and site assessment activities on the Atlantic outer continental shelf offshore New Jersey, Delaware, Maryland, and Virginia.

BOEM received eight nominations of interest in the lease area in response to the Call.  The eight companies responding with interest were:

• Apex Virginia Offshore Wind, LLC
• Arcadia Offshore Virginia, LLC
• Cirrus Wind Energy, Inc.
• Dominion Virginia Power
• enXco Development Corporation
• Fisherman’s Energy, LLC
• Iberdrola Renewables Inc.
• Orisol Energy US, Inc.

As with the recent auction for sites off Rhode Island and Massachusetts, some of these companies may not choose to participate in the auction.  While BOEM had found nine companies to be legally, technically, and financially qualified to participate in the New England auction, only three actually submitted bids.  For example, Fisherman's Energy and Iberdrola Renewables both qualified for the New England auction, but did not bid.

Assuming interest remains in the Virginia sites, the September auction is expected to yield a single winner.  That winning bidder will pay the amount specified in the final bid for the right to lease part or all of the Virginia wind energy area.  Development of an offshore wind project would then require a series of additional steps, ranging from financing to permitting to interconnection with the mainland grid.  Whether the auction actually leads to offshore wind development off Virginia will thus depend on a number of factors, but the September auction will represent an important step toward the development of the United States' offshore wind resources.

Feds to hold first offshore wind auction

The U.S. Department of the Interior has announced plans to hold a competitive lease sale for renewable energy on the Outer Continental Shelf offshore Rhode Island and Massachusetts.  According to a Final Sale Notice published in today's Federal Register, the auction, scheduled to be held by the Bureau of Ocean Energy Management on July 31, will be the first auction of its type for offshore wind site leases in U.S. waters.

Map of the Rhode Island and Massachusetts Lease Areas, courtesy of BOEM.

The auction will cover about 164,750 acres of sea space in a previously defined Wind Energy Area located 9.2 nautical miles south of the Rhode Island shore.  For leasing purposes, the BOEM has divided the area into two leases.  The North Lease Area (Lease OCS-A0486) consists of about 97,500 acres, and is estimated to have the potential for an installed capacity of 1,955 megawatts of electric generation.  The South Lease Area (Lease OCS-A0487) covers about 67,250 acres, and is estimated to have the potential for an installed capacity of 1,440 megawatts.

Based on a review by the National Renewable Energy Laboratory, the Bureau of Ocean Energy Management has concluded that the North and South Lease Areas have significantly dissimilar attributes that make the North Lease area "a more competitive and cost effective area for near term commercial development."  The Bureau thus set the minimum bid for the North Lease Area will be $2 per acre, or $194,996, while the minimum bid for the South Lease Area will be $1 per acre, or $67,252.

BOEM has pre-screened and approved nine companies as bidders in the auction:

• Deepwater Wind New England, LLC
• EDF Renewable Development, Inc.
• Energy Management, Inc.
• Fishermen’s Energy, LLC
• IBERDROLA RENEWABLES, Inc.
• Neptune Wind, LLC
• Sea Breeze Energy, LLC
• U.S. Mainstream Renewable Power (Offshore) Inc.
• US Wind Inc.

Bidders' proposals will be evaluated based on a variety of factors, including their cash bids as well as nonmonetary factors including whether a bidder holds a Joint Development Agreement or a Power Purchase Agreement. 

BOEM has described the auction as the "first-ever competitive lease sale for renewable energy on the U.S. Outer Continental Shelf."  How the auction runs -- and its results -- will be informative as to the future of offshore wind in U.S. waters.

2013: a look ahead

With the new year upon us, here is a preview of several energy-related issues and events we will likely see this year:

Expansion of natural gas production, transmission and distribution.  The spread of hydraulic fracturing or fracking as a technique to produce natural gas from previously-uneconomic sources appears to be the largest revolution in the U.S. energy landscape in decades.  Natural gas will continue to displace coal and oil as an energy source in 2013, particularly for the generation of electricity.  The availability of cheap natural gas will also lead to the development of more local distribution company pipelines, enabling more businesses and homes to connect to natural gas supplies.  2013 will likely also bring proposed new natural gas transmission pipelines, connecting gas sources like the Marcellus and Utica shale fields to consumers across the country.
 
Offshore wind in U.S. waters.  2013 may see the construction of the first offshore wind projects in United States waters.  Cape Wind's project off Massachusetts may start cable work or other construction this year, as may Deepwater Wind's Block Island project off Rhode Island and Fishermen’s Energy's project off Atlantic City, New Jersey.  Congress's last-minute extension of the Investment Tax Credit or ITC gives a significant boost to offshore wind projects capable of beginning construction in 2013.  Not only was the tax credit's deadline extended by one year, but Congress also changed the trigger from being "placed in service" to commencing construction by December 31, 2013.  No offshore wind projects are currently operating or under construction in U.S. waters, so 2013 could be the year the first projects enter the water.  The federal Bureau of Ocean Energy Management is expected to continue its leasing program, making more ocean sites available for future offshore wind projects.

