Offshore Wind: Will New Jersey Take The Opportunity To Lead?

by McCarter & English: Climate Change & Renewable Energy
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Is New Jersey placing the cart before the horse when it comes to the establishment of rules regulating the State’s Offshore Renewable Energy Certificates?  Instead of spending time analyzing how to mitigate the risks of possible state appropriation of OREC funds, let’s build a project already!

In August of 2010, New Jersey Governor Chris Christie signed the Offshore Wind Economic Development Act to “spur economic growth in the Garden State through the development of renewable energy resources and the creation of green jobs.”

The legislation, which established the creation of an offshore wind renewable energy certificate program (OREC), is the Country’s first attempt to make financial assistance and tax credits available for businesses that construct manufacturing, assemblage and water access facilities to support the development of qualified offshore wind projects.

This of course was exciting news in 2010.  Since that time however, the wind industry has experienced tremendous growing pains as a result of a multitude of contributing factors including a glut of cheap natural gas developed through fracking technology, a severe recession, and - perhaps most influentially - the uncertainty of the renewal of the industry’s most valuable Federal incentive: the Production Tax Credit (PTC). 

This uncertainty had a tremendously negative impact on wind development in the United States.  But sun has started to rise: the PTC has been renewed, the Atlantic Wind Connection has continued to move forward with the proposed construction of an offshore transmission backbone in the Atlantic Ocean, and a majority of the general public strongly supports the development of offshore wind.  New Jersey once again finds itself at the vestibule of change, possibly leading the way towards the creation of an offshore wind industry in America, whose footholds are based firmly in the Garden State.

Yet despite this opportunity and the general sense of optimism, offshore wind continues to face political and bureaucratic headwinds in New Jersey.  Since Governor Christie signed the law in 2010, the New Jersey Board of Public Utilities (BPU) has struggled to adopt rules governing how offshore wind developers earn revenue from the electricity that their turbines produce.  It unfortunately appears that minimal progress has been made in determining how the OREC funding mechanism will work, and how projects that are “shovel ready” will be able to demonstrate that they are “qualified offshore wind projects”. Many would argue that this delay could frustrate the goals of the State’s Energy Master Plan which has set the ambitious goal to develop 1,100 megawatts of offshore wind capacity by 2020.

While the BPU’s need to get things right is laudable, the question remains whether the delay will threaten New Jersey’s ability to become the Country’s leader in offshore wind.  Maryland, Delaware, Maine and Massachusetts have all made aggressive steps to become the geographic center of the East Coast’s offshore wind industry.  The delay is also problematic when taken in the context of the PTC, which will only be available to projects that begin construction in 2013.  Continued delay would threaten a developer’s ability to realize the tax benefits of the PTC, potentially derailing any hope for construction of a windfarm off the New Jersey coast.

Fishermen’s Energy has petitioned the BPU for approval of its Atlantic City offshore wind project.  This pilot project, which has received all of its New Jersey Department of Environmental Protection (DEP) approvals, will be a 25 megawatt project to be located 2.8 miles from Atlantic City.  In addition, Fishermen’s was recently selected by the US Department of Energy (DOE) to receive up to $4 million to complete the engineering, site evaluation, and planning phase of its project and, upon completion of this phase, the Cape May-based company will be eligible to complete for an additional $47 million in grants for follow-on design, fabrication, and deployment phases to achieve commercial operation by 2017.  In short, Fishermen’s Energy is ready to go.

So the question is: why can’t the BPU establish a pilot OREC program for this particular project, which is vastly smaller in size than any of the three other proposed windfarms off the shores of New Jersey? 

While interested parties continue to debate the overall net economic benefits to ratepayers for these offshore wind projects, what seems to be missing from the conversation is the common sense analysis of (i) the game-changing long term economic and social advantages that a “first of its kind” industry such as offshore wind could have on the New Jersey economy; and (ii) the outrage that all of us New Jerseyans would share if those jobs and benefits were diverted to a state such as Maryland.  Offshore wind will happen here on the East Coast, the question is who will lead the charge?

On the very date of the publication of this blog, the Telecommunications and Utilities Committee of the New Jersey Assembly has proposed an amendment to bill A-1384 in order to reclassify Fishermen’s project as a pilot project, a designation that Fishermen’s has received from the DEP, but which (as of the date of this blog) has no relevance to the BPU and its implementation of the rules governing the OREC funding mechanism.  While it is too early to predict the likelihood of success of this amendment, what is clear is that certain key members of the Legislature, including the amendment’s sponsor Upendra Chivukula (D-Somerset), are equally as anxious Fishermen’s and the general public to keep things moving in the right direction.

Developing 25MW of wind will not provide Fishermen’s with an unfair competitive advantage.  If anything, learning from Fishermen’s and the OREC Legislation’s inevitable shortcomings will provide the other major offshore wind developers with the opportunity to solidify financing structures and calculate pricing models.  It will also allow for ratepayers to see, first hand, how offshore wind will impact their monthly electricity bills.  Establishing a quick pilot OREC program for Fishermen’s makes logical sense, and this is good business for New Jersey.

Yes, the OREC program should certainly be very well thought out, discussed and debated. However, as we see with any innovative legislation, mostly notably New Jersey’s Solar Act (which recently was amended to address some unintended statutory consequences), it is nearly impossible for the BPU to get this 100% right the first time.  Thus, let Fishermen’s “test the waters” and lead us out of the channel slowly.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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