New offshore wind study points to procurement as next step
WILMINGTON — The latest commissioned study on Delaware’s offshore wind has decisively recommended that the First State should buy into wind energy, either as a standalone project or through a power purchase agreement. But the exact path forward may be determined by state environmental officials and legislators in a forthcoming bill this upcoming legislative session.
While the “Proposed Offshore Wind Procurement Strategy for Delaware” report does not clearly recommend one clear path, it also made clear that the Delaware Department of Natural Resources and Environmental Control (DNREC) is working on model legislation to move the needle on wind energy.
Whatever path the state decides to pursue, Gov. John Carney has indicated he will be watching the bill’s progress closely in his final year in office.
“The governor has expected procurement legislation would be ready to be considered in the 2024 session, and agrees that it should be. He plans to play a significant role in it,” the governor’s office told the Delaware Business Times.
State Sen. Stephanie Hansen (D-Middletown), who has been a strong advocate for a slate of environment legislation, also said that she would be working with DNREC on possible legislation on a procurement system. Hansen was the prime sponsor of legislation passed last year that launched the procurement study.
“This is where the rubber meets the road,” Hansen told DBT. “To start, we have to have the conversations with all stakeholders on what this will look like. I do believe the legislative will is there at this point to move forward on offshore wind legislation. We simply need to do it. We don’t have many eggs in our basket when it comes to renewable energy to meet our goals.”
Hansen and other stakeholders are scheduled to discuss the DNREC offshore wind report at the Energy Stakeholders’ Meeting at 1 p.m. Jan. 12. Those interested in attending are asked to contact Hanen’s office.
The study, which cost $130,000 and was compiled by DNREC Division of Climate, Coastal and Energy and Synapse Energy Economics and Zooid Energy, clearly recommended setting up a procurement structure for the First State to benefit from wind energy. However, it needed to have the “flexibility to incorporate new information, analysis, and developments along the way.”
Delaware is among the last coastal states to tap into offshore wind energy, with many of its neighbors like New York, New Jersey and Maryland using Offshore Wind Renewable Energy Credits (ORECs) to bid for the energy generated from pending wind farm projects to meet renewable energy standards.
Under current models on the East Coast, a fixed OREC establishes a set rate the state — and subsequently its electric ratepayers — would pay over years, while an Index OREC is set based on the developer’s required revenue to build the wind farm, but could vary over the life of the contract depending on a price set in the current market.
The main difference is that fixed OREC requirements put more of the risk on developers, but the Index OREC has a better chance of protecting customers against volatility in electric bills and the wind farm’s revenue. However, both are designed to incentivize the location of those who live close to the wind farms, in this case, the states that have renewable energy goals to meet.
A third option is a power-purchase agreement, which many New England states have plugged into already. Typically these contracts set a fixed price for an average of 20 years to buy energy, capacity, energy services and environmental attributes from a specific renewable energy generator.
Studies have shown this model better protects customers from volatility in the energy market, but it also opens up the opportunity that the wind farm developer could sell the energy to the wholesale market outside the agreement.
Regardless, the report recommends further analysis with utilities, the Public Service Commission and other stakeholders before making a firm recommendation.
“The strategic value of offshore wind for Delaware is underscored by the fact that there are not many other options available for delivering sufficient renewable energy at the scale that will be needed to meet the state’s renewable energy goals, which in turn will be crucial to meeting Delaware’s climate goals,” the report reads.
Hansen, who sponsored the bill that pushed the state to once again study offshore wind, was surprised at how forceful DNREC was in moving forward on offshore wind at all.
“We hadn’t heard anything since the [last report] a couple years ago, so it was a surprise. But they did a thoughtful and deliberate review that was a forceful recommendation with moving forward. I was pleased with that,” she said.
The landscape of offshore wind has changed in the last decade since Maryland lawmakers set the groundwork for two wind farms, including one that would put the closest turbine 17 miles from Bethany Beach and 15 miles from Ocean City, Md.
Ørsted, one of the world’s largest wind farm developers, canceled its offshore wind projects off New Jersey’s coast last year, raising questions about the future of its wind farm off the coast of Maryland and Delaware. Hansen is undeterred by the market shake-up, arguing that because Delaware waited so long to capture wind energy, it puts the First State in a strong position to minimize risk.
“If we had invested in 2018 when the task force looked at this, we’d probably be in a bad spot like our neighboring states who have to negotiate these contracts,” she said. “We have the ability to learn from what’s been happening and we know the importance of flexibility. We also see how important it is to be creative in procurement.”
She pointed to the agreement between Massachusetts, Connecticut and Rhode Island to seek joint proposals for wind farms as another possible path. Past studies indicated that 800 megawatts would be enough to meet Delaware’s renewable energy credits by 2035.
“We are a small state, and part of the reason why wind is more expensive is because other states have it as part of their renewable portfolio standards and have to buy the credits,” Hansen said. “That demand isn’t going to slow down. But I do think new relationships would be evened out regarding procurement, and the industry will get a better foothold.”
Meanwhile, Carney has recently signaled his interest in working on the best way Delaware can leverage its unique position of being the last one in the industry – as well as having the best shot of bringing transmission cables to a substation near Indian River Bay Shore. By the end of 2023, he announced he was entering negotiations with wind farm developer U.S. Wind on a deal on bringing the transmission lines ashore.
Despite entering his last year in office, the Carney administration said that the conditions finally appear to be right for a possible Delaware wind procurement.
“The Governor has been interested in offshore wind since 2007 and offshore wind is critical to meet the climate goals for Delaware that the Governor has helped set…the Governor intends to put the process in place as part of his final year agenda,” his office said.