Plan outlines next steps for procuring 2,400 MW by 2030, with a likely significant benefit for New York’s economic development.
By Tommy Beaudreau, Janice Schneider, Michael Gergen, and David Amerikaner
New York Governor Andrew Cuomo and the New York State Energy Research and Development Authority (NYSERDA) have released the New York State Offshore Wind Master Plan, an extensive document that highlights the state’s progress on offshore wind development while charting an ambitious path forward. The plan is designed to help meet the Governor’s previously announced goal of procuring 2,400 megawatts (MW) of offshore wind energy by 2030. The offshore wind goal is part of an overall strategy to generate at least 50% of New York’s electricity from renewables by 2030, as previously covered in this blog.
New York has already made substantial progress in advancing offshore wind development. Highlights include the following developments:
- In December 2016, after a very competitive 33-round auction, the Bureau of Ocean Energy Management (BOEM) awarded Statoil Wind US LLC a federal offshore wind lease for a wind energy area (WEA) covering nearly 80,000 acres off of New York.
- In January 2017, the Long Island Power Authority approved a power purchase agreement (PPA) for a proposed 90 MW wind farm 30 miles off of Long Island, southeast of Montauk.
- In October 2017, New York submitted an “Area for Consideration” to BOEM and requested that the agency identify and lease at least four additional WEAs within this area in federal waters off of New York. (Latham has covered BOEM’s initial steps in evaluating this proposal in this blog post.)
- Twenty studies were prepared to support the Master Plan. These studies cover a range of topics, including the environmental sensitivity of certain offshore areas and the potential impacts of wind energy development on fish and fisheries, birds and bats, marine mammals and sea turtles; site selection for transmission cable landings; constraints posed by existing submerged infrastructure; an offshore wind resource assessment; an analysis of shipping and navigation issues; and workforce opportunities.
- NYSERDA has conducted extensive outreach to the general public as well as commercial and recreational fishing interests, elected officials, Native American tribes, labor and business organizations, Long Island and New York City communities, non-governmental organizations, the offshore wind and transmission industries, and state and federal agencies.
The Master Plan lays out the following next steps for New York:
- NYSERDA will consider how best to address transmission. These efforts will include evaluating a network or backbone approach in addition to radial lines connecting individual projects. This topic is discussed in greater detail below.
- The state plans to establish a number of working groups to engage diverse groups of stakeholders, including:
- Jobs and Supply Chain Technical Working Group: This group will work on developing and implementing programs to ensure New York workers have the skills, training, and certifications necessary to participate in the offshore wind industry. Participants will include unions and other labor groups; government entities, including the Port Authority of New York and New Jersey; and representatives of the New York State college and university system.
- Commercial and Recreational Fishing Technical Working Group: This group, consisting of commercial and for-hire recreational fishers, will focus on developing Fisheries Best Management Practices (BMPs). BMPs aim to prevent and reduce potential impacts of offshore wind energy development on fishing interests. These practices can help to gauge and maintain the economic vitality of fishing and maritime communities while reducing project risks, delays, and costs.
- Maritime Technical Working Group: This group will work to develop Maritime BMPs in order to help build a framework for optimizing the coexistence of activities and for minimizing project impacts at all phases of development. Participants will include relevant agencies, such as the US Coast Guard and the Port Authority of New York and New Jersey, as well as the Port of New York and New Jersey Harbor Operations and Safety Committee.
- Environmental Technical Working Group: This group will focus on developing Wildlife BMPs, which have already been created in other contexts for a range of industries, including offshore wind. The group will evaluate relevant existing BMPs in Europe and other regions, and identify new practices germane to the species and habitats in the New York region. The group will include scientists from universities, environmental non-governmental organizations, and government agencies.
The Plan also suggests a number of studies, either new or ongoing, to develop additional information that will support the successful and environmentally responsible development of offshore wind. These studies include metocean data, aerial wildlife surveys, avian risk assessments, acoustic impacts on marine mammals, and migrations and habitat of protected species.
Offshore Wind Policy Options Paper
In addition to the Master Plan, NYSERDA released an Offshore Wind Policy Options Paper (Options Paper), which analyzes policy issues relevant to the state’s offshore wind goals. The Options Paper outlines plans to procure 800 MW of offshore wind in 2018 and 2019.
The Options Paper describes seven potential procurement options that NYSERDA is considering, including:
- Option 1 – Fixed Renewable Energy Credit (REC): Selected large-scale renewables projects would receive a fixed, as-bid REC price for the life of the contract, with no hedge against changes in commodity electricity prices.
- Option 2 – Bundled Power Purchase Agreement (PPA): One or more utilities would competitively procure offshore wind projects and create an all-in, fully hedged revenue stream for commodity value and RECs available to selected projects.
