The state’s efforts to develop offshore wind farms along the Jersey coast have run into an unexpected snag -- fears that revenues targeted to projects for generating electricity may be diverted to cope with New Jersey’s budget problems.
The concern has stalled efforts to establish a financing mechanism to help make the projects economically feasible, so much so the state is on the verge of hiring a consultant to try and resolve the issue.
Unless the problem is resolved, no banks would be willing to provide the financing to construct the wind farms, which will cost more than $1 billion, according to people involved in the effort.
“If the state can scoop up that money, it provides zero confidence the revenues will be there when we generate electricity,’’ said Rob Gibbs, vice president of Garden State Offshore Wind, a cooperative venture between PSEG Global and Deepwater Wind.
Several developers who were hoping to build wind farms off the coast last fall helped develop a complicated financing mechanism that was designed to support the development of 1,000 megawatts of capacity through ratepayers’ subsidies.
The proposal involved setting up an independent clearinghouse to manage the stream of payments from suppliers who are obligated to buy electricity from the wind farms. Lawyers from the Attorney General’s office, however, said even with such an arrangement, the money could be subject to being diverted to the general fund since the projects are being funded by ratepayers’ subsidies.
“Absent any other statutory authority, all funds that are touched by the state are considered part of the general fund,’’ Gibbs said.
There’s plenty of history to raise concerns that the funds would be diverted. This year, the Christie administration diverted $200 million from the state’s Clean Energy Fund to plug a hole in last year’s state budget, which ended this past June. In addition, they are siphoning off another $79 million from the fund, which is financed by a surcharge on most customers’ gas and electric bills, for next year’s state budget.
New Jersey Board of Public Utilities President Bob Hanna said the state recognizes the problem with the potential diversion of offshore wind money and is trying to resolve the issue, hopefully by sometime this fall.
“We need to come up with a funding mechanism that gives comfort to the developers that the funds will be there,’’ Hanna said. “Unless we do, it is unlikely anyone will finance offshore wind projects.’’
Lance Miller, a consultant to Offshore MW, another developer seeking to build an offshore wind farm, agreed. “If that possibility exists [diverting funds], it makes funding very, very difficult,’’ Miller said. The administration recognizes the problem, he added. “We’ll see what they come up with.’’
The financing issue is the latest setback in efforts to promote an offshore wind industry, which the Christie administration has said could spur creation of a green economy in New Jersey.
This past December, one of the leading proponents of building an offshore wind farm, NRG Bluewater Wind, announced it would not proceed with its project off the Jersey coast and put its subsidiary up for sale. In addition, the state Division of Rate Counsel in February urged the state to reject another project, Fishermen’s Energy, because it fails to deliver a net economic benefit.
Ironically, yesterday Fishermen’s Energy’s project received a boost when it won a permit from the U.S. Army Corps of Engineers.
Last week, Gov. Chris Christie blamed the U.S. Department of Interior for the delay in moving forward on offshore wind, failing to mention the financing issue.
“Here’s the problem—it’s the federal side of things,’’ Christie said in response to a question during an event at the Jersey Shore. “The Department of Interior is telling us it will take them up to five to six years to go through the environmental process to give us the green light to go ahead. We have all the incentives in place.’’
New Jersey is considered a prime location for offshore wind because of its relatively shallow waters and ample wind resources. It also has enacted a law to give offshore wind farms credits from ratepayers for the electricity they produce. At one time, 11 developers had expressed interest in leasing blocks of tracts off the Jersey coast identified by the federal government.