Can New Jersey Afford to Be the Offshore Wind State?

Tom Johnson | June 13, 2011 | Energy & Environment
Nearly a dozen developers are interested in building offshore wind farms. But "Big Wind" will have a big price tag; subsidies could cost consumers $5 billion or more

Now that New Jersey has attracted the interest of 11 offshore wind developers eager to cash in on subsidies to build offshore wind farms, it faces a challenge on how big a bet to place on the emerging technology.

It’s definitely not going to be a small bet. At the low end, offshore wind could cost state consumers at least $5 billion, possibly more.

It was not much of a surprise to industry experts that so many developers responded to the call for interest in developing wind farms off the New Jersey coast last week, a list made public on Friday. After all, by many accounts, the state has put together the best package of incentives and financing mechanisms to lure developers.

What was revealing was the sheer amount of offshore wind capacity that was proposed — 12,000 megawatts. Because of overlapping interest in similar lease blocks offered by the U.S. Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), far less than that amount would ever be built. However, there is also the potential to far exceed the 1,100 megawatts of capacity a law seeking to promote offshore wind aims to develop.

Unprecedented Response

The enormous response by the offshore wind sector — surpassing previous calls for interest off the coast of Maryland and Massachusetts — could boost the state’s efforts to attract the manufacturing components of the industry it has made a critical part of its efforts to promote the renewable energy resource.

Offshore wind, however, is more expensive than onshore wind and far more costly, at least for now, than conventional power plants that produce electricity. The more offshore wind farms the state approves, the more it could boost electric bills for customers who already pay the fourth-highest residential bills in the nation.
“None of this has to do with alternative energy getting a lot cheaper,” said Paul Patterson, an energy analyst at Glenrock Associates. “It’s all based on is someone willing to pay you to provide it.”

That concern is reflected in a draft Energy Master Plan (EMP) released last week by the Christie administration.

“New Jersey may be one of the first states to support construction of one or more offshore wind facilities, but it must not rush headlong into long-term contracts between offshore wind developers and EDCs (electric distribution companies) until the state has determined there are net economic benefits realizable through this promising technology,’’ the plan said.

What customers will end up paying is yet to be determined. Under the Offshore Wind Economic Development Act, signed into law last year, offshore wind farms will earn offshore renewable energy credits (ORECs) for the electricity they produce, a mechanism that will enable developers to attract financing for their projects from Wall Street. Manufacturers also will be eligible for up to $100 million in tax credits to locate in New Jersey.

Before winning approval from the state, however, the developers must prove there is a net economic benefit from the project, a tall hurdle to clear. The energy plan cautioned that if New Jersey allows these investments to be “socialized through electric rates,” those costs ought to advance the state’s “home-grown” energy resources, create jobs in the state, and provide a hedge against uncertain future fossil-fuel costs.

Demonstrating Economic Benefits

With the tremendous interest in New Jersey expressed by the sector, some developers are confident they will be able to demonstrate a benefit.

“It shows New Jersey has put the right conditions together,” said Peter Mandelstam, president of NRG Bluewater Wind, saying the state set a structure for a variety of competition by putting in place the best subsidies. “New Jersey has turbo-charged its process. The supply chain has responded.” NRG was one of the developers expressing an interest in offshore waters, but did not disclose the precise nature of its project, which, in the past was projected at 350 megawatts.

Erich Stephens, vice president of Offshore MW, another developer, agreed with Mandelstam the interest in waters off the coast could lure manufacturing. “It does show the idea of developing an industry is credible,” said Stephens, whose company proposed building 1,000 megawatts of capacity in two phases.

To date, interim leases were awarded to three developers in the state. One is NRG Bluewater. The others are Garden State Offshore Energy and Fishermen’s Energy LLC. They all have proposed projects of 350 megawatts up to 1,000 megawatts, with the exception of the latter, which has proposed a project of about 350 megawatts. Each of the projects is estimated to cost at least $1 billion.

Given the interest expressed by the industry, Robb Gibbs, a vice president of PSEG Global and a partner in the Garden State Offshore venture, said there is no reason why the state should not lift the floor of 1,100 megawatts of capacity. His company is proposing to build a minimum of 350 megawatts and up to 1,000 megawatts, Gibbs said.


That view was echoed by Jeff Tittel, director of the New Jersey Sierra Club, who said the interest expressed by the industry is an indication that the Christie administration is off-base in scaling back the state’s renewable energy goals, as it did last week in the energy master plan. He said the retreat sends the wrong message to the state’s commitment to building a green economy.

But business lobbyists have been skeptical about just how much wind energy New Jersey can afford, expressing reservations about the open-ended process during the legislative debate on the offshore wind bill last year. They want more generation built in New Jersey, but power plants that can lower the cost of energy bills here, allowing them to compete with their neighbors.

That issue will be played out over the next several years as more details about the wind farms emerge and the price tag it will entail for consumers and businesses here in New Jersey.

The proposed leasing area encompasses 418 square nautical miles between Barnegat Light and Avalon. This leasing area begins seven nautical miles off the shoreline and extends up to 23 nautical miles into the ocean, encompassing 43 federal leasing blocks and parts of 34 others.

The federal bureau must now evaluate the proposed projects and complete a qualifications review of all of the applicants before determining whether competitive interest exists. If it does, the agency will determine the structure of the competitive process leading to final bidding for leases.

The firms submitting project nominations are: Offshore MW LLC; Neptune Wind LLC; Garden State Offshore Wind Energy LLC; Bluewater Wind New Jersey Energy LLC; TCI Renewables Inc.; Mainstream Renewable Power; enXco Development Corp.; US Wind Inc.; New Jersey Offshore Wind LLC; Fishermen’s Energy of New Jersey LLC; and Iberdrola Rewewables Inc.