How Much Will Consumers Have to Pay to Make Offshore Wind Happen?

A series of hearings this summer will determine how ratepayers will help finance offshore wind farms

The state’s efforts to vault into the lead of developing offshore wind farms may be derailed by a new regulatory effort to determine how to finance those projects.

The state plans to begin holding hearings next month on how ratepayers will help finance a handful of wind farms off the Jersey coast, a process that is designed to ensure developers can line up the capital they need to build the projects.

The Board of Public Utilities (BPU) has scheduled three stakeholder hearings in July and August to discuss the configuration of offshore renewable energy credits (ORECs), which will be earned by the wind farms for the electricity they produce but will ultimately be paid for by customers.

An Expensive Alternative

The outcome of the hearings should give consumers and businesses a better idea of how much the state’s aggressive push for offshore wind will cost them, but even proponents concede it will be expensive. The state is hoping to develop 1,100 megawatts of offshore wind capacity, a goal that could end up costing $4 billion or more, given price estimates for four of the proposed projects that are farthest along.

It is expected that the state and industry will likely follow a model used by the solar sector to spur growth in New Jersey. In this pioneering approach, credits are awarded for the electricity wind turbines produce, similar to the solar renewable energy credits (SRECs) given to owners of solar systems.

“The issues that will be discussed here are real cutting-edge,” said Stefanie Brand, director of the New Jersey Division of Rate Counsel. “No one has done it before.”

New Jersey has become an attractive place for offshore wind developers. Eleven companies recently expressed interest in leasing blocks of coastal waters when the federal government solicited interest from the industry, interest propelled by a series of policies adopted by the state to encourage the technology.

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 them 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.

“This is going to be expensive,” Brand acknowledged, but predicted the electricity produced by the offshore wind farms will be cheaper and more productive than that coming from the solar industry, which has grown rapidly in recent years. Her office projects ratepayers will pay out $5 billion in subsidies over the next two decades to support wind and solar power.

“We’re going to be looking to maximize the equation for ratepayers and make sure the money we spend brings real value,” she added.

The Solar Model

Matt Elliott, clean energy advocate for Environment New Jersey, noted that the solar sector has practically doubled each year ever since the state moved to a system involving solar certificates. “The solar program provides a good model for renewable energy, including wind,” he said. “The BPU would be wise to adopt a similar model [for wind],” he said.

For some, however, the schedule of stakeholder hearings is worrisome because they believe it will likely push back the state opening the application process for offshore wind farms until sometime next year. The current schedule has the agency adopting a proposed rule in October, but that would then be subject to more public hearings and comment, pushing the review of offshore wind applications into next year.

“We’ve had so many delays at the federal level we can’t afford any new delays at the state level,” Elliot said, referring to a federal permitting process that can take up to seven years to navigate.

Jeff Tittel, director of the New Jersey Sierra Club, was more critical. “In this case, the stakeholder prices are being used to avoid the government doing its job and actually getting a program developed,” he said.

Greg Reinert, a spokesman for the BPU, disputed the notion that the stakeholder process will delay opening up the application process. “Not necessarily,” he said. “One doesn’t necessarily affect the other.”

Erich Stephens, a vice president of Offshore MW, one of the would-be developers, said he hopes that is the case. His company has advocated a two-track approach that would aggressively advance the rule-making proposal, while at the same time leaving open the possibility of allowing developers to submit applications before the end of the year.

“In a few months, they should get a pretty good idea of what [the rule] is going to look like,” Stephens said, which would probably give the developers enough information to submit applications.

Brand did not think the timing is much of an issue. “From my perspective, I want to make sure it’s done right,” she said.