Keystone XL pipeline.  The Keystone XL pipeline, a $7 billion proposed extension of an existing crude oil pipeline, is slated to connect Alberta, Canada to Texas.  In 2011 and 2012, the project faced public scrutiny and failed to secure necessary federal and state approvals.  Among other permits, the project faces State Department review because it would enable imports or exports of oil across the national border with Canada.  Meanwhile, project lead TransCanada is moving ahead with the construction of some of the domestic legs of the project, and the full project is likely to come back up for review this year.

Energy efficiency continues to grow.  Investments in energy efficiency are likely to continue to grow in 2013.  Using fuels and energy sources more efficiently saves money for businesses and homeowners capable of making the investment.  It can also lower market prices for electricity and fuels by reducing demand, spreading the savings across all consumers.  New England regional electric grid operator ISO New England recently revised its load forecast to predict no increases in the demand for electricity through 2021 as a result of increased investment in energy efficiency.  This trend is likely to continue nationwide.


With 362 days left in the year, these issues and events are likely to be discussed for some time to come.  Will these predictions come true in 2013? 

Maine offshore wind projects win federal grants

The U.S. Department of Energy has announced an award of funding to seven offshore wind Advanced Technology Demonstration projects totaling $168 million over six years.  These projects are designed to achieve large cost reductions over existing offshore wind technologies and develop viable and reliable options for the United States.  Waters off Maine will be home to two of the projects:

• Statoil North America of Stamford, Connecticut plans to deploy four 3-megawatt wind turbines on floating spar buoy structures in the Gulf of Maine off Boothbay Harbor at a water depth of approximately 460 feet. These spar buoys will be assembled in harbor to reduce installation costs and then towed to the installation site to access the Gulf of Maine's extensive deep water offshore wind resources.
  
  
• The University of Maine, based in Orono, plans to install a pilot floating offshore wind farm off Monhegan Island.  This project will feature two 6-megawatt direct-drive turbines on concrete semi-submersible foundations. These concrete foundations could result in improvements in commercial-scale production and provide offshore wind projects with a cost-effective alternative to traditional steel foundations.
  

Each project will receive up to $4 million to complete the engineering, site evaluation, and planning phase of their project.  Five other projects were also selected for this first phase:

• Baryonyx Corporation, based in Austin, Texas, plans to install three 6-megawatt direct-drive wind turbines in state waters near Port Isabel, Texas. The project will demonstrate an advanced jacket foundation design and integrate lessons learned from the oil and gas sector on hurricane-resistant facility design, installation procedures, and personnel safety.
  
  
• Fishermen's Atlantic City Windfarm plans to install up to six direct-drive turbines in state waters three miles off the coast of Atlantic City, New Jersey. The project will result in an advanced bottom-mounted foundation design and innovative installation procedures to mitigate potential environmental impacts. The company expects this project to achieve commercial operation by 2015.
  
  
• Lake Erie Development Corporation, a regional public-private partnership based in Cleveland, Ohio, plans to install nine 3-megawatt direct-drive wind turbines on "ice breaker" monopile foundations designed to reduce ice loading. The project will be installed on Lake Erie, seven miles off the coast of Cleveland.
  
  
• Seattle, Washington-based Principle Power plans to install five semi-submersible floating foundations outfitted with 6-megawatt direct-drive offshore wind turbines. The project will be sited in deep water 10 to 15 miles from Coos Bay, Oregon. Principle Power's semi-submersible foundations will be assembled near the project site in Oregon, helping to reduce installation costs. 


• Dominion Virginia Power of Richmond plans to design, develop, and install two 6-megawatt direct-drive turbines off the coast of Virginia Beach on innovative "twisted jacket" foundations that offer the strength of traditional jacket or space-frame structures but use substantially less steel.
  

After the first phase, the DOE Wind Program will select up to three of these projects to advance the follow-on design, fabrication, and deployment phases to achieve commercial operation by 2017. These projects will be eligible for up to $47 million over four years, subject to congressional appropriations.

March 7, 2011 - long-term pricing for offshore wind in New Jersey

New Jersey is pursuing offshore wind in earnest.   The Board of Public Utilities will be holding a public open question and answer session in Trenton on March 25, 2011, to discuss the recently adopted Offshore Wind Rules (N.J.A.C. 14:8-6).  This comes just over a month after an affiliate of Fishermen’s Energy of New Jersey filed a petition to the New Jersey Board of Public Utilities seeking approval for offshore renewable energy certificates (ORECs) for a wind project to be developed offshore of Atlantic City.

The project, to be developed pursuant to the New Jersey Offshore Wind Economic Development Act, would be a six-turbine demonstration-scale project about 2.8 miles east of Atlantic City, generating up to 25 megawatts of energy.  Governor Christie signed the Offshore Wind Economic Development Act in 2010, authorizing the development of up to 1,100 megawatts in offshore wind capacity off New Jersey.  To help fund such projects, the Act also gives the New Jersey Board of Public Utilities the authority to set a long-term price for ORECs, guaranteeing up to 20 years of price certainty for developers.  In recognition of the economic value of siting offshore-wind associated manufacturing capacity in the state, the Act also provides $100 million in tax credits for the creation of such jobs.

Fishermen's project is in the race to be the first grid-connected offshore wind facility in the country.  Will they cross the finish line first?