Keeping the Cost of Offshore Wind in Check

The Division of Rate Counsel wants to block any project that would boost consumer electric bills by more than 2.5 percent

With proposed offshore wind farms likely to boost electric bills for consumers, the Division of Rate Counsel is urging the state not to approve any project that would lead to more than a 2.5 percent annual increase.

In written comments submitted to the state Board of Public Utilities (BPU), the Rate Counsel described offshore wind “as one of the more expensive renewable energy technologies.” It recommended a series of measures aimed at containing costs to ratepayers.

The recommendations came as the BPU is working on new rules to implement an offshore wind bill approved by the legislature and signed into law this summer by Gov. Chris Christie. The bill is designed to build a financial framework to lure wind farm developers to build off the coast and, potentially, to have wind turbine manufacturers locate here.

Few Financial Details

While offshore wind developers and clean energy advocates have lobbied to build wind farms off the New Jersey coast, they have provided few details about the impact of the projects on consumers’ electric bills. Instead, they’ve focused on making New Jersey more energy independent and curbing greenhouse gas emissions, which contribute to global climate change.

At least four companies have proposed developing offshore wind farms from 3 miles to 20 miles off the coast. If built, they would meet the new legislation’s goal of 1,100 megawatts of offshore wind capacity. It is a prospect welcomed by many, but worrisome to some who fear it could inflate already high energy bills.

Division of Rate Counsel Director Stefanie Brand provided some specific numbers in her testimony to the board. She projects that New Jersey ratepayers are likely to incur an increase of $1.1 billion, or $10 to $16 per year to support the total offshore wind allowed under the legislation.

If the state goes beyond the 1,100 megawatts, as some have advocated, ratepayers would see their bills increase by $20 to $47 per year, a net increase of more than $2.8 billion, according to Rate Counsel’s projections. The state’s Energy Master Plan, under review by the new administration, calls for the development of 3,000 megawatts of offshore wind.

“While the board’s rules should strive to minimize regulatory uncertainty, ratepayers should not be asked to assume development, operational and business risks for the developer,” Brand argued.

A Minimum Threshold

Along those lines, Brand urged the board to establish a minimum threshold for projects seeking approval with ratepayer financial support. The bill allows developers to collect an Offshore Renewable Energy Certificate (OREC) for the electricity their systems generate, a cost ultimately borne by ratepayers. No project should be approved if it has a greater than a 2.5 percent yearly impact on customers’ bills. The threshold would not apply once the project is operational.

None of the offshore wind developers provided any costs estimates in their testimony, although Garden State Offshore Energy urged the state to engage a consultant to create projections of market prices for energy, a tool that could be used by developers to make sure their proposed ORECs are viable. Garden State Offshore Energy is a joint venture between PSEG Global and Deepwater Wind, an offshore wind development company.

In general, the developers urged the state to reassure investors that it is committed to offshore wind and will not change the prices of ORECs once they are established. It is expected that prices will be fixed at a certain rate over 20 years, although some developers suggested leeway be given to alter the price if new federal tax incentives become available.

Under the law, the regulations are supposed to be completed by February, but that deadline could be extended if planned revisions to the Energy Master Plan are not done by then. If that happens, some developers argued the state quickly begin accepting applications to get the projects under way as soon as possible.

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