Energy Finance Report

Northeast States See Surge in Plans for Offshore Wind Projects, But Developers Must Address Remaining Barriers

Posted by Jeffrey Karp on 6/18/18 12:37 PM

Offshore-Wind-Farm_trans_NvBQzQNjv4BqZyr7RvqrFlHdIeGHHfdSfl4_WL6q5zndbubD7CiBKV0By Jeffrey Karp and Kevin Fink

As previously discussed, offshore wind is  well-developed outside the United States. In Europe, the first offshore wind facility was installed in 1991, and a record 3,148 MW of capacity was added in 2017. In comparison, the first and only operating offshore wind farm in the U.S. is Block Island, a 30 MW facility off the coast of Rhode Island, which began operation in 2016. While the U.S. lags behind European wind energy leaders, Northeast states have sought to facilitate large scale offshore wind development by setting goals and awarding contracts to offshore lease areas. These recent activities have been met with optimism and promise; however, there still are challenges beyond initially securing leases that must be met before offshore wind projects in the U.S. are successfully implemented from start to finish.

Within the past year, New York, New Jersey, Massachusetts, and Rhode Island have announced intentions to incorporate offshore wind resources into their respective energy portfolios. In January 2018, the New York State Energy Research and Development Authority (NYSERDA), issued an Offshore Wind Master Plan, which identified four areas for proposed offshore wind projects, each capable of supporting at least 800 MW. Acting on NYSERDA’s request, the Bureau of Ocean Energy Management (BOEM), the federal agency responsible for approving offshore lease areas beyond state jurisdiction (3 nautical miles offshore), sought public comment on the proposed areas (BOEM published a “Requests for Nominations: Commercial Leasing for Wind Power on Outer Continental Shelf in New York Bight”  in the Federal Register, which gave the public until May 29, 2018 to respond). In May 2018, BOEM extended the comment period to July 30 at the request of New Jersey Governor Phil Murphy to enable the state to adequately address commercial fishing industry concerns. Also in May, Governor Murphy signed legislation committing New Jersey to develop 3,500 MW of offshore wind.

Recently, Massachusetts and Rhode Island also committed to facilitate offshore wind projects. In May 2018, Massachusetts acted on 2016 legislation -- which committed the state to 1,600 MW of offshore wind -- by awarding Vineyard Wind LLC an 800 MW wind farm on the Southern Coast of Martha’s Vineyard. Additionally, Rhode Island chose Deepwater Wind to develop a 400 MW wind farm.

While the offshore wind industry in the U.S. is gaining momentum through lease awards, there still are several barriers that must be addressed if the industry is to successfully construct and operate wind farms. One such potential barrier is the federal Merchant Marine Act of 1920, more commonly known as the Jones Act. Originally enacted to ensure that a domestic merchant fleet could meet shipping needs in case of an international shipping conflict, the Jones Act, among other things, requires shipments made between U.S. ports to be conducted on U.S. vessels manned by U.S. citizens or permanent residents. Additionally, in the context of wind turbines, once a monopile -- the vertical piece struck into the seabed to secure the turbine -- is set into the seabed, it becomes a “point” under the Jones Act, triggering the “U.S. built and manned vessel” requirement. An exception to this requirement is that merchandise may be transferred by foreign crane in conjunction with U.S. vessels transporting materials between points. This method was used to install the 30 MW Block Island Wind Farm; however, industry experts have commented that while the approach worked for a small scale wind farm, it may be too costly for larger scale projects. Therefore, a major consideration may arise shortly because no U.S. entity presently owns Jones Act-compliant vessels capable of transporting and installing large scale offshore wind turbines.

However, some stakeholders have questioned whether the Jones Act applies to offshore wind projects. The Jones Act’s jurisdiction reaches three nautical miles from shore, and the proposed offshore wind projects in the Northeast are beyond that range. Thus, clarification is required as to whether activity occurring outside three nautical miles from shore is subject to the Jones Act. The applicability of another federal law, the Outer Continental Shelf Lands Act (OCSLA), to offshore wind installations also needs to be clarified. The OCSLA initially was enacted to address the exploration, development, and production of mineral resources, but in 2005 Congress amended the law to include licensing requirements for “alternative energy” projects. There still is ambiguity regarding whether the OCSLA applies to offshore wind installations. If both the Jones Act and OCSLA are determined to apply to offshore wind projects, development may be stymied from both a transportation standpoint (via point to point shipments), and in the licensing and construction of projects.

Various approaches to address these potential constraints have been proposed to eliminate any further delay once the leasing stage of a wind farm is completed. A long-term solution, to build Jones Act compliant vessels, already has begun with the first vessel expected to be delivered by the end of 2018. However, some short-term measures also could be taken to further facilitate offshore wind development. Regarding the ambiguity surrounding the jurisdictional reach of the Jones Act, a waiver could be pursued for renewable energy projects until the supply chain side of the industry is mature enough to handle all of the transportation and construction phases domestically. Additionally, an advisory ruling could be sought from U.S. Customs and Border Protection (CBP) regarding whether the OCSLA applies to offshore wind projects.