- Option 3 – Utility-Owned Generation: Offshore wind developers would develop, design, build, and potentially operate offshore wind facilities, and once completed, project ownership would transfer to the utility or utilities.
- Option 4 – Split PPA: NYSERDA fixed-price REC procurement would be paired with fixed-price commodity energy and capacity procurement by a utility.
- Option 5 – Market Ocean Renewable Energy Credit (OREC): NYSERDA would provide a premium payment to projects based on the net difference, from time to time, between the project’s selected bid price (expressed as an all-in revenue amount) and the actual revenue the project was able to achieve from its commodity sales (whether in the regulated wholesale markets or through other transactions).
- Option 6 – Index OREC: NYSERDA would provide a premium payment to projects under an offshore wind REC (OREC) contract. The payment would reflect the net difference, from time to time, between the project’s selected bid price (expressed as an all-in revenue amount) and the average commodity market price as expressed in a market index or composite of indices — regardless of whether or not the project sold its commodities into the regulated wholesale markets.
- Option 7 – Forward OREC: Selected projects would receive a payment that would adjust every two years, allowing for both upward and downward adjustment of payments.
Based on its detailed analysis of each of the above options, the Options Paper recommends excluding the Fixed REC option, due to high projected costs, as well as the Market OREC option due to jurisdictional uncertainties. The Options Paper recommends focusing on the remaining five options as the state moves forward with near-term procurement goals. NYSERDA expects that the Department of Public Service will commence a public notice and comment rulemaking process by which the Public Service Commission will consider the actions described by NYSERDA in the Options Paper, before a decision by the Public Service Commission. No dates have been announced for this forthcoming public comment period. Additionally, the Public Service Commission on February 22, 2018 resolved to accept a Draft Generic Environmental Impact Statement on offshore wind development. The public comment period is open until April 9, 2018 and comments may be submitted through the Department’s Document Matter and Management System or via email to the Secretary of the Department at firstname.lastname@example.org.
Transmission and Interconnection Procurement Options
The Options Paper also analyzes and presents several options for the transmission and interconnection (T&I) facilities needed to bring power generated by offshore wind generation facilities to the onshore bulk power transmission grid. T&I arrangements can significantly impact the cost of offshore wind generation as well as the feasibility, scalability, timing, sequencing, sizing, and risk exposure for offshore wind generation resources. In the first phase (procurement of 400 MW each in 2018 and 2019), NYSERDA has limited its assessment of T&I procurement options to “direct radial” structures, in which T&I is procured to meet the needs of the specific offshore wind generation project in question. In the second phase, NYSERDA may expand its T&I procurement options to also include “backbone” options, in which T&I infrastructure could be scaled up to serve multiple future offshore wind generation projects.
The Options Paper presents three T&I procurement options:
- Option 1 – Developer Owned: A single solicitation process would be used to procure both offshore wind generation and T&I facilities, and the winning bidder would develop, own, and operate both.
- Option 2 – Independently Owned: The offshore wind generation facility and the associated T&I facilities would be procured separately, and the winning bidders (which would develop, own, and operate the facilities in question) could be, but would not necessarily be, the same entity.
- Option 3 – Rate-Based Facilities: The T&I facilities would be developed, owned, and operated as regulated rate-based, cost-of-service transmission facilities, with potential cost savings associated with rate-based, cost-of-service facilities.
NYSERDA has decided to proceed in the first phase using a developer owned (Option 1) or independently owned (Option 2) structure, and to eliminate the regulated rate-based transmission facility option (Option 3) for now because of implementation challenges. However, NYSERDA may revisit this decision for the second phase. And while NYSERDA will pursue direct radial structures in the first phase, it may also explore a backbone approach in the future.
New York expects that offshore wind will contribute substantially to meeting the state’s clean energy and economic development goals. The Master Plan estimates that offshore wind development would create a peak of 5,000 new jobs, including an expected 2,000 jobs in operations and maintenance. 85% of these operations and maintenance jobs are estimated to be skilled trade workers. Notably, these jobs will provide opportunities over the 25-year-or-more life of an offshore wind facility. The Master Plan estimates that the offshore wind development would deliver US$73 to US$165 million in health benefits from emissions reductions, and an additional US$1.9 billion in carbon emissions reductions benefits.
NYSERDA held a webinar on February 13 to discuss the Master Plan. NYSERDA plans to continue its extensive public engagement involving the Master Plan and all of the state’s offshore wind development plans. In particular, NYSERDA welcomes feedback from companies operating in the offshore wind space, as well as other stakeholders.
Latham & Watkins is closely following offshore wind initiatives in US and around the world, and will continue to provide updates on this blog.
This post was prepared with the assistance of Kimberly Castle in the New York office of Latham & Watkins LLP.
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