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 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.

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?