A second challenge facing offshore wind developers is that U.S. ports will require infrastructure upgrades to handle wind turbine parts that are more than 800 feet tall with blades the length of a football field. Currently, there are no ports or manufacturing facilities in the Northeast capable of adequately handling these parts. In January 2018, the Coalition for More Efficient Ports -- whose members include the Port Authority of New York and New Jersey -- sent a letter to President Trump highlighting the need for ports to receive adequate federal funding. Moreover, Orsted A/S, a Denmark power company with offshore wind projects worldwide, publicly called for East Coast states to expand their ports to accommodate offshore wind development.

Thirdly, delays have ensued due to stakeholder litigation over potentially negative impacts from turbine construction and operation. For example, Statoil (now Equinor), which was awarded a lease for an offshore wind facility off the coast of New York in December 2016, has faced considerable delays from a lawsuit filed against BOEM by the Fisheries Survival Fund and other commercial fishing organizations, businesses, and three municipalities alleging violations of several federal environmental laws, including the National Environmental Policy Act (NEPA). The case, Fisheries Survival Fund v. Jewell, No. 16-cv-2409, is ongoing in U.S. District Court for the District of Columbia. Thus, developers must be cognizant of opposition from interest groups, and be prepared to address their concerns.

Therefore, while states in the Northeast are ramping up plans for large scale offshore wind farms, it is important that developers fashion strategies to address impediments, including the potential impact of Jones Act and OCSLA requirements, port expansion needs, and stakeholders’ environmental and other concerns.

Jeffrey Karp is a partner and Kevin Fink is a law clerk with Boston-based law firm Sullivan & Worcester LLP.

 

Topics: Renewable Energy, Massachusetts, Offshore Wind, Rhode Island, New York, New Jersey, Jones Act, Port Infrastructure, Shipping, Outer Continental Shelf Lands Act

New Jersey's Proposed Renewable Portfolio Standard- Ambitious, but Uncertain

Posted by Jeffrey Karp on 4/20/16 11:28 AM

Co-authors Emma Spath and Morgan M. Gerard

New Jersey is poised to become a national leader in renewable energy by virtue of pending legislation that would substantially decrease the Garden State’s greenhouse-gas emissions through an ambitious Renewable Energy Portfolio Standard (RPS). An RPS is a regulatory mandate that requires utility companies to obtain a certain percentage of the energy they sell from renewable sources such as wind and solar, or purchase renewable energy credits (RECs) from qualifying energy sources. Recently passed by the State Senate, a new bill would require utilities to source 80 percent of their electricity from renewable energy by 2050.  If the General Assembly passes the bill and it survives the pen of Governor Christie, utilities must procure 11 percent of their electricity from renewables by 2017, with an increase every five years of approximately 10 percent until the 80 percent threshold is reached in 2050.

Although New Jersey passed its original RPS mandate in 1999, and has since updated its program to reach 20 percent by 2020-21 (including a solar energy “carve out” requirement of nearly 4 percent), the ambitious new bill faces an uncertain outcome. First, although the bill already has passed one legislative chamber, the Senate vote was strictly divided along party lines.  Second, the General Assembly, which is the next destination for S1707, delayed voting on a similar Senate bill in December 2015.  However, this General Assembly, like the Senate, has a Democratic majority; thus, it seems likely that the bill would pass.  Finally, the bill faces a veto-threat by Governor Christie, which could be overcome by a two-thirds majority in both houses.  In this scenario, a lack of bi-partisan support could doom the legislation due to a failure to obtain the requisite super-majority vote to overturn a veto. 

The bill also may be perceived as political by some or a “hot potato.” In addition to an increased RPS mandate, the legislation would allow the Board of Public Utilities (BPU) to establish an “emissions portfolio standard applicable to all electric power suppliers and basic generation service providers, upon a finding that [t]he standard is necessary as part of a plan to enable the State to meet federal Clean Air Act or State ambient air quality standards.”  The provision may reflect the State Senate’s desire to assure New Jersey’s compliance with President Obama’s Clean Power Plan, an Environmental Protection Agency (EPA) regulation presently under court review that seeks to limit greenhouse gas emissions under authority of the Clean Air Act.  In an omnibus litigation pending before the United States Court of Appeals for the D.C. Circuit, twenty-seven states, including Governor Christie’s administration, seek to block the Plan’s implementation.  Recently, the Supreme Court stayed the regulation and suspended any deadlines for state compliance until resolution of the litigation.

Another possible objection to the N.J. bill—based on the reaction to a similarly aggressive RPS in California—may be its potential significant implications for the power grid. A review of a study concerning the potential impact of California’s plan to increase renewables to 50 percent by 2030 provides insight into the challenges that such measures may pose. That study found that an aggressive RPS could result in over-generation of renewable energy. The study showed that once California reaches a 50 percent RPS, excess power would be generated for 23% of annual hours.  Such an occurrence could result in grid forecast uncertainty, which is very costly for utilities.  Thus, New Jersey lawmakers instructed the BPU to concomitantly evaluate how to ameliorate solar energy volatility. It may behoove the BPU to also look at longer-term grid strategies to mitigate the substantial increase in renewable energy.  Such viable mitigative methods may include requiring steps such as energy storage, smart inverters with future solar photo-voltaic installations, or encouraging a diverse renewable energy portfolio.  While each of these measures may come with its own political baggage, the consideration of such grid solutions may be the palliative that enables New Jersey to substantially increase its RPS.

Topics: Energy Storage, Solar Energy, Renewable Energy, clean power plan, Wind Energy, renewable portfolio standard, Clean Air Act, New Jersey, Grid Security

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