With three offshore wind projects in development, New Jersey is hoping its early-mover status will allow it to create a robust supply chain infrastructure that will produce jobs serving projects along the East Coast.

Project orders approved by the New Jersey Board of Public Utilities (NJBPU) on June 30 spell out the state’s ambitions. The agreement for the 1,510 MW Atlantic Shores project, for example, includes a commitment to construct 89 of the project’s 111 monopile towers at a soon-to-be-built factory in the Port of Paulsboro in South Jersey. The project developer also agreed to marshal the project from the New Jersey Wind Port (NJWP), which the state is building on the Delaware River in Lower Alloways Creek, and to build a manufacturing facility to build nacelles with manufacturer MHI Vestas.

The agreement for the 1,148 MW Ocean Wind 2 project commits developer Ørsted to use the Paulsboro monopile factory, which German manufacturer EEW Group is building. In addition, the developer pledged to use the NJWP and to establish a nacelle assembly facility at the port with General Electric (NYSE:GE), which the board order calls a “defining feature” of the proposal.

Together, the two projects and Ørsted’s 1,100-MW Ocean Wind 1 would produce almost half of the 7,500 MW that the state plans to approve over six solicitations by 2035. And board approvals for the projects make clear that the state’s goal for the projects is far wider than just generating electricity. (See NJ Awards Two Offshore Wind Projects.)

“The specific economic benefits associated with the awarded projects will further position New Jersey as a supply chain hub for all projects along the East Coast,” the Atlantic Shores board order says. Creating the hub now will “allow New Jersey to guard against supply chain elements being established in other states before New Jersey gains this foothold.”

Competition is ramping up fast, however. The developer of a wind project off the coast of Maryland, US Wind, on Aug. 3 announced plans to develop 90 acres of waterfront in Baltimore County into an “offshore wind deployment hub” including a monopile factory. Gov. Larry Hogan called the project a “once-in-a-generation opportunity for the state of Maryland to expand and diversify our economy.”

Competing Demands

New Jersey Gov. Phil Murphy sees offshore wind generating 23% of the state’s energy by 2050. The approval of the Atlantic Shores and Ocean Wind 2 projects, the state’s second solicitation, followed the BPU’s 2019 approval of the 1,100 MW Ocean Wind 1 project, also developed by Ørsted, which included an agreement between the developer and EEW that helped bring the monopile factory to Paulsboro. (See Orsted Wins Record Offshore Wind Bid in NJ.)

The state’s rosy predictions for clean energy in the future have their skeptics, however. The Garden State Initiative (GSI), a business-backed think tank fighting for lower taxes, released a report on Aug. 4 that called for a delay in the major elements of the state’s Energy Master Plan — of which wind is among the most important — until an analysis of how much they will cost taxpayers is completed in 2022.

“We cannot accept incomplete plans with aggressive policy objectives that inadequately consider the economic impact on households, especially on our middle class, lower-income and retired residents,” the report said.

The state expects to begin a third solicitation process next year, and the final three solicitations every two years afterwards.

The board orders approving the two recent projects demonstrate the state’s effort to balance the cost to ratepayers and mitigate the impact on fishermen and tourism, while maximizing the economic benefits to the state.

The nacelles manufacturing supported by the Atlantic Shores facility will bring “$16.5-$24 million of in-state investment for buildings and tooling, and create 50-70 direct jobs,” according to the BPU agreement for Atlantic Shores, a joint venture between EDF Renewables North America and Shell New Energies US. The facility will produce 146 jobs and “a $20 million direct and $44.8 million total impact on New Jersey’s gross domestic product,” according to the agreement.

To address environmental concerns, the two developers both include mitigation strategies in their plans. Atlantic Shores is committing to spend $30 million for environmental studies, including surveys on fish habitats and the project’s impact on marine mammals and sea turtles. The developer also is in negotiations with five commercial-surf clam companies to work together to mitigate the project’s impact on that industry.

Ørsted says it will leverage the environmental insights gained in its first project to adopt a series of measures that will minimize the environmental impact of the second project, including a “fisheries protection plan.”

Seeking Competition

One issue raised by New Jersey’s Division on Rate Counsel, which provided input on the decision, was that if the state picked Ørsted again, it would “result in market concentration in the New Jersey OSW market that could have potentially negative impacts on future OSW solicitations,” and could harm the longer-term effort to build a robust supply chain for the sector, according to the board order for Atlantic Shores.

The BPU said that the “diversity” resulting from two developers would “create robust competition, which will drive down the cost of future solicitations.” Ørsted’s bid also had significant benefits, with a lower OSW Renewable Energy Certificate (OREC) price than Atlantic Shores and the developer’s commitment to bring to the state a factory built with GE.

“Together, the two projects will amplify the potential economic benefits from offshore wind initiatives,” said Jim Ferris, bureau chief for new technology, clean energy division and head of wind for BPU.

“These facilities intend to supply not only New Jersey projects, but projects all along the East Coast, because there are not going to be these types of facilities in every state,” he said. “That was one of the reasons why we emphasized economic benefits in these first two solicitations, so that we can get them established here early.”

OREC Logic

The solicitation required developers to submit the minimum value for an OREC, which represents the all-in price that will enable the developer to finance and operate the project. The value of the OREC, which is the amount paid by ratepayers for each MWh of electricity produced for 20 years, is among the criteria the BPU uses to judge the bid.

Although nothing will be paid until the project is in operation, the OREC value shows prospective financiers the potential future revenue flow from the project. Once the project starts producing electricity, the developer sells the power and delivers the proceeds to ratepayers, who pay the OREC value for each MWh of power generated.

The OREC bids by the two projects in the second latest solicitation were quite similar: $84.03/MWh for Ocean Wind 2 and $86.62/MWh for Atlantic shores. Both were significantly lower than the $98.10/MWh that the winning bid in the first round, Ocean Wind 1, submitted. However, BPU officials say that the decline was due, in part, to an increase in the federal investment tax credit, which enables developers to use a greater portion of offshore wind projects as a tax deduction.

The BPU orders also generate another metric to compare projects: the amount each project, through the payment for ORECs, would increase the average monthly bill for ratepayers.

By that test, Ocean Wind 2 would increase the average monthly residential tax bill by $1.28, significantly lower than the $1.46 increase in Ocean Wind 1. Atlantic Shores would increase the average monthly residential bill $2.21. Ferris said the Atlantic Shores larger bill impact is due in part to the fact that the project is larger than the others awarded. But the net OREC prices also include other factors such as materials costs, economic benefits included, construction methods and costs, environmental and fisheries protection methods, and estimated energy and capacity revenue.  

Ferris said that after each solicitation, the BPU assesses the impact of the last solicitation and the strategy for the next one, making modifications to the approach to maximize value for the state. The agency’s approach in the first two solicitations emphasized economic benefits, in addition to other important attributes. “Prior to solicitation three, which is scheduled for next year, we will do that same reflection,” he said.