Recently, the State of Maryland took a significant step to enable the financing of offshore wind energy projects located on the Outer Continental Shelf between 10 and 30 miles off Maryland's coast by enacting the Maryland Offshore Energy Act of 2013. The Act provides a carve-out for offshore wind energy in Maryland's renewable energy portfolio standard ("RPS") program, commencing in 2017. The size of the annual carve-out amount for offshore wind energy is to be determined by the Maryland Public Service Commission subject to a cap of 2.5 percent of total Maryland retail electricity sales.
To be included in Maryland's RPS program, offshore wind energy must be generated by a "qualified" Maryland offshore wind energy project. To qualify, a project must meet the siting requirements specified in the Act, connect to the PJM Interconnection grid on the Delmarva Peninsula, and be approved by the Public Service Commission under the Act.
Qualified projects will be entitled to one "offshore wind energy credit" or "OREC" for all of the generation attributes (including electric capacity, energy, and environmental benefits) of each megawatt-hour ("MWh") of offshore wind energy they produce during a period of up to 20 years, and payment by the Maryland retail electricity suppliers of a price approved by the Public Service Commission for each of their ORECs, not to exceed $190/MWh (in 2012 dollars), as specified in the Commission's approval order. Each qualified offshore wind energy project will in turn be required to sell into the markets operated by the PJM Interconnection all of the energy, capacity, and ancillary services associated with each OREC for which it receives payment. It will also be required to distribute the proceeds of such sales to the Maryland retail electricity suppliers for refunding or crediting to ratepayers, based on their consumption of energy that is subject to Maryland's RPS program.
The Act provides that the Public Service Commission may not approve a proposed project unless: (i) the project demonstrates positive net economic, environmental, and health benefits to Maryland, based on evaluation criteria specified in the Act, (ii) the projected net rate impact to the average residential customer from the proposed project, combined with the net rate impact of all other qualified offshore wind projects, does not exceed $1.50 per month (in 2012 dollars), (iii) the projected net rate impact on the average nonresidential customer of the proposed project, combined with the net rate impact of all other qualified offshore wind projects, does not exceed 1.5 percent of such customer's total annual electric bill, and (iv) the proposed OREC price does not exceed $190/MWh (in 2012 dollars).
The Public Service Commission is required to use criteria specified in the Act to evaluate and compare proposed offshore wind projects that apply for approval. Those criteria are reasonably detailed and may be summarized as follows:
- The lowest cost impact to ratepayers from the proposed OREC price;
- Potential reductions in transmission congestion prices within Maryland and in locational marginal pricing;
- Potential changes in capacity prices within Maryland, including potential long-term changes in such capacity prices from the proposed project as compared to conventional energy sources;
- The extent to which the cost–benefit analysis submitted by the applicant demonstrates positive net economic, environmental, and health benefits to Maryland;
- The extent to which the applicant's plans meet certain statutory goals for engaging small businesses, provide for use of skilled labor with an agreement designed to ensure the use of skilled labor, and provide for compensation consistent with Maryland wage laws;
- Siting and project feasibility;
- The extent to which the project would require electric transmission or distribution infrastructure improvements in Maryland;
- Estimated ability to assist in meeting Maryland's RPS (13.1 percent from certain renewable sources in 2017, increasing to 20 percent in 2022 and subsequent years); and
- Any other criteria the Commission determines to be appropriate.
The Act requires the Public Service Commission to adopt the implementing regulations by July 1, 2014. An application for approval of an offshore wind project may be submitted to the Commission after the effective date of regulations implementing the Act's core provisions relating to the project approval process and OREC funding mechanism. The submission of such an application triggers an application period of at least 90 days, during which other proposed offshore wind projects may submit applications for approval to the Commission.