If the U.S. is to enter the offshore wind industry, it will likely happen first on the Atlantic Coast.  The coastline’s shallow waters are similar to those in Europe, which has been building utility-scale offshore wind for more than a decade. And more than a quarter of the U.S. wind capacity in shallow water — depths of 30 meters or less — is in the PJM region, where New Jersey, Delaware, Maryland, Virginia and North Carolina are all hoping to be the first to get into the water.

Below is a state-by-state status report.

New Jersey: Squandering its Lead?

It’s been almost three years since New Jersey Gov. Chris Christie signed legislation committing the state to purchase 1,100 MW of offshore wind by 2020.

But a 2010 law that offered up to $100 million in state tax credits to any turbine manufacturer that located in the state expired at the end of 2012 with no takers. The only project proposed to date, a 25 MW pilot, has been unable to win approval from state ratemakers.

Fishermen’s Energy, LLC’s proposal to install five turbines in state waters three miles off of Atlantic City won approval to begin construction last July from the Army Corps of Engineers. If the pilot is successful, Fishermen’s said, it could be followed by a 330 MW commercial-scale project in federal waters.

The project would be largely financed and owned by Chinese turbine manufacturer Xiangtan Electric Manufacturing Group, Ltd. (XEMC).  The People’s Government of Hunan Province is a major owner of the company.

‘Net Benefit’ Hurdle

But studies commissioned by both the Board of Public Utilities and the Division of Rate Counsel, which represents consumers, found that the Fishermen’s Energy pilot failed to provide a “net economic benefit” to New Jersey ratepayers. The rate counsel analysis concluded the project would cost $282 million over 20 years, requiring $208 million in ratepayer subsidies for above-market power costs and a negative net present value of $132 million.

The Rate Counsel analysis, by David E. Dismukes, of Acadian Consulting Group, said project developers’ claims of net benefits “rely heavily” on the prediction that the farm will boost Atlantic City’s tourism. The developers claimed that 16 percent of Atlantic City’s 28 million annual visitors would spend extra time in town to visit the wind farm. Dismukes said there was no basis for that claim, noting that it suggested the wind farm would have more visitors than the Washington Monument or New York’s Museum of Modern Art. Europe’s wind farms have had no significant impact on tourism, Dismukes said.

BPU’s consultants, Boston Pacific Co. and OutSmart BV, also concluded that the project failed to clear the economic benefit hurdle, though their specific conclusions were redacted from the report released publicly.

The BPU report also cited concerns over the project’s technical risk (use of direct-drive turbines by XEMC that have not been proven commercially) and financial strength (noting that XEMC’s financial statements do not meet U.S. accounting standards). The consultants also questioned the credentials of the developers’ management, noting that only one employee has significant experience in offshore wind development.

Rhonda Jackson, spokeswoman for Fishermen’s Energy told PJM Insider last week that “a lot has changed” since the BPU and Rate Counsel reports. She declined to provide specifics because the company is making another attempt to win approval through negotiations with the parties.

Atlantic Wind Transmission ‘Backbone’

Legislation introduced in the New Jersey legislature earlier this year  would ask PJM to include the New Jersey Energy Link, a proposed north-south transmission line about 10 miles offshore, in its Regional Transmission Expansion Plan (RTEP). The bill would commit the state to paying for the project under the “State Agreement” cost allocation plan outlined by PJM in its Order 1000 compliance filing. (See “PJM’s To Do List.”) Costs would be allocated proportionately to each load-serving entity in the state.

The project would be the northernmost portion of the Atlantic Wind Connection, a proposed “backbone” to transport offshore wind as far south as Virginia.

Atlantic Wind president Markian Melnyk says New Jersey should build transmission “proactively’ to serve wind, as was done in California’s Tehachapi Pass, Texas’ CREZ zone and the Midwest’s multi-value projects serving “energy zones.”

“New Jersey’s been a leader in solar,” he said during a panel discussion at the Energy Bar Association’s Northeast chapter meeting in Newark June 5. “They want to be a leader in wind but the onshore wind resources are poor. The offshore potential of wind is huge.”

Dual Purposes

Atlantic Wind officials say the New Jersey project will serve two purposes, transporting offshore power when the wind is blowing and relieving transmission congestion — which often prevents North Jersey from access to cheap nuclear power in South Jersey — when it’s not.

Atlantic Wind CEO Bob Mitchell said the New Jersey Energy Link will have a $2 billion net present value over 20 years, with its $1.8 billion construction cost offset by $1.5 billion in avoided transmission upgrades on land, $800 million in reduced congestion costs and $1.5 billion in reduced Renewable Energy Credit (REC) costs versus radial lines.

Also speaking at the Energy Bar conference, Stefanie Brand, director of the Division of Rate Counsel, said the line should not be considered until there is offshore generation for it to service. “If the goal is bringing power from South Jersey to North Jersey, there may be much more cost effective solutions,” she said.

AWC’s Allies

The bill has bipartisan sponsorship in both the Senate and Assembly, with both North and South Jersey representation. Among the sponsors are Senate President Stephen M. Sweeney and Assembly Appropriations Chairman John J. Burzichelli.

The two represent the Delaware River port of Paulsboro, N.J., which AWC and XEMC have identified as the likely site of manufacturing operations to support their projects. XEMC identified Paulsboro as the site of a proposed turbine assembly plant. Atlantic Wind chose it as a site for building offshore converter platforms, which it said would generate at least 500 jobs.

AWC also has lined up Google as an investor and hired the consulting firm of former Homeland Security Secretary Michael Chertoff to do a study that concluded the project would make the New Jersey grid more resistant to an attack or natural disaster.

AWC CEO Bob Mitchell said approval of the legislation is “crucial” to getting the project built.

Mitchell said the developers originally planned to build in phases over 10 years. “So the first phase is going to be done in New Jersey. Whether or not any of the other plans get developed I can’t say… If the other ones don’t get built it wouldn’t be a huge surprise to me.”

Delaware: Plans in Limbo

Delaware’s offshore wind plans have been in limbo since 2011, when an affiliate of NRG Energy Inc. cancelled a 25-year power purchase agreement with Delmarva Power & Light Co. for a 450 MW project.

In October 2012, the Interior Department’s Bureau of Ocean Energy Management awarded NRG Bluewater Wind a lease granting it exclusive rights to collect wind speed data and develop a construction plan for a 96,430-acre site 11 miles offshore.  It was the second utility-scale lease issued by Interior, following its award to the Cape Wind project near Nantucket, Mass.

But while Cape Wind hopes to begin construction by the end of the year, the Delaware lease may sit unused for years.

In December 2011, NRG exercised an exit clause in its PPA, saying that Congress’ decision to eliminate funding for the Department of Energy’s loan guarantee program for offshore wind, and uncertainty over the future of the federal investment and production tax credits for wind farms, left the project “financially untenable.” The company said it had been rejected by more than two dozen prospective investors.

PPA Terms

Delmarva would have purchased 200 MW of energy and capacity from the wind farm at a cost of $98.93/MWh for energy and $70.23/kW-year for capacity (2007 $).

The agreement also called for Delmarva to pay NRG $15.32/MWh for renewable energy credits (RECs). The state granted Delmarva a 350% credit on offshore wind, meaning the utility will receive credit for 200 MW toward its RPS obligations while purchasing only 57 MW of RECs. That allowed NRG to sell the RECs associated with the remaining 143 MW to other utilities.

The 350% credit was a tradeoff to minimize the impact on Delmarva ratepayers. It meant that the amount of renewable energy needed to be produced to satisfy the state’s RPS would be lower than the 20% RPS goal.

A consultant hired by the state Public Service Commission estimated a Delmarva ratepayer using 1,000 kWh per month would pay a levelized cost of 70 cents (2007 $) monthly to support the wind farm, starting at $1.50 in 2014 and  turning to monthly savings by 2031.

Next Steps

In its announcement canceling the PPA, NRG said it would preserve its offshore assets until the market improves enough for it to find investors. NRG spokesman David Gaier told PJM Insider that the company will specify the size of the project and density of the turbine layout for its project in a Site Assessment Plan, due December 1. “Signing the commercial lease for the [project] is one of those important steps in preserving our valuable offshore wind development assets,” Gaier said.

NRG will have until June 2017 to submit the Construction and Operations Plan.  If it fails to do so by the deadline, BOEM can cancel the lease.

Maryland: 200 MW `Carve Out’

The newly-passed Maryland legislation creates a 200 MW “carve out” for offshore wind with developers receiving payments through Offshore Renewable Energy Credits (ORECs). Based on the maximum rate increase permitted under the bill ($1.50 per month for average residential customers, 1.5% for most businesses) the ratepayer subsidies will total $1.7 billion.

The bill also creates an $8.5 million Offshore Wind Business Development Fund to provide employee training and development assistance for fledgling offshore wind businesses.

The 80,000 acres BOEM designated for development off of Maryland will be leased in two portions. This will allow Maryland to force the winners of the two leases to bid against each other for the state incentives, potentially driving prices down. The losing leaseholder likely won’t develop the site because “it won’t be financeable,” said Jim Lanard, president of the Offshore Wind Development Coalition, which represents wind developers and companies that service them.

The Maryland Public Service Commission must determine a pricing schedule for the ORECs by July 1, 2014.  The law sets a minimum 90-day window for developers to submit proposals, followed by a 180-day evaluation period by regulators.

The law’s cost-benefit analysis includes in-state manufacturing, employment and environmental benefits. “It’s going to be an easier standard to meet” than New Jersey’s, Lanard said.

Lanard suggested Maryland might consider teaming up with Delaware because a single 400-MW wind farm would achieve more scale economies than two 200-MW projects. The Maryland Wind Energy Area, which could support 1,615 MW, sits just east of the Delaware-Maryland border.

Virginia: Betting on Ports’ Advantages; No Subsidies Offered

Unlike the other coastal states in PJM, Virginia does not have a mandatory Renewable Portfolio Standard. Virginia also has no state subsidy for offshore wind. Instead, it hopes to capitalize on what it calls the “competitive advantage” of its Norfolk port, the deepest on the East Coast.

The state created the Virginia Wind Development Authority in 2010 to collect wind and ocean data, identify barriers to development and coordinate communications with the federal government.

Based on recommendations from the authority’s 2012 annual report, the state has agreed to provide $1.4 million to aid data collection and provide matching funds for grants funding preconstruction development.

Dominion’s Role

Eight companies, including Dominion Resources, Iberdrola Renewables and Fishermen’s Energy filed expressions of commercial interest in the Virginia Wind Energy Area (WEA) in response to BOEM’s February 2012 solicitation.

Dominion, the state’s largest utility, said if it wins the lease it will erect a meteorological tower to study wind strength and patterns.

“Dominion absolutely controls the market,” Lanard said. “The only way they’ll be engaged in offshore wind is if they win the lease.”

Virginia consumers do not have retail choice. Thus Virginia wind developers will likely need to market their output through Dominion, the state’s dominant utility and owner of the monopoly service territory along the coast.

BOEM ruled in March that there was “no competitive interest” in a wind energy research area sought by Virginia’s Department of Mines Minerals and Energy (DMME). The decision will allow DMME to install two monitoring platforms to collect data on wind velocities, water levels, waves, and bird and bat activities. Virginia will make the data collected available publicly in hopes of attracting developers to Virginia’s WEA.

DMME also awarded a $750,000 grant in 2011 to Poseidon Atlantic, of Alexandria, to develop pre-construction phases of a wind turbine test and certification facility on Virginia’s Eastern Shore that it hopes will be used by land-based and offshore wind projects globally.

North Carolina: Seeking a Way to Unlock Big Potential

North Carolina has the best ocean wind in PJM — three times the potential of number two New Jersey — but has done little to exploit it to date.

A bill introduced in 2011 that would have required state regulators to issue a request for proposals for 2,500 MW of offshore wind capacity died in committee and hasn’t been reintroduced. Duke Energy Carolinas opposed the bill.

In March, the Bureau of Ocean Energy Management announced that five companies had expressed interest in three potential wind leasing areas: Virginia Electric and Power Co.; EDF Renewable Development, Inc.; Fishermen’s Energy, LLC; Green Sail Energy, LLC, and Outer Banks Ocean Energy, LLC.

BOEM will review the five submissions to determine which meet the technical and financial qualifications to be eligible to bid on a future commercial lease.

Brian O’Hara, president of the Southeastern Coastal Wind Coalition, in Raleigh, NC, said he and other supporters are attempting to craft a strategy that will be supported by utilities in North Carolina, which unlike most of PJM, continues to run a vertically-integrated, cost-of-service model.

Republican Gov. Pat McCrory has endorsed offshore wind as part of his “all-of-the-above” energy policy but has not endorsed subsidies or outlined any other plan of action. McCrory’s office did not respond to requests for comment.

“We just haven’t gotten that far down the path in” discussions about state subsidies for the first wind farms, O’Hara said.