New Jersey legislators this week backed a measure to allow the state’s first offshore wind project, Ocean Wind 1, to receive federal tax credits to help offset construction cost hikes, advancing the legislation forward in what state officials said was a “critical” element needed to get the project completed.

The Senate Budget and Appropriations Committee and Assembly Budget Committee on Tuesday each approved a version of the bill (S4019 and A5651) that will allow the credits to go to developer Ørsted instead of the state. The Assembly committee voted on the bill again Wednesday to reconcile differences between each house’s version after the Senate committee made amendments. To arrive at the desk of Gov. Phil Murphy, the bill now needs full Assembly and Senate votes, which likely will take place Friday before the Legislature recesses until November.

The Senate committee voted at the end of a six-hour meeting with lengthy breaks while lawmakers negotiated amendments they said were designed to strengthen the requirements on Ørsted. The changes included requiring a $200 million cash escrow fund put up by the developer that New Jersey can spend on other wind-related projects.

Unlike those in other states, New Jersey law prohibits developers from obtaining federal tax credits for offshore wind projects, and instead grants the benefits of the credits to the state to help ratepayers.

The hearing offered a snapshot of the vigorous debate over offshore wind, with opponents saying the turbines would blight the state’s much-prized shore; damage local beaches, historic landmarks, and the tourism and fishing industries; and hurt marine life. Proponents said the advance of Ocean Wind 1 is essential to the state’s plan, backed by more than $600 million, to create a homegrown industry that will create jobs and be a major economic driver.

“There is a looming and booming offshore wind energy industry coming to life in the North Atlantic,” Tim Sullivan, CEO of the New Jersey Economic Development Authority (EDA), said at the hearing. “In the bill before you is an incredibly important milestone on that journey.”

He described the bill as “critical to getting the first project unlocked, and under construction and developed.”

“This is a bit of a gut-check moment: Does New Jersey want to lead?” he said. Or does the state want to “follow … to be left out of the jobs and economic opportunity and prosperity that offshore wind represents?”

Sen. Michael L. Testa Jr. (R) responded by suggesting that the state should consider the potential harm of the wind projects on the shore’s tourism and commercial and recreational fishing sectors, and whether the preliminary exploration for the OSW project was somehow linked to the deaths of whales that have washed up on the New Jersey shore.

“Certainly I always want New Jersey to be at the forefront of very positive changes and innovation,” he said. But he suggested the state should “take a pause” in the OSW projects. He noted that several federal and state lawmakers have called for a moratorium on the projects until the whale deaths are fully investigated.

“They’re not kooks; they’re people that are really concerned about preserving New Jersey,” Testa said.

State and federal officials say there is no evidence linking the whale deaths to the wind projects, for which construction has yet to start, and the investigations are ongoing.

Rising Costs

The legislation allows federal tax credits to flow only to offshore wind projects approved before July 1, 2019. That effectively limits the benefits to the 1.1-GW Ocean Wind 1 project, which the Board of Public Utilities (BPU) approved in its first solicitation in 2019.

The board approved two more projects in 2021 — the 1,148-MW Ocean Wind 2 and 1,510-MW Atlantic Shores — in a second solicitation. In March, it launched a third solicitation, which could result in the award of capacity totaling 4 GW or more. (See NJ Opens Third OSW Solicitation Seeking 4 GW+.)

Ørsted has said since that the approval, materials, equipment and transportation costs have risen dramatically because of a variety of unanticipated events, including the COVID-19 pandemic and the Russo-Ukrainian War.

Maddy Urbish, the company’s head of government affairs and market strategy, said in a statement after the hearing that “these federal incentives present an opportunity for the state to further secure economic investments and create hundreds of family-sustaining jobs in New Jersey while addressing the unprecedented macroeconomic challenges of today, at no additional cost to ratepayers.”

“As the state’s first offshore wind project, Ocean Wind 1 is critical to helping New Jersey achieve its clean energy goals,” she said, adding that Ørsted is “focused on identifying opportunities to advance the American offshore wind industry locally.”

But Kristen O’Rourke, quality of life director at Point Pleasant Beach, questioned the fairness of the plan, saying nearby businesses, many of them small and family owned, face potential losses because of the impact on tourism and fishing.

“We’re the ones who are also facing fiscal instability over inflation [and] supply chain issues that Ørsted’s facing,” she said. “We’re all on the same page here, but we’re not receiving a tax credit for it.”

In a letter to both committees Monday, the New Jersey Division of Rate Counsel urged them not to advance the bill, saying, “Statements claiming that this bill will not cost ratepayers additional costs are inaccurate.”

Director Brian O. Lipman said that under the 2019 deal struck by Ørsted and the BPU, the cost to the state of the offshore wind renewable energy certificates (ORECs) awarded to the developer is offset by tax credits earned by the developer.

“To the extent that the developer keeps the tax credit, the reduction in the OREC is decreased — leading to higher OREC prices for ratepayers,” Lipman wrote. “There should be no doubt that this bill will increase the amount the developer earns on this project and will result in higher OREC prices being paid by ratepayers.”

Competitive Dynamic

The bill requires Ørsted to issue a report on the project’s anticipated environmental impacts, economic benefits and financial viability, and the feasibility of completing it by the commercial operation date approved by the board.

The bill’s escrow requirement replaces an earlier requirement that the $200 million be a letter of credit. The escrow can be used to help fund the New Jersey Wind Port, a manufacturing, marshaling and wind logistics hub in Salem County, and the port and wind manufacturing facility at the Paulsboro Marine Terminal.

The EDA’s Sullivan said the funds would likely be used for a second phase of the manufacturing operation at Paulsboro that German manufacturer EEW is building to make monopoles. Ørsted is sourcing monopoles for Ocean Wind 1 at the plant and has invested in it, according to a recent report by the Sweeney Center for Public Policy at Rowan University.

Sen. Paul Sarlo (D), chairman of the Senate committee, said the amendments made it a “much better piece of legislation.”

At Sarlo’s prompting, Sullivan confirmed that there had been no other state payments to the project and would be no more. “This will be the last push that they will need to get out of the ground,” he said.

Rumors that Ørsted was negotiating with Gov. Murphy and legislators on the bill had been circulating in Trenton for weeks. Sarlo had said at a May 23 hearing of the committee that he would resist additional subsidies to offshore wind developers, saying, “These are large players, international players, who knew what they were getting into when they built these facilities.” (See NJ OSW Projects Face Public Funding Scrutiny.)

Sullivan said the state’s investment in the wind port and Paulsboro terminal would make New Jersey a major player in the regional wind industry, enabling the state to supply offshore wind services, logistics and products to not only its own projects, but also others along the East Coast.

“The competitive dynamic here is real,” he said. “Other states want this just as badly or worse than we do.”

Speaking before he voted for the bill Tuesday, Sen. Steve Oroho (R) asked Sullivan what the impact would be if Ocean Wind 1 did not go ahead and Ørsted did not put the $200 million in escrow. Would that mean that “a revenue-generating project” would be at risk of “not being a revenue-generating project?” he asked.

After Sullivan affirmed that could be the case, Oroho said that though he had originally opposed the bill, he would back it in the committee. But he may not do so in the vote by the full Senate, he said, being “torn” between concerns about the bill and worries that the $600 million invested in the state’s offshore wind could be much less valuable if the projects do not go ahead.