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Will Wall Street Get Behind Offshore Wind?

A new law enables the BPU to craft a financial framework that encourages banks to invest in NJ’s offshore wind-farm projects.

Talk about good timing.

With Google’s announcement this week that it would invest in a $5 billion project to build an underwater transmission backbone to support offshore wind farms, New Jersey’s efforts to promote the alternative energy as a viable option to meet the state’s clean energy agenda are looking more promising.

Of course, it all depends on if the state can convince Wall Street to invest in the four offshore wind projects that have been proposed off the coast of New Jersey. State regulators plan on testing the financial waters next Tuesday in Trenton.

The hearings are aimed at implementing the Offshore Wind Economic Development Act, a law that rather swiftly won legislative approval earlier this year, before lawmakers recessed for their summer break. The legislation allows the New Jersey Board of Public Utilities (BPU) to develop the financial framework to encourage banks to invest in the offshore wind farms, all of which carry a hefty price tag approaching or surpassing $1 billion.

The vehicle selected by the offshore wind developers and lawmakers was to allow the agency to set up a program in which Offshore Renewable Energy Certificates (ORECs) would be issued for the electricity generated by the offshore wind farms. The scheme is similar to the Solar Renewable Energy Certificates (SRECs) given to owners of solar power systems for the electricity their panels generate.

Enough Investor Incentive?

The unknown question hanging over the stakeholder hearings is whether the ORECs, which, under the law, will be set by the developers at a fixed price over 20 years, will be enough incentive for deep-pocket investors to back the wind projects.

“People are not going to be building these projects on spec," said Paul Patterson, an energy analyst with Glenrock Associates in New York. “They are going to be looking to regulators for assurances of an economic return on their investment."

Whether the ORECs will provide those assurances is another question. In the past, many alternative energy projects have relied on power-purchase agreements in which regulated entities, such as electric utilities, agree to buy the energy produced by the systems in long-term contracts, Patterson noted. Such a scheme was debated during hearings on the bill, but was discarded by key participants.

Erich Stephens, an executive at Offshore MW, which is proposing to build a 350-megawatt offshore wind farm 14 miles off the coast, said the ORECs might be able to achieve the certainity provided by such contracts.

“At the end of the day, we need a contract in some form that assured us a fixed price for 20 years to finance these projects,’’ Stephens said. “Can the OREC program be structured in a way that mimics how a power-purchase agreement works?"

Setting the Right Price

Even if investors are convinced the ORECs are sufficient, there also are risks to developers when setting their prices. If set too high, no will buy the certificates, said Jeff Tittel, executive director of the New Jersey Sierra Club. If set too low, the project will fail on its economics, he said.

Nonetheless, some clean energy advocates are optimistic, citing Google’s decision to invest in the offshore wind transmission project, which has been dubbed the Atlantic Wind Connection.

“It’s great. It’s cool to see a company as big as Google get behind offshore wind,” said Matt Elliott, clean energy advocate for Environment New Jersey. “From our perspective, we want to see there’s a long-term market for wind energy. We don’t focus so much on the specifics as long as it is done in a way that people can afford."

Affordability of wind and solar energy, however, has been a big concern of business lobbyists, who point out the commercial and industrial sectors consume about 64 percent of the electricity used in New Jersey. They worry offshore wind will add to an already expensive energy expenditure for businesses.

The business community was happy to see the law include a provision requiring a project to produce a “net economic benefit" for New Jersey before it could be approved by the BPU. How the agency ends up defining that term could be crucial, according to Sara Bluhm, an assistant vice president of the New Jersey Business & Industry Association. “We’ve heard a commitment [from the administration] that it won’t adversely affect ratepayers and it will create jobs," she said.

The other key provision in the law deals with a $100 million tax incentive that could be given to a wind turbine manufacturer if it locates in the South Jersey Port District or the Port Authority of New York and New Jersey. Tittel said it is important to encourage wind manufacturers to locate here, but not to the point where we are subsidizing the projects at taxpayers’ expense.

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