N.J. starts work on financing mechanism for projects

Source: Saqib Rahim, E&E News reporter • Posted: Friday, July 27, 2018

New Jersey regulators yesterday kicked off development for the financing instrument that they hope will make the state one of the country’s leading builders of offshore wind.

The state Board of Public Utilities proposed a rule with the goal of designing an “offshore renewable energy credit,” or OREC, that can be held out to developers of offshore wind.

New Jersey is hoping to move swiftly under first-year Gov. Phil Murphy (D), who campaigned on a promise to exploit the state’s offshore wind resource. Murphy’s predecessor, Chris Christie (R), had promised the same thing back in 2010, when he signed one of the country’s most aggressive offshore wind bills.

But the policies in that bill were never implemented under Christie. Murphy’s goal is to do what Christie promised and then some. The state’s near-term goal is 1,100 megawatts of offshore wind, with a stretch goal of 3,500 MW.

“There has been more activity in the first six months of this administration when it comes to achieving our offshore wind goals than there was in the eight years since the signing of the Offshore Wind Economic Development Act,” Murphy said in a statement.

The OREC is understood as an essential step in New Jersey’s plan. Since offshore wind projects aren’t yet cheap enough to build without a subsidy in the United States, different states are having to come up with incentive structures to get projects across the goal line.

Maryland uses an OREC subsidy. Massachusetts awards projects that win competitive auctions. New York said this month that it will use its own version of an OREC.

The structure is a matter of continuing debate in New Jersey. Some stakeholders say the priority is giving offshore wind projects high confidence in what the dollar amount is and when it gets paid — so as to comfort Wall Street. Others say the priority should be getting costs as low as possible, so that the ratepayer isn’t paying more than they need to in order to get a certain amount of wind.

“The only way to assure that New Jersey is getting the best deal possible for an [offshore wind project] is through some form of competitive bidding process,” the state’s Division of Rate Counsel said in a May filing. “Rate Counsel does not support the use of administrative-determined prices for New Jersey [offshore wind] contracts.”

Other nuances: If a project generates manufacturing jobs and stimulates the New Jersey economy, how should that factor into the value of an OREC? Should developers have to include the cost of transmission — a notoriously expensive item — in their bids?

The Board of Public Utilities yesterday didn’t say exactly how it plans to thread these needles but instead kicked off the discussion around how the OREC should be structured. The board said it has an initial concept of how it would work, wherein utilities are required to get ORECs and developers sell ORECs to them. The cost of this scheme would be passed through to ratepayers.

The next step: publishing the proposed rule, then taking public comments and considering potential modifications.

Ørsted A/S, which has a large leasehold off the Jersey coast, signaled initial support.

“Ørsted applauds the New Jersey Board of Public Utilities (NJBPU) for moving swiftly in establishing an OREC funding mechanism that provides developers with the long-term revenue certainty needed to invest in the state’s clean energy infrastructure and economy, while simultaneously providing New Jersey ratepayers with greater control over their energy bills,” Lauren Burm, a spokesperson, said by email.