August 19, 2010 - Today, Governor Christie signed into law the "Offshore Wind Economic Development Act" (the "Offshore Wind Act"). The Offshore Wind Act directs the New Jersey Board of Public Utilities ("BPU") to establish an offshore wind renewable energy credit ("OREC") program – the first of its kind – that will require a certain percentage of electricity sold in New Jersey be from offshore wind energy. This percentage will support at least 1,100 megawatts ("MW") of energy generation from qualified offshore wind projects. The Offshore Wind Act also provides for tax credits to be issued to qualified wind energy facilities in wind energy zones located in the South Jersey Port District.
Establishment of Offshore Renewable Energy Credits ("ORECs")
The Offshore Wind Act defines an OREC as a certificate the BPU or its designee issues that represents the environmental attributes of one MW hour of electric generation from a qualified offshore wind project. Under the Offshore Wind Act, ORECs join solar renewable energy certificates ("SRECs") as the only categories of certificates in New Jersey for Class I renewable energy sources. These Class I renewable energy certificates ("RECs") are eligible for use in meeting New Jersey’s renewable energy portfolio compliance standards. The ORECs may be used for REC compliance purposes during the "energy year" in which they are generated, and for two energy years thereafter.
Financial Risk Burden Allocation
The Offshore Wind Act addresses the cost and financial risks of qualified offshore wind projects. Historically, this issue has been a point of heated debate between offshore wind developers and other stakeholders. In fact, in the fourth quarter of 2009, several New Jersey-based offshore wind developers presented a "wish list" of points to the BPU relating to risk burden allocation regarding project costs. The root of such extensive attention being paid to this particular issue is the astronomical cost of a single offshore wind project. The price tag associated with construction of their respective wind farm projects proposed for off the New Jersey coast would be approximately $1.5 billion each.
Section 3 of the Offshore Wind Act mandates that New Jersey ratepayers and the state itself be held harmless and not bear the excess costs of offshore wind projects, whose estimated construction and completion costs exceed the initially projected project costs. The Offshore Wind Act, therefore, shields New Jersey residents and the state from bearing the financial risk and cost burden associated with potential cost overruns of such projects and places those risks and burdens on the project developers.
Regional Greenhouse Gas Initiative ("RGGI") Revenues to Subsidize Offshore Wind Projects
Offshore wind farms, once operational, produce energy that neither generates pollution or waste, nor contributes to greenhouse gas ("GHG") emissions – the major source of global warming – in the Earth's atmosphere. Consequently, producing wind energy from offshore wind turbines is an effective means to reduce the amount of GHG emissions, particularly the greenhouse gas carbon dioxide ("CO2"), that would otherwise be released annually into the atmosphere from other energy-generation sources, such as fossil fuels. Accordingly, section 5 of the Offshore Wind Act authorizes the New Jersey Economic Development Authority to use revenues received from GHG emissions allowance auctions that are deposited in New Jersey's Global Warming Solutions Fund (the "Fund") to provide financial assistance to state-of-the-art energy efficiency projects, such as qualified offshore wind projects.
New Tax Credits Available to Eligible Businesses
Section 6 of the Offshore Wind Act supplements New Jersey's "Urban Transit Hub Tax Credit Act," making tax credits available to eligible businesses involved in the development of a qualified wind project located in a wind energy zone. For eligibility purposes, each such business must demonstrate that New Jersey’s investing finance capital in a particular qualified wind energy facility will yield a net positive benefit to the state. The initial capped value of all tax credits available under this provision is $100 million. This cap, though, is subject to change at the discretion of the chief executive officer of the EDA, so that it may be increased to a $1.5 billion cap for the combined value of all such tax credits.
The Offshore Wind Economic Development Act is beneficial for businesses and manufacturers who can contribute to offshore wind projects, as the Offshore Wind Act offers financial incentives in the form of Fund awards and specially-created tax credits to spur development of offshore wind projects. These incentives, together with the Offshore Wind Act’s finance risk allocation structure that is protective overall of ratepayers' and the state’s interests, make the Offshore Wind Act good for consumers and particularly advantageous for businesses.