Public financial support for New Jersey’s offshore wind projects has come under scrutiny from lawmakers as Danish developer Ørsted seeks to obtain access to federal tax credits to help offset rising supply chain and materials costs on its Ocean Wind 1 project.

A think-tank report published June 5 on the state’s rapidly growing OSW sector said the developer has been “locked in negotiations for months” with state officials in an effort to use federal offshore wind tax credits created under the 2020 Stimulus Act and the Inflation Reduction Act (IRA).

“Ørsted’s argument is that material, labor and borrowing costs have soared in the runaway global inflation that followed the COVID-19 pandemic,” pushing up costs to higher levels than when the developer bid on the project, according to the report, which was compiled by the Sweeney Center for Public Policy at Rowan University.

New Jersey law, however, requires tax benefits from offshore wind projects to be returned to ratepayers. That contrasts with other states, among them New York, which allows developers to use the federal tax credits, the report says. It added that the administration of Gov. Phil Murphy and legislators “have been in discussions on a bill to authorize Ørsted to retain the full federal tax credits.”

The New Jersey Board of Public Utilities approved the 1.1 GW Ocean Wind in 2019, in the state’s first solicitation, and in 2021 approved the 1.148 GW Ocean Wind 2, also an Ørsted project, and the 1.51 GW Atlantic Shores. The state in March launched a third solicitation.

Stephanie Francoeur, a spokeswoman for Ørsted, said it and other developers are in discussions with the state and the BPU “to address the macroeconomic challenges facing early stage offshore wind projects, including opportunities made available by federal tax incentives.”

“We continue to assess existing federal tax credits to support our local investments, create jobs,” she said. “We remain committed to Ocean Wind 1 and look forward to continuing our conversations with New Jersey policymakers to help address these unforeseen challenges.”

Atlantic Shores, the developer of the project of the same name, declined to comment.

The prospect of an increase in assistance to offshore wind developers, however, stoked bipartisan resistance at a May 23 hearing of New Jersey’s Senate Budget and Appropriations Committee. Two committee members expressed concern that the state would provide additional financial assistance to developers under pressure from inflation and rising costs, and pressed Joseph L. Fiordaliso, the BPU president, on the agency’s plans.

Sen. Paul Sarlo (D), the committee’s chairman, said it “has been hearing some rumors that there is going to be a request from this body to subsidize the wind projects that are currently under construction,” and asked if that was true. When Fiordaliso responded, “Not that I am aware of,” Sarlo made clear his antipathy to giving extra help to offshore wind developers.

“I’m probably one of the most pro-business, pro-development legislators,” Sarlo said. “I’m going to have a very difficult time supporting any type of future subsidies.”

“These are large players, international players who knew what they were getting into when they built these facilities,” he said. “They’re going to have to step up their game. We don’t bail out every developer in the state of New Jersey who gets himself into a new adventure, a new endeavor.”

Rising Headwinds

The flap was one of several recent gusts of headwind against the offshore wind sector. Last week, the BPU postponed an item from its agenda that would modify the scope — seemingly due to cost increases — of the state’s $1.1 billion offshore transmission project to tie offshore wind projects to the grid. The agency also put back by five weeks the deadline for the state’s third offshore wind solicitation, to Aug. 4, to give developers more time to put together their submissions. (See NJ BPU Pulls Offshore Tx Project Mod from Agenda After Complaint.)

In addition, the county of Cape May, through which a cable for Ocean Wind 1 will pass, on May 26 passed a resolution opposing the Ørsted projects and has filed an appeal against a BPU decision to grant an easement across county land for the cable. The sector also has faced a steady drumbeat of concern over the death of several whales on the Jersey Shore that project opponents say might be due to preliminary work on the wind projects, despite state and federal officials saying they’ve found nothing linking the deaths to the projects, which have yet to start construction.

Fiordaliso, at the BPU’s meeting last Wednesday, expressed frustration at the offshore developers, although it was unclear what triggered the outburst.

“We have had, almost since Day 1, delay after delay after delay,” he said. “All one developer in particular has done is delay this process for one reason or another.”

He did not identify the developer, although Ørsted is the only one involved since Day 1.

