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New Jersey Approves Largest Single-State Offshore Wind Solicitation to Date

September 26, 2018


The state is seeking 1,100 megawatts of offshore wind capacity to commence construction before federal tax credits expire.

The New Jersey Board of Public Utilities voted unanimously on Monday to open a solicitation for 1,100 megawatts of offshore wind capacity — the largest single-state offshore wind solicitation in the U.S. to date.

The new order marks the first step in meeting New Jersey’s goal to deploy 3,500 megawatts of offshore wind by 2030.

A few days earlier, Governor Phil Murphy called on the New Jersey Board of Public Utilities (NJBPU) to open two additional 1,200-megawatt offshore wind solicitations, the first in 2020 and the second in 2022. These efforts are part of Murphy’s initiative to make New Jersey a 100 percent clean energy state by 2050.

“In the span of just nine months, New Jersey has vaulted to the front of the pack in establishing this cutting-edge industry,” said Governor Murphy, in a statement. “We campaigned on rebuilding New Jersey’s reputation as a clean energy leader and that involves setting an aggressive timetable on offshore wind.”

The NJBPU’s order allows developers seeking to build offshore wind facilities in federal waters to submit applications for approval between September 20, 2018 and December 28, 2018. The board intends to respond by July 1, 2019, providing developers with sufficient time to qualify for federal tax credits that expire at the end of next year.

In August, Avangrid and Copenhagen Infrastructure Partners published pricing for Phase 1 of the 800-megawatt Vineyard Wind project off the coast of Massachusetts at $74 per megawatt-hour in year one, escalating 2.5 percent each year over a 20-year period. In Phase 2, the long-term contract price begins at $65 per megawatt-hour, with a 2.5 percent annual increase. These prices reflect the price of both energy and renewable energy credits.

The Vineyard Wind bids came in extremely low, thanks in part to the federal Investment Tax Credit, which is available to large wind projects that commence construction before the end of the year, said Anthony Logan, North America wind power analyst at Wood Mackenzie. The latest news out of New Jersey signals that other states are moving quickly to also take advantage of the 12 percent ITC.

“We expected after the Vineyard bid, just seeing how much of a benefit leveraging the ITC could be, that some of these procurements would be faster than previously anticipated,” said Logan. “And I think we’re seeing exactly that with New Jersey.”

Wind projects in the U.S. also qualify for the Production Tax Credit, which is based on the amount of electricity generated by a qualifying energy resource. Logan said the ITC is proving to be a more compelling incentive than the PTC in the case of offshore wind, because project costs are so high. A tax credit for the initial investment, therefore, goes further than a credit for electricity production.

Logan said this trend raises questions about how much tax equity appetite will be available among investors next year as a slew of renewable energy projects — both wind and solar — seek to leverage tax benefits before they phase out.

“I don’t know of any [tax equity] shortages,” he said. “But it’s something to watch out for.”

U.S. offshore wind is a new area for the financial community, which presents an additional challenge. Some investors gained experience with the Block Island Wind Farm off the coast of Rhode Island. But at just 30 megawatts, the first offshore wind project in the U.S. is tiny compared to the next generation of U.S. offshore wind projects currently under consideration.

In addition to New Jersey and Massachusetts, there are big offshore wind initiatives underway in New York and Rhode Island, and growing momentum in North Carolina, Virginia and Maryland.

Wood Mackenzie projects the U.S. offshore market will see an annual compound growth rate of more than 50 percent through 2026. However, WoodMac continues to revise its forecast up in the near term as more states position themselves to take advantage of the ITC, said Logan.

He added that recent state announcements are pushing the U.S. across the threshold needed to develop a robust offshore wind supply chain. That will trigger a lot of “jockeying” for first-mover advantage among suppliers, Logan said.

“I expect supply chain bid pricing to be extremely low, which will have positive knock-on effects on overall state-level bid pricing,” he added.

 A robust supply chain is precisely what New Jersey wants to foster.

“The opening of the 1,100-megawatt window, coupled with the governor’s announcement for the deployment schedule for the full 3,500-megawatt solicitation, provides unparalleled certainty and incentive for developers and manufacturers to anchor a supply chain right here in New Jersey that can serve the entire Eastern Seaboard,” said NJBPU President Joseph Fiordaliso.

The NJBPU will issue a guidance document that provides more information on the new solicitation and helps developers calculate net economic benefits. According to a recent report by the advocacy group Environmental Entrepreneurs, offshore wind developments in five East Coast states — New York, New Jersey, Virginia, North Carolina and South Carolina — could produce economic benefits totaling $3.6 billion.

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