3 Nov 2011

Offshore Renewable Energy Credits – ORECs – the key to wind power along U.S. East Coast?

Written by Jim Pierobon

Following a path carved by the solar industry, developers of offshore wind energy projects along the Mid-Atlantic U.S. coast are closing in on one model to finance the multi-billion dollar systems they aspire to build.

The developers envision a process that will earn one renewable energy credit for every 1,000 kilowatt hours (or 1 megawatt hour) of clean electricity generated. Those credits can be ‘sold’, in advance, to electricity suppliers to help them meet their in-state renewable energy requirements. Contracting for these Offshore Renewable Energy Credits”, or ORECs, provides much-needed capital up front. Without them, offshore wind is a very tough sell to lawmakers and regulators.

One OREC is predicted by some seasoned observers to fetch somewhere near $300, similar to what they once fetched for solar energy. But that price could vary, perhaps significantly.

New Jersey is drawing a lot of interest as its Board of Public Utilities (BPU) and numerous stakeholders wrestle with finalizing the path forward. Under a timeline set forth by a coalition of developers, New Jersey would open the application process for projects in federal waters in March 2012 and select projects to be built by year-end 2012. While walking away from other tenets of a cleaner energy strategy, GOP Governor Chris Christie seems steadfast in his administration’s commitment to offshore wind for the jobs it can generate.

With continued progress in federal permitting, an approved action plan in early 2012 could equip New Jersey to garner a lion’s share of the East Coast jobs. Shallow waters off the coast of New Jersey make for relatively few construction and engineering challenges.

This buoy illustrates where the first U.S. offshore wind 'farm' is set to begin construction about 3 miles from Atlantic City, NJ. CREDIT: Fisherman's Energy

Blazing the trail in New Jersey is a fully-permitted, 25 megawatt, six-turbine pilot project in state waters set to begin construction in the coming weeks by Fishermen’s Energy.  It will be about three miles from the boardwalk in Atlantic City.  Fisherman’s hopes to commission the project in the Fall 2012 and in the process secure a federal subsidy that is not likely to be renewed.

Fisherman’s did not respond to queries about the OREC price its system will fetch. As a small project (by offshore wind standards), Fisherman’s Energy stands to be the first such system generating electricity off of any U.S. coast line if electrons start flowing by 2013. Cape Wind in Massachusetts is slated to begin generating power in 2014.

Under New Jersey’s “Offshore Wind Economic Development Act” law, developers eyeing projects in federal waters are to submit a price for the electricity generated. It’s up to the BPU to determine whether the cost is justified.  Among the factors to be weighed are the jobs that could be generated, how this electricity could help stabilize the “PJM” regional power grid — the most congested in the U.S. — and how it would supplant power generated by retiring nuclear power plants and electricity from coal.

The developers’ proposal would create a “carve out” for wind-generated electricity. Here too like solar carve-outs, electricity suppliers would be required to buy a specific number ORECs annually to meet their portion of the state’s overall renewable energy requirement, 20% by 2021. Whether or not the BPU, project developers and the state’s utilities make progress will be closely watched at the next meeting organized by the BPU, slated for November 15, 2011 in Trenton.

What New Jersey does is likely to influence how Maryland tries to clear similar offshore wind financing hurdles during its upcoming 2012 General Assembly. Last year, Democatric Gov. Martin O’Malley was rebuffed by a Democratic legislature skeptical of the wind energy’s costs amid the recession. The state’s investor-owned utilities, led by Baltimore Gas & Electric, made its opposition crystal-clear in Annapolis, through the media and via campaign contributions. But that approach contemplated a Power Purchase Agreement which would input debt to utility balance sheets. ORECs could avoid that quandary and the harmful political delay that Maryland already is experiencing.

At least two Maryland lobbyists said they are convinced BGE could be compelled to adopt ORECs as the financing mechanism as a condition of the the planned merger of its parent, Constellation Energy, with Exelon Corp. That deal is expected to close early in 2012. At least one other utility serving Maryland is said to be warming up to the idea.

A feed-in-tariff, such as those imposed by Germany and Ontario, Canada is a third option. But it’s a non-starter in the U.S. for how it offers to pay a high price for power, thus further raising costs to end-users. PPAs would would raise prices, but by not nearly as much; ORECs even less some analysts project.

Whether Maryland, with a smaller offshore footprint to work with, can keep pace with New Jersey and similar progress in Delaware remains to be seen. At a minimum, lawmakers deserve to understand how wind energy will be needed to meet Maryland’s ambitious renewable energy requirement of 20% by 2022.

Read about other developments affecting other East coast states such as Rhode Island and Virginia here from The New York Times.

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