Progress stalled on N.J. wind-farm projects

Although the federal government recently auctioned nearly 350,000 acres of ocean floor off the New Jersey coast to wind farm developers, it will be years before any turbines rise on the horizon.

The two companies that won the auction rights — US Wind Inc. and RES Americas — have a year to study the ocean floor to determine the best ­layout for a wind farm, as well as gather more information about the wind capacity in the area.

They then have five years to submit a construction plan.

But whether all goes on schedule depends on when — or if — the state finalizes a regulation that would determine how offshore wind farm developers get paid for the energy they produce. Without it, the developers will have a tough time persuading investors to lend money for the projects.

The companies won’t want to proceed without the rule in place, especially given that such projects can cost upward of $1 billion. The state Board of Public Utilities was charged with creating the financing system by the Legislature in 2010, but the BPU has yet to finish the rule, which involves offshore renewable energy certificates, known as ORECs.

“These companies aren’t lightweights, but they don’t want to just throw money away,” said Henry King, a Princeton-based lawyer who represents companies that develop renewable power. “Nobody is going to move forward with a proposal without these OREC rules in place.”

A BPU spokesman recently said it remains unclear when the rule will be finalized.

Greg Reinert, the spokesman, said that the process of developing the OREC mechanism “is under way,” but that he could “not speculate on when the board may consider the matter.” The agency will obtain input from stakeholders as well as a consultant it plans to hire to help develop the regulation, he said.

Wind energy experts say the uncertainty over New Jersey’s OREC rule likely reduced developer participation in the auction for the ocean floor lease rights and depressed the value of those leases.

Besides the winning bidders, only one other company bid — even though 13 companies had been certified by the federal government to participate. US Wind bid just over $1 million for the rights to a northern lease area of about 183,000 acres, while RES Americas bid $880,715 for the southern lease area of about 160,480 acres. That’s about $5.46 per acre.

By contrast, a federal auction held in 2014 for lease rights to 80,000 acres off the coast of Maryland, where an OREC rule was already in place, drew a winning bid from US Wind of $8.7 million, or $108.75 per acre.

King said one of his clients decided not to bid in the New Jersey auction because the OREC rule was not yet in place. “Here in New Jersey the offshore wind developers are frustrated by the state’s inability to finalize the OREC rule,” he said.

Rules are critical

The rules outlining how the developer will get paid for the electricity “is everything,” said Walt Musial, who heads offshore wind research at the National Renewable Energy Laboratory. “You can’t get financing from investors without it. The OREC rule is like an insurance policy to get financing for the rest of the project.”

Paul Rich, project development director at US Wind, said the company will take a wait-and-see approach during 2016 before starting its ocean floor research.

If the BPU fails to finalize its OREC rule, the company could apply to the federal government for a year’s extension on the deadline for submitting its initial ocean floor study.

The rule would guarantee a price for the energy an offshore wind farm produces, subsidized by ratepayers and approved by the BPU. For each unit of electricity an offshore wind facility produces, it could cash in an OREC, receiving in exchange a predetermined amount from the buyer of the energy. The ORECs would provide the offshore wind developer with a price for the electricity generally higher than conventional rates — a subsidy covered by ratepayers to help the developer offset upfront costs of developing the wind farm. The industry is still in its infancy in the United States, and early projects will cost more until the industry can develop economies of scale, so such government assistance is essential to help the industry get off the ground, energy experts say.

“We’ve been bullish on the potential for wind farms off New Jersey,” Rich said. “We are committed to New Jersey and confident the vision that the state’s leaders embraced regarding offshore wind in 2010 will continue.

“The amount of capacity generated off the coast of New Jersey is going to have ripple effects throughout the state in infrastructure and jobs,” Rich said. And once built, there will be the maintenance of operation of the farm over decades. “There will be hundreds of good-paying, high-skilled jobs tied directly to that,” he said.

Industry experts say the state risks losing an opportunity to become a leader in the fledgling industry, forfeiting the chance to establish local companies that would serve the needs of wind farms up and down the East Coast, while generating local jobs.

“The uncertainty surrounding the OREC rule may cost New Jersey being the first sites to get developed for offshore wind,” Musial said.

Experts say the two companies that won the lease rights off New Jersey in the meantime will likely move forward with projects elsewhere. US Wind, for instance, has already submitted its initial report to the federal government — called a site assessment plan — on the ocean floor and sediment in the lease area it controls off Maryland.

RES Americas, meanwhile, recently signed its lease rights for acreage off Massachusetts to Danish-based DONG Energy, the world’s largest offshore wind developer.

Whether RES Americas would also partner with DONG on its New Jersey wind farm remains to be seen. “Delivering an offshore wind-farms project is a significant undertaking and bringing new participants into the project will always be an option,” said Scott Dunaway, a spokesman for RES Americas. “However, it’s too early to talk about this in detail.”

Send out vessels

Whenever US Wind and RES Americas move forward with their New Jersey projects, their initial step will be to send out research vessels for weeks at a time to take readings and core samples to determine the makeup of the sediment and also learn whether there are any obstacles on the ocean floor, including key artifacts.

Dave Swope, a researcher at the New Jersey Maritime Museum in Beach Haven, said there are hundreds of shipwrecks off the Jersey coast in the lease areas, including the recently identified Robert J. Walker, a federal survey steamer lost at sea in a violent collision more than 150 years ago.

The number of turbines each company installs will depend on which turbines they use. US Wind will develop a wind farm with a capacity of more than 500 megawatts, Rich said. Currently on the market there are turbines of 4 megawatts, 6 megawatts and 10 megawatts. If they use 4 megawatt turbines, that would mean about 125 turbines.

Whatever they use will be “standard in the market today — we want to rely on as much proven technology as possible,” Rich said. “This won’t be an experiment.”

Rich said the company will assess migratory bird patterns, though that should be less of an issue with turbines far offshore.

The companies also will conduct testing to better determine wind patterns in the region. “We know already that the winds off New Jersey are as robust as off New England, but the ocean floor off New Jersey is more construction-friendly,” Rich said. The ocean is not nearly as deep off New Jersey, making it relatively easy to install foundations for the monopoles that support the turbine blades. In Maine, by contrast, the ocean floor is so deep that a wind farm there might require floating turbines, Rich said.