Cost of Subsidizing Offshore Wind May Have Hit a Downdraft
Fishermen's Atlantic City claims its revised project proposal will be less of a burden on ratepayers, but details are still scarce
Wednesday, September 19, 2012
The developer of the state’s first offshore wind farm is telling regulatory officials that the project's impact on ratepayers will be significantly lower than a similarly scaled initiative in Rhode Island, which is likely to be the first operating wind farm off the East Coast.
In a letter to the New Jersey Board of Public Utilities delivered late Monday, Fishermen’s Atlantic City Windfarm (FACW), LLC offered the first hint of what electric customers will be paying to achieve the state’s goal of a thriving offshore wind industry, although specific details are still being withheld.
The Atlantic City project, a small pilot 2.8 miles off the gambling resort, is facing steep hurdles to win approval from the agency. The BPU's own consultant questioned the net economic benefits of the project, a key threshold established by a law designed to promote offshore wind. A consultant retained by the New Jersey Division of Rate Counsel voiced similar concerns previously.
At the heart of the issue is just how much state subsidies paid by electric customers are necessary to make the projects viable. The state is not making public how much the developer will earn for the electricity produced by the offshore wind farms, a cost that will be borne by ratepayers by paying off Offshore Renewable Energy Credits (ORECs).
In the letter to the BPU, the developer argued its revised proposal includes several ratepayer protections, including an “OREC price that has a rate impact [redacted], which is significantly lower than the rate impact of the Block Island project in Rhode Island.’’
The Block Island project, expected to begin construction next year, is similar to the Atlantic City undertaking. The latter is a 25-megawatt facility, while Block Island, being developed by Deepwater Wind, is 30 megawatts and three miles off the island.
A power purchase agreement between Deepwater Wind and National Grid, the electricity supplier in Rhode Island, caps the price of electricity from the wind farm at 24.4 cents per kilowatt hour, which increases 3.5 percent each year over the 20 years of the deal. The cost to ratepayers is $1.35 to $3.00 per month, according to Deepwater Wind.
Daniel Cohen, president of FAWC, declined to provide more precise details about his project.
“This is part of a process with the BPU that will take many months,’’ said Cohen, adding that the new filing addresses many of the concerns raised by the two state-retained consultants. “When they’re done, we hope they will have a much more positive response. We’ve significantly reduced the price.’’
Beyond that, an economic impact analysis provided by the Bloustein School of Planning and Public Policy at Rutgers University suggested that the project will deliver net economic benefits in excess of $1 billion to the state.
The view from Stefanie Brand, director of the state Division of Rate Counsel, was less optimistic.
“I still think -- and subject to our ongoing review -- this still may be too expensive for me to feel comfortable signing off,’’ Brand said. Asked about the comparison with the Block Island project, Brand discounted any significance.
“What we look at is the raw costs to New Jersey ratepayers to subsidize this project,’’ she said. “It may be still too expensive.’’
Others echoed that view. In the most recent auction held by the BPU in February to buy electricity for the bulk of customers in the state, the highest price they paid was 9.25 cents per kilowatt hour for residential customers of Rockland Electric, the lowest amount was 8.176 cents per kilowatt hour.
“Right now, industrial rates are 11 or 12 cents per kilowatt hour,’’ said Hal Bozarth, executive director of the Chemistry Industry Council of New Jersey. “Who are they kidding? Who wants to double their electricity bill?’’
But Matt Elliott, clean energy advocate for Environment New Jersey, said all forms of energy, including fossil fuels, are subsidized. “We have to put more incentives up front to build this industry in the state and along the Atlantic Seaboard,’’ he said.
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