Wind

Orsted finalises buyout of New Jersey flagship Ocean Wind 1 partner PSEG

PSEG joins fellow American utility Eversource Energy in exiting generation side of market as high inflation and interest rates impact sector

Offshore wind pacesetter Orsted finalised its buyout of utility partner PSEG’s 25% stake in New Jersey's flagship offshore wind project, the 1.1GW Ocean Wind 1.

“With today's executed agreement, Orsted has reimbursed PSEG for all of its cumulative outlays in the Ocean Wind 1 project, and Orsted now owns 100% of New Jersey's first offshore wind farm,” the US unit of the Danish utility said in a statement.

The agreement ends PSEG’s short stint as an offshore wind developer that began with its purchase in April 2021 of a quarter stake in the project. It will continue to provide permitting and other services for the project’s onshore transmission systems.

The New Jersey-based energy company's exit from offshore wind development follows Boston-based Eversource Energy’s sale, also to partner Orsted, of uncontracted leasing acreage off Massachusetts as well as port and supply chain assets.

Eversource remains a 50% owner in the partnership’s three other projects – the 132MW South Fork and 920MW Sunrise Wind arrays both bound for New York, as well as the 704MW Revolution Wind split between Connecticut and Rhode Island. The utility is actively shopping its stake, however, and CEO Joe Nolan said in an earnings call that “there is significant interest” for the assets.

Ocean Wind 1 was recently issued its final environmental impact statement by the Bureau of Ocean Energy Management, the lead regulator of energy development in federal waters, setting the project up for full approval later this year.

Yet there was media speculation that the project is in financial difficulty due to surging inflation and interest rates.

Ocean Wind 1 had been awarded by the New Jersey Board of Public Utilities (NJBPU) in 2019 with an agreement for first year offshore renewable energy credits (ORECs) of $98.1/MWh.

The US Department of Energy estimates that the project's ORECs would average $116.8/MWh over the 20-year operating life of the project, higher on a per MWh basis than other projects that have faced economic issues.

Iberdrola-owned Avangrid is in the process of withdrawing its 1.2GW Commonwealth Wind array for Massachusetts, claiming that the power purchase agreement (PPA) signed in 2021 for $72/MWh is too low and the project is no longer viable.

Tax credits

New Jersey uniquely requires that developers refund the value of tax credits in the nation’s landmark climate law, the Inflation Reduction Act (IRA), to the state.

The IRA offers both investment tax credits (ITC) that can equal 40% of total project capex or production tax credits (PTC) of $26/MWh.

The ITC “would provide much needed support to the Ocean Wind 1 project, though it would not entirely cover the unanticipated cost increases the project has experienced due to high inflation, increased supply chain costs, and interest rate hikes,” Ryan Ferguson, communications adviser for Orsted Americas region, told Recharge.

New Jersey's tax break stipulations contrast with other states in the Northeast that have active offshore wind sectors and allow developers to keep the value of the tax credits.

“New Jersey’s existing projects are currently unable to use the value of these federal tax credits as they were intended to support their local investments, which amounts to more than $2bn of in-state spending,” Ferguson added.

Orsted and NJBPU denied to Recharge that the OREC contracts are under renegotiation.

New Jersey has already contracted some 3.75GW of capacity, with Orsted's 1.15GW Ocean Wind 2 array and Shell-EDF joint venture's 1.5GW Atlantic Shores development awarded in the state's second solicitation.

NJBPU announced the state's round 3 tender in March for up to 4GW towards the 11GW by 2040 state goal.

(Copyright)
Published 1 June 2023, 06:14Updated 3 October 2023, 07:02
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