Wind

Orsted to pay New Jersey $125m for scrapping US offshore wind farm plans

State regulator sets new record for project cancellation penalties as governor brings forward planned fifth round of procurement

New Jersey Governor Phil Murphy.
New Jersey Governor Phil Murphy.Photo: Phil Murphy campaign
US Offshore Wind Editor, Recharge

Danish offshore wind developers will pay $125m in penalties to New Jersey for the cancellation last year of its 2.25GW Ocean Wind 1 & 2 projects, state utilities regulator Board of Public Utilities (NJBPU) announced Monday along with an acceleration of its plans for future procurement.

The state and NJBPU “have settled their claims against Orsted arising out of Orsted’s decision to cease development on the Ocean Wind 1 and Ocean Wind 2 projects,” the regulator said in a statement.

“The State and Orsted have agreed to release claims against each other arising out of or related to the Ocean Wind Projects, and the State will receive $125m,” NJBPU added.

The announcement came as the state said it will speed up its plans for a fifth solicitation round, which it now expects to open in Q2 next year instead of Q3 2026, a move it said would "underscore our commitment to realising the industry’s full potential for the benefit of all New Jerseyans".

New Jersey recently opened its Round 4 to solicit up to 4GW of offshore wind.

Record penalty

Orsted cancelled the arrays last October following months of drama regarding federal investment tax credits (ITC) that state law requires be returned to ratepayers in the form of discounted power. Orsted claimed that skyrocketing costs due to surging inflation and interest rates had rendered the projects unviable without the ITC.
Yet, despite New Jersey passing a law personally backed by sector champion governor Phil Murphy allowing Orsted to retain the tax credits, the developer cancelled the projects.
Murphy called the cancellations “outrageous” at the time and vowed “to take all necessary steps to ensure that Orsted fully and immediately honours its obligations”.

This is the highest fine for project cancellation seen in the US sector after the bloodbath of 2023 that voided half of all contracted capacity.

EDPR-Engie joint venture Ocean Winds faced $60m in fines for cancellation of its 1.2GW Southcoast Wind to Massachusetts, while Avangrid was penalised $48m for scrapping its 1.2GW Commonwealth array.

Orsted's Ocean Wind 1 was awarded in the state’s first solicitation in 2019 at $116.8/MWh, while Ocean Wind 2 gained its contract in round 2 in 2021 at only $42.3/MWh, reflecting the now discredited view that the industry’s levelised cost of energy (LCOE) was in steady and steep decline.

The decision to scrap the Ocean Wind arrays was also due to mounting local opposition from Cape May County on the New Jersey shore, which led to multiple tit-for-tat lawsuits with Orsted and delays with onshore construction permits.

SAA 2 'suspended'

NJBPU also announced that it was suspending its second-round planned offshore wind transmission procurement following Federal Energy Regulatory Commission’s (FERC) release of Order 1920 which addresses long term regional transmission planning.

FERC regulates interstate transmission of power and natural gas, and its rule 1920 is considered a watershed as it requires systems operators to engage in long term planning and cost allocation that incorporates multiple benefits, including advancing clean energy deployments.

The state pioneered planned grids with its 2022 procurement of $1.1bn in offshore wind transmission assets under the State Agreement Approach (SAA) with regional operator PJM that allows public policy to carry equal weight with cost, need, and reliability when considering system upgrades.

The SAA 1 upgrades would only interconnect 6.4GW, and the state had opened the process for a SAA 2 for the remaining capacity on its 11GW by 2040 goal.

NJBPU said a pause allows it to fully evaluate the implications of the new FERC rule to “ensure the best outcome to meet New Jersey’s transmission needs at the least cost to ratepayers.”

(Copyright)

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Published 28 May 2024, 23:11Updated 29 May 2024, 06:52
AmericasUSOrstedNew JerseyNJBPU