New Jersey bill establishes the Offshore Wind Renewable Energy Certificate (OREC), authorizes tax credits, grants and financial assistance, and sets application requirements for new developments.
Both houses of the New Jersey legislature overwhelmingly passed the Offshore Wind Economic Development Act (S-2036 and A-2873) on June 28, 2010. The act creates a robust package of financial incentives for offshore wind development and sets a target of 1,100 megawatts of wind generation off of New Jersey's coast. New Jersey is among a handful of states in the running to incentivize and complete the nation's first offshore wind development.
The act directs the New Jersey Board of Public Utilities (BPU) to set regulations relating both to financial incentives for offshore wind and applications for new projects.
Financial Incentives for Offshore Wind
The newly created Offshore Wind Renewable Energy Certificate (OREC) is at the heart of the incentive package. Suppliers of electricity to retail customers (called "electric power suppliers" and "basic generation service providers" under New Jersey laws) are already required to hold Renewable Energy Certificates (RECs) and Solar RECs to meet their obligations under the state's Renewable Portfolio Standard. The act now requires them to hold ORECs as well.
The BPU will set the amount of ORECs each supplier must hold as a percentage of total kilowatt hours sold by the supplier. The act mandates the OREC program support 1,100 megawatts of offshore wind development, and the percentage that each supplier is required to hold must reflect the projected 20-year production of all qualified offshore wind projects approved by BPU. Once the OREC percentage is set, the current Class-I REC requirement will be reduced by a corresponding amount. BPU will also set the price for ORECs and the amount of the alternative compliance payment suppliers must pay if they do not hold the required percentage of ORECs.
Offshore wind developers will not receive OREC payments until the project delivers electricity to the grid. The amount that developers receive will be proportional to the amount of electricity delivered.
In addition to creating the OREC, the act authorizes a 100 percent tax credit for capital investments of $50 million or more in new offshore wind facilities. Total tax credits for all projects are initially capped at $100 million, but the state's Economic Development Authority may increase that amount as long as the total among specified programs authorized by the legislature does not exceed $1.5 billion. The act also allows the Economic Development Authority to use money from the existing Global Warming Solutions Fund to support offshore wind development and provide assistance to manufacturers of related equipment.
Offshore Wind Application
The Offshore Wind Economic Development Act outlines the minimum requirements for a pre-construction application to BPU, including a complete technical description of the project, detailed financial projections, an operations and maintenance plan, a list of all regulatory approvals required, and a cost-benefit analysis. The act also specifies the factors BPU must consider in approving or denying a project: consistency of the project with the state's master energy plan, the outcome of the cost-benefit analysis in the application, the balance of financial risks and rewards between ratepayers and project shareholders, the financial position of the entity proposing the project, the amount of subsidies to be paid by ratepayers, and any other factor that BPU deems relevant.
States Competing for Offshore Wind Investment
The bill may be at least partially a reaction to recent developments in Massachusetts and other states with offshore wind aspirations. Cape Wind, which has been expected to be the nation's first utility-scale offshore wind farm, received final federal approval in April, and the developer is awaiting approval of its Power Purchase Agreement with National Grid.
New Jersey is one of several states that will try to become the first to complete an offshore wind farm. In 2008 BPU provided $4 million to a developer proposing a 346-megawatt project 16 miles off the coast of southern New Jersey. Another developer has a monitoring buoy three miles off the coast of Atlantic City, and the Offshore Wind Economic Development Act authorized BPU to approve a 20- to 25-megawatt project at that site.
In 2008 a developer in Delaware signed a 25-year PPA with Delmarva Power for up to 200 megawatts of offshore wind, related to a larger project, and is awaiting federal permits to begin wind monitoring. In Virginia, the legislature recently created the Offshore Wind Development Authority and is allowing utilities to triple-count offshore wind for the purpose of complying with the state's Renewable Portfolio Standard. In March 2010 the public utility commission in Rhode Island rejected a power purchase agreement between an offshore wind developer and National Grid, saying the agreement was not commercially reasonable. In New York the state's power authority announced that it hopes to develop a 350- to 700-megawatt project off the coast of Long Island by 2016.
Delaware, Virginia, Rhode Island, New Jersey, New York and Massachusetts were recently joined by Maine, New Hampshire, Maryland, North Carolina and the Department of Interior in establishing the Atlantic Offshore Wind Energy Consortium to promote the development of wind resources on the Outer Continental Shelf. Meanwhile a developer is hoping to erect the first turbine of a 300-megawatt project later this year off the coast of Galveston, Texas. Texas' offshore boundary extends seven miles farther than the Atlantic coast states' coasts, a fact that state regulators and developers hope will reduce the application process and encourage development.
Greg Lawrence appreciates the assistance of Ari Peskoe, summer associate, in drafting this alert.
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