Op-Ed: NJ Should Favor Single Developers for Offshore-Wind Projects

Thomas Brostrøm | August 8, 2018 | Opinion
There have been calls for having different companies develop generation and transmission, but it would make more sense for New Jersey to go with single developers

Thomas Brostrøm, CEO of Ørsted US Offshore Wind
As New Jersey moves closer to its goal of building an offshore-wind industry that will help power the state and create jobs, work on Ocean Wind is underway off the coast of Atlantic City. The project has the capacity to serve over 2 million New Jersey households, providing a much-needed alternative source of clean energy.

While state law currently supports an approach allowing offshore-wind developers to generate and transmit power, some are asking the New Jersey Board of Public Utilities to consider issuing a solicitation separating the two — creating a segmented transmission plan.

Ørsted, the developer of Ocean Wind, has experience building 24 successful large-scale offshore-wind farms around the world and has proven time and time again that the full-scope approach — in which wind-power generation and transmission are jointly developed — is the most efficient and effective way to go. When a single developer is responsible for both generation and transmission, they can optimize the size, design and location of these highly interdependent assets. Building transmission offshore is a highly complicated undertaking requiring specific skills like those offered by Ørsted and other experienced developers.

It is important that the generating part of the wind farm dictates the design of the transmission, as this is what creates value for society. By contrast, backbone transmission systems limit wind developers to a set of prescribed design parameters. It is the equivalent of the tail wagging the dog.

Big cost overruns in Germany

Backbone transmission systems are problematic and expensive. Look at Germany, one of the few markets to employ a backbone transmission system. In the end, Germany has encountered enormous cost overruns and struggles with grid connection delays causing the need to compensate offshore-wind developers $4 billion due to lost revenues. Transmission in Germany is subsidized through tariffs on ratepayers, so these costs were passed on to ratepayers.

Conversely, the world’s largest offshore-wind market, the United Kingdom, has had great success with the construction of almost 8 gigawatts of offshore transmission systems and is poised for more projects by 2025. By utilizing the full-scope approach, the country has not experienced the transmission delays, the 100 percent budget overruns or additional costs to ratepayers that occurred in Germany. By our estimate, the cost of offshore transmission in the U.K. is half of what it is in Germany.

Indeed, Germany lost its “first mover” advantage to the U.K. and this should be an abject lesson to New Jersey policymakers. Germany introduced extensive offshore-wind roll-out plans in early 2000 but was overtaken by the U.K. due to expensive delays and transmission hiccups encountered in utilizing the separated model.

Intolerable operational risks

The benefits purported for a backbone transmission are more fiction than fact. Forcing developers to interconnect with such a system will create intolerable development and operational risks that will stymie the development of the New Jersey offshore market just when it is getting off the ground.

It is for these reasons that all other states with aspirations for a thriving offshore-wind industry have adopted the full-scope approach for their initial procurements. New York, the most recent state to join these ranks, concluded that “holding the generator responsible for transmission is the most easily-implementable and feasible option for jump-starting offshore wind development.” And, indeed, pioneering European markets such as Denmark are now moving towards the full-scope approach.

Let’s not let what happened in Germany happen in New Jersey. Let’s not let costly overruns, delays and stranded assets affect New Jersey ratepayers. Allow the full-scope approach to give offshore wind developers the tools they need for a smooth, productive and effective launch in helping New Jersey reach its renewable goals.

We urge policymakers to maintain the current full-scope solicitation framework to ensure viability and continuity, and to support the overall successful launch of New Jersey’s offshore wind market.