New Funding Mechanism Could Stop State From Raiding Offshore Wind Revenue
Developers say preventing revenue from being diverted by administration is key to winning Wall Street finance.
In a step that may finally allow the development of offshore wind farms along the New Jersey coast, a consultant has come up with a new funding mechanism to ensure that revenue from the electricity produced by the turbines is not diverted by state appropriation of funds.
The issue has held up moving forward with offshore wind farms in the state, largely because developers have said that their projects would never be able to line up the necessary financing from Wall Street if their revenue is at risk of being appropriated.
New Jersey hopes to develop at least 1,000 megawatts of offshore wind capacity by 2020, a goal that has become increasingly elusive, in part, because of the funding issue and also due to permitting delays at the state and federal levels.
Some offshore developers welcomed the proposal,for the New Jersey Board of Public Utilities, saying it may help break the gridlock.
“We think it can work,’’ said Erich Stephens, a vice president of Offshore MW, one of several companies seeking to build an offshore wind farm. “This is just the last piece of the puzzle.’’
Michael Jennings, a spokesman for Garden State Offshore Wind, called the proposal a “step forward,’’ adding that the company plans to participate in a stakeholders’ meeting next month to discuss the mechanism.
The new funding mechanism aims to address concerns with an initial proposal developed by some companies to support their projects using ratepayers’ subsidies in the fall of 2011.
That proposal involved setting up an independent clearinghouse to manage the stream of payments from suppliers obligated to buy electricity from the wind farms. Lawyers from the Attorney General’s office, however, said that even with such an arrangement, the money could be diverted to the general fund.
That sort of raiding has happened with increasing frequency in recent years, as New Jersey has struggled with budget deficits. Since Gov. Chris Christie took office, the administration and the Legislature have diverted approximately $680 million in clean energy funds.
Boston Pacific concluded that the best way to prevent that practice would be a funding mechanism in which all the money passes directly the between buyers (the state’s four electric utilities and sellers of Offshore Renewable Energy Credits (the offshore wind developers). Ultimately, the utilities would pass their costs on to their ratepayers,
Dubbed the "invoicing option," the proposal calls for a new entity -- an OREC administrator -- to be hired by the utilities. “It’s a little bit of more bookkeeping, but hopefully this can get us moving,’’ Stephens said.
Even if the funding mechanism proves feasible, the offshore wind sectorbefore it moves forward in New Jersey. Perhaps the biggest barrier is a legal requirement that requires offshore wind projects to show a net economic benefit before they can be financed by offshore wind credits.
Most developers say that will be a difficult to do. The first project to submit an application to the BPU, Fishermen’s Atlantic City Wind Farm, is, according to another report by Boston Pacific.
Fishermen’s Atlantic City wind project is a 25-megawatt facility located 2.8 miles off the resort. It is intended to be a pilot project demonstrating the feasibility of building a larger wind farm farther from the coast.
The stakeholders meeting on the new funding mechanism, which does not provide all the details necessary for a formal rulemaking, will be held Februray 21. In recent months, Senate President Stephen Sweeney (D-Gloucester), who sponsored the offshore wind development law, has repeatedly criticized the administration for failing to adopt the necessary funding mechanism.