Asked about Fiordaliso’s comments, Madeline Urbish, Ørsted’s head of government affairs in New Jersey, said they were “unexpected,” and added that the company is committed to completing Ocean Wind 1.

She said the developer is working closely with the BPU, the New Jersey Department of Environmental Protection and federal agencies, “despite early delays in federal permitting” and cited the “unprecedented macroeconomic challenges [that] have led to significant cost increases for capital-intensive industries across New Jersey and the U.S., including the offshore wind energy industry.”

“The available federal programs, including the Inflation Reduction Act, present an opportunity to address inflationary costs without increasing costs for ratepayers,” she said in an email to NetZero Insider, but added that they won’t “entirely cover the increased costs the project has faced due to inflation, supply chain constraints, and interest rate hikes.

Francoeur, noting that projects in other states can receive the tax credits, said that without these, New Jersey runs the risk of threatening early stage supply chain investments, manufacturing and jobs.

Escalating Costs

At the committee hearing, Tim Sullivan, CEO of the New Jersey Economic Development Authority (EDA), which has provided much of the funding for the state’s OSW projects, sought to distinguish between federal and state subsidies. He said the IRA would provide a “tremendous amount of resources” to support offshore wind projects, but “that is not at the expense of ratepayers.”

But Sen. Steve Oroho (R), echoed Sarlo’s concern, saying that the state’s Office of Legislative Services had calculated that the “amount of taxpayer subsidies already committed to the wind port and related projects alone totals more than $1 billion.” The funds include a $350 million loan program to support offshore wind related businesses and funds to support the construction of the New Jersey Wind Port, which will provide space for marshaling OSW projects and manufacturing turbine parts. (See NJ $1 Billion OSW Port and Marshaling Hub 60% Finished.)

“And despite this $1 billion already in taxpayer subsidies, wind port project costs are rapidly escalating to the point where Ørsted and vendors are threatening the project could stall without massive additional subsidies,” he said. “That is where the concern comes.”

Disappearing Promises

The issue has added to an already-simmering debate over the cost of the state’s clean energy program and efforts to position itself as a regional player that can provide wind port, marshaling and manufacturing services to projects along the East Coast. Republicans and some business groups have expressed concern at the cost of the projects, and the lack of a concrete estimate of how much they will cost ratepayers.

Speaking at a March 6 BPU meeting, then-Commissioner Dianne Solomon — who left the board last month, after Murphy replaced her — said she had been concerned “from the outset” at the cost of the OSW projects. She spoke before voting in support of the BPU’s launch of its third solicitation of OSW projects.

“It appears that with every solicitation, promises are made that somehow disappear or we learn of increases in costs,” said Solomon, who was first nominated to the board by Republican Gov. Chris Christie.

“For instance, with the first [OSW] solicitation, we were assured that any federal funds or investment tax credits would be used to offset the cost of the OREC,” she said. “But we now learn that legislators are poised to give the funds back to the developer.”

Fiordaliso responded, as he did at the budget hearing, by citing the example of the subsidies for the state’s now strong solar sector. “Initially, is it going to cost more money, yes,” he said of the wind sector. “But the prices will continue to come down just as they have in the solar industry.”

Monopile Factory Phase “in doubt”

The Sweeney Center report said the state’s inability to reach an agreement over the use of federal tax credits would put “in doubt” a key element of another part of the state’s OSW plan — a manufacturing plant at the Paulsboro Marine Terminal that makes monopiles, the massive steel poles that support a wind turbine.

The first phase of the project, a joint venture between EEW, a German monopile manufacturer, and Ørsted, is up and running, with the help of a $160 million investment from the Danish developer, the report said. But the second phase of the project is “already more than a year behind schedule,’ the report said.

Both Ocean Wind 1 and Atlantic Shores agreed in their bid solicitation to use monopiles made at the Paulsboro plant. But completing phase two of the plant is dependent on the two plants moving forward, and that is “contingent on legislative action,” the report said.

That in turn is holding up manufacturing and means the factory may not be able to meet its delivery deadlines with the two projects, the report said.

Francoeur said that EEW’s Paulsboro facility has the “potential to be a premier supplier for U.S. offshore wind projects and that continued capital investments made possible by the federal government, along with a steady stream of demand for monopiles, are critical to its long-term success, as they are for all domestic supply chain initiatives.”