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Subdividing the Ocean

Federal government to give offshore wind developers a chance to bid on lease blocks located off the New Jersey coast.

For the past 17 months, the state has boasted about making New Jersey the center of the offshore wind industry. That assertion may move closer to reality in June, when the federal government gauges developers' interest in leasing wind farms off the Jersey coast.

At least eight developers, and possibly as many as 15, could end up participating in the government's call for interest in bidding for blocks of leases in an area seven nautical miles from the New Jersey shore, or roughly 23 miles out in the ocean, according to people familiar with developing wind farms off the eastern seaboard.

Federal calls for interest in coastal waters off of Maryland and Massachusetts elicited proposals from eight offshore wind developers for the former and 10 for the latter, including three from developers vying to build wind farms off New Jersey.

Competition to obtain leases off the Jersey coast is likely to be even more intense, primarily because offshore wind developers say the state has the most progressive policies in place to usher in the new renewable energy.

Those policies include a financing mechanism that guarantees offshore wind developers credits for each megawatt of electricity their wind farms generate over 20 years, a strategy that will make it much easier for developers to line up financing for projects with price tags of $1 billion or more. The program was approved by the legislature last year and quickly signed into law by Gov. Chris Christie.

"Without a financing program, or some means to finance the project, it won’t matter if you have a lease or not -- you probably won’t be able to build a project," said Erich Stephens, vice president of Offshore MW, which is seeking to build an wind farm off the Jersey coast and also has expressed interest in the Massachusetts coastal lease program. "The New Jersey program is really the best of all the states," he said.

Daniel Cohen, president of Fishermen’s Energy LLC, which is trying to secure leases in all three states, agreed. "New Jersey has a policy. It will generate the most amount of interest." Neither Massachusetts nor Maryland has set up a similar mechanism to guarantee financing for offshore wind projects, Cohen noted.

In New Jersey, a bill signed into law last summer sets up a process that enables wind developers to earn offshore renewable energy credits (ORECs) for the electricity their turbines generate. The credits, which will be paid out over 20 years, guarantee a steady stream of revenue that will help them attract financing from Wall Street.

What's more, New Jersey offers additional advantages over other states seeking to attract offshore wind farms. While the wind resources are more plentiful in New England, New Jersey’s coastal waters offer a flat sandy bottom, which makes it easier to install wind turbines than the rocky coastal waters farther north, developers say. And the state’s wind resources are equal to or better than other Mid-Atlantic states.

As a result, there likely will be multiple developers seeking to build wind farms off the Jersey coast. For consumers, who will end up paying the bill for the offshore farms, a more competitive environment could be a positive development.

"With the size of the lease area (412 square nautical miles), we do envision a competitive environment for the vast majority of the lease blocks," said Robert Gibbs, vice president of PSEG Global, one of the partners in Garden State Offshore Energy, another firm seeking to build a wind farm off the New Jersey coast.

The competition is welcome, according to Gibbs, because it could lead to lower prices for the electricity for consumers. "There’s nothing better we’d like to see than to drive down the cost of capital," he said.

The real surprise about the New Jersey process, Gibbs said, is the interest shown by European offshore wind developers. No offshore wind farms are operating in the United States, but the Europeans are far ahead of the U.S., with several nations having offshore wind farms.

The increasing interest by offshore wind farm developers in New Jersey reflects the success of the initiatives the state has put in place to attract green jobs, clean energy advocates say.

"I think it’s great," said Matt Elliott, clean energy advocate for Environment New Jersey. "New Jersey is in many ways really ahead of other states. It shows the state is doing the right thing and putting in place the policies to allow wind to compete with fossil fuels."

Despite the optimism, there are still huge challenges facing offshore wind development, including shortening of the timeframe allowed for obtaining permits by the federal agency overseeing the effort, the Bureau of Ocean Energy Management, Regulation and Enforcement. Developers also do not yet know the criteria the agency will use award lease blocks.

"We don’t know what they are going to do, not to mention when," Stephens noted.

Another key issue is how offshore wind power, which is an intermittent source of energy, will tie into the regional power grid and whether it will affect reliability. That issue is expected to be the focus today of a legislative hearing in Trenton of the Assembly Telecommunications and Utilities Committee.

"As we scale up renewable and build bigger solar arrays, we need to figure out how to effectively connect them to the PJM grid," said Assemblyman Upendra Chivukula (D-Somerset), the chairman of the committee. "New Jersey’s 127-mile shoreline off the Atlantic coast has one of the greatest potential for harnessing wind in the nation."

In the upcoming call for interest from the federal agency, the blocks of leases being offered extends southwest to northeast approximately 45 miles between Avalon and Barnegat Light.

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