Offshore Wind and Solar Power Could Cost NJ $5 Billion in Subsidies Over Next 20 Years

New Jersey moves to create a program that will put it out in front of the nascent offshore wind industry

Practically everyone loves wind and solar energy. They reduce global climate change, make the United States less dependent on fossil fuels and help create jobs in a green economy.

But do people in New Jersey love wind and solar enough to pay $5 billion in subsidies over the next two decades?

That sizable sum is the projection of the New Jersey Division of Rate Counsel, as the state moves to create a program that could make it a leader in the burgeoning offshore wind industry.

Reaching that point, however, may mean adding more developers into the mix. Offshore wind advocates yesterday urged state officials to be cautious when drafting regulations designed to promote the alternative energy source as a big part of the state’s energy future.

Scheduled Stakeholder Meeting

In the first of two scheduled stakeholder meetings on implementing the Offshore Wind Economic Development Act, a bill signed into law this past summer, developers of two proposed offshore wind farms offered few concrete proposals to the state Board of Public Utilities (BPU), but recommended the rules be flexible enough to accommodate multiple proposals from multiple developers.

With four developers announcing plans to build offshore wind farms off the Jersey coast, the regulations, expected to be completed by next February are crucial to establishing a financial framework that will allow the projects to win the necessary funding from Wall Street. The law allows the developers to earn Offshore Renewable Energy Certificates (ORECs) for the electricity the systems generate, similar to certificates earned by owners of solar power systems.

Many tough details, however, remain to be worked out. Before the BPU can approve a project, it must first determine the proposal has a “net positive impact” for the state, a term which is likely to take several pages in the regulations just to define, according to one developer.

“In general, net positive benefit is a high bar, but it’s the right bar,” said Scott Jennings, president of PSEG Global, which is a partner with Deepwater Wind in a planned 350-megawatt offshore wind farm in South Jersey.

Net Positive Impact

For the Division of Rate Counsel, the net positive benefit will be crucial to a project winning state backing, particularly because of the high costs electric ratepayers bear in subsidizing both the solar and wind, according to Stefanie Brand, its director.

Her office has projected ratepayers will end up paying $5 billion in wind and solar subsidies over the next 20 years, Brand said. She urged the agency to use the state’s successful solar program as a model for the offshore wind sector. “We should let the markets work rather than have ratepayers subsidize returns of these developers,” she said.

The state currently imposes a surcharge on customers’ energy bills, ranging up to $33 per year for some residential customers, but much higher for industrial customers, which use a lot of energy. Their bills can top $2 million in some cases. The surcharges finance New Jersey’s clean energy programs, which provide loans and grants to promote solar and wind power as well energy efficiency programs.

The law envisions New Jersey developing 1,100 megawatts of offshore wind capacity, but both Jennings and Erich Stephens, a vice president of Offshore MW, urged the board to consider expanding the number of projects it considers.

A Fixed Price

More important, Stephens argued, was the need to have some finality to the board’s decision when it approves a price for the ORECs for each project. Unless Wall Street is convinced the price is immutable, the developers will find it impossible to line up financing to make their projects viable, he said. When pressed about the issue from several commissioners, Stephens replied, “All we’re asking is the government sticks to its promises.”

Peter Fontaine, an energy and environmental lawyer, urged the state to use the opportunity of nurturing an offshore wind industry to also invest heavily in plug-in electric cars. Since offshore wind blows the most in the evening, it could provide the power to recharge a fleet of plug-in vehicles, a strategy that would reduce the state’s carbon footprint and help grow the offshore wind industry, Fontaine said.