Top 5 offshore wind takeaways from the New Jersey Board of Public Utilities' State Agreement Approach decision

New Jersey Board of Public Utilities' (NJBPU) decision establishes a precedent for separating onshore and offshore investments

On October 26th the NJBPU approved $1.1 billion of onshore grid investment to support the future development of 6400 MW of offshore wind generation. This investment is a monumental step forward for offshore wind generation in the United States and deserves significant praise. Nonetheless, it fell short of expectations that the NJBPU was prepared to proceed forward with the creation of an offshore transmission grid to support offshore wind generators, as their request for proposals had indicated they were prepared to do. Read on for our 5 key takeaways from the NJBPU’s decision.

The IRA Altered the Economics of Offshore Grid Development

In addition to extending the tax credits available for offshore wind from the end of 2025 until at least 2033, the IRA allows for transmission interconnection costs to be included as ‘energy property’ and thus qualify for available tax credits.1

As shown in Figure 5 of the Evaluation Report2, the changes to the ITC resulted in a larger ITC benefit if the transmission was developed in association with offshore wind generation resources.

Figure 5 also indicated that some of the bids provided to develop an offshore grid were still cost-competitive with scenarios where the grid would be developed in association with offshore wind generation. This cost parity notwithstanding, it was clear that the potential to use the ITC to reduce transmission-related costs was an important factor in the Evaluation Report, with NJBPU staff, and with NJBPU commissioners, and led in part to the NJBPU’s decision not to select any of the offshore grid development options.

NJBPU’s Decision Establishes a Precedent for Separating Onshore and Offshore Investments

In a win for NJ ratepayers, the NJBPU found that there were over $1.5 billion of savings from moving forward with a series of coordinated onshore investments to prepare the existing grid for the addition of offshore wind resources. 

At the same time, the NJBPU found that the economic benefits were not yet sufficiently large to justify the coordinated development of offshore transmission.

This separation of onshore and offshore investments feels noteworthy for two reasons. First, it is likely other states will reach similar conclusions given the underlying factors (e.g., the ability for offshore wind resources to apply the ITC to transmission costs)3. Second, it takes a large and complex problem (the coordinated development of onshore and offshore grids) and breaks it into two smaller and more tractable problems without overly sacrificing efficiency from the simultaneous optimization of both. 

Notably, this separation of problems allows developers to focus on their strengths. For example, developers with onshore expertise could focus on the on-shore and near-shore investments while offshore wind developers can focus on the development of the offshore wind lease areas and their associated transmission links to the separately developed on-shore infrastructure.

Minimizing the Number of Cable Corridors was the Critical Factor in the NJBPU’s Selection of Onshore Investments

When it came to selecting between the different Option 1b4 onshore investments proposed, the most important factor appears to have been the proposed investment’s ability to accommodate at least 3742 MW in a single corridor. This was evident by:

  • what was written – for the short-listed proposals, the ability to use a single corridor was the first advantage listed, while the inability to use a single corridor was the second disadvantage listed5 
  • what was said – “the primary concern when we went into this was we would have a spaghetti-type diagram,” Joseph Fiordaliso, President of the NJBPU
  • and by what wasn’t focused upon – that ultimately more than a single landfall will be needed to accommodate NJ’s 2040 goal of 11 GW of offshore wind generation.

While the NJBPU’s focus on corridor minimization (to minimize community impacts) is laudable, one can reasonably wonder whether the NJBPU went too far when deciding to develop a single offshore wind corridor at this time. Both system reliability concerns and NJ’s 2040 goal for 11 GW of offshore wind will require the development of more than one corridor sooner rather than later. 

HVDC Transmission Technology Leap-Frogged the NJ BPU’s RFP Process

Related to minimizing corridors and community impacts, it is notable that HVDC transmission capacity dramatically increased during the NJBPU’s solicitation. Almost all respondents submitted proposals for HVDC transmission systems: likely either 320 kV or 400 kV and capable of delivering between 1200 and 1500 MW of power per HVDC circuit. While this was a significant step forward for offshore wind circuit capacity and the use of HVDC transmission in the US, it nonetheless feels instantly outdated by TenneT’s July 2022 press release announcing a new 2000 MW, 525 kV standard that will be used for at least six European offshore wind connections between now and 2030.6  

Given the advanced state of offshore wind development in Europe, US regulators should carefully consider the specifications used in future offshore wind solicitations. If US regulators follow Europe’s lead and standardize on 2000 MW, 525 kV HVDC technology, they will enable offshore wind transmission to grow beyond a boutique industry comprised of custom and bespoke hardware. If instead, US regulators chart their own course on a state-by-state or solicitation-by-solicitation basis, they will regulate the offshore wind industry to higher costs, higher environmental impacts, weaker supply chains, and lengthier downtimes in the inevitable event of scheduled maintenance and/or equipment failure. Equally important, a failure to standardize on HVDC voltage will limit the development of HVDC interlinks and likely result in the use of less capable AC interlinks for the development of an offshore network/mesh.

Get Ready to Discuss Most Severe Single Contingency (MSSC) Values

The regulatory drive to minimize the number of cable corridors combined with technology advances enabling 2000 MW HVDC circuits puts HVDC circuits from offshore wind projects on a path to become the MSSC for ISO-NE, NYISO, and PJM—where existing MSSC values range between 1200 and 1500 MW.

Additionally, the NJBPU’s decision will create a single cable corridor carrying at least 3742 MW of offshore wind generation. By using appropriately spaced duct banks and lower capacity HVDC circuits, this cable corridor could in theory be created without exceeding the existing MSSC value in New Jersey. This fact about reliability standards notwithstanding, the concentration of so much power within a narrow corridor merits a thoughtful discussion of the potential impact to the onshore grid.

We believe that potential grid impacts from the use of 2000 MW HVDC circuits or the creation of offshore wind cable corridors can be successfully mitigated if we start to plan for the potential impacts today. Possible mitigation techniques include the use of dynamic reserve ratings, probabilistic reserve sizing, the sharing of reserve capacities, the use of controllable energy storage and demand response resources, and/or the design of an offshore grid that can redispatch the available generation to other points of connection to the onshore grid. 

For the reasons laid out above, it is our strong belief that further development of offshore wind generation should be accompanied by dialogue with national and regional reliability entities and grid operators to discuss evolving reliability standards and the options available to mitigate potential grid impacts from the use of 2000 MW HVDC circuits and designated cable corridors.

References

  1. Inflation Reduction Act Tax Credits for Solar and Wind Projects (natlawreview.com)
  2. New Jersey State Agreement Approach for Offshore Wind Transmission: Evaluation Report (brattle.com)
  3. While NY has not yet advanced coordinated on shore investments, one could argue its plan for ‘mesh-ready’ offshore wind generation is additional evidence of this separation of onshore and offshore grid development.
  4. Option 1b transmissions investments extended the existing grid towards the shore. A single Option 1b investment was selected that represented roughly half of the $1.1 billion authorized by the NJBPU. The remaining half went to Option 1a investments that will strengthen the existing grid to support the incorporation of offshore wind.
  5. See Table 29 of the Evaluation Report
  6. https://www.tennet.eu/news/tennet-has-opened-2gw-program-tender-525-kv-dc-offshore-cable-manufacturing-and-installation

11/10/2022 3:00:00